News Brief No. 02/115

News Brief: IMF Completes Fifth Review Under Tanzania's PRGF Arrangement and Approves US$27 Million Disbursement

November 19, 2002

The Executive Board of the International Monetary Fund (IMF) completed the fifth review of Tanzania's economic performance under the Poverty Reduction and Growth Facility (PRGF) arrangement. As a result, Tanzania will be able to draw up to SDR 20 million (about US$27 million) under the arrangement immediately.

The Executive Board also extended the arrangement until end-June 2003 to allow time for the final review to be completed, and waived Tanzania's non-observance of the structural performance criterion on the approval procedures for foreign borrowing and the continuous performance criterion on non-accumulation of external payment arrears.

Tanzania's three-year PRGF arrangement was approved on April 4, 2000 (see Press Release No. 00/25), for SDR 135 million (about US$169 million). So far, Tanzania has drawn SDR 100 million (about US$134 million) under the arrangement.

The PRGF is the IMF's concessional facility for low income countries. It is intended that PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annul interest rate of 0.5 percent and are repayable over 10 years with a 5 ½-year grace period on principal payments.

After the Executive Board's discussion on Tanzania, Shigemitsu Sugisaki, Deputy Managing Director and Acting Chairman, stated:

"The Tanzanian authorities are to be commended for their steady pursuit of sound macroeconomic policies which, notwithstanding serious capacity constraints and an often adverse external environment, has resulted in strong economic performance. Economic activity remains buoyant, inflation is low, and international reserves are at a comfortable level owing to steady flows of foreign assistance and direct investment. The fiscal deficit in 2001/02 was less than budgeted on account of an expenditure shortfall in non-priority areas. However, the money supply exceeded targeted growth on account of the large foreign inflows, which calls for a tightening of monetary policies to prevent a resurgence of inflationary pressures.

"The main challenge for Tanzania is now to sustain high growth and reduce poverty while gradually lessening the dependence on external aid. Good progress has been made in the implementation of the poverty reduction strategy, and with continued implementation of sound policies, Tanzania will be well on the way to achieving the targets set out in its Poverty Reduction Strategy.

"The government's economic program for fiscal year 2002/03 seeks to consolidate macroeconomic stability and continue to lay the foundations for sustained high economic growth and poverty reduction. Structural reforms focus on improving tax policy and administration, strengthening public expenditure and debt management, promoting private investment, and developing the financial sector.

"Crucial fiscal reforms will be the adoption of improved systems for administering tax exemptions, enhancement of expenditure controls to prevent the accumulation of arrears, simplification and harmonization of local government taxation, and strengthening of procedures for contracting public debt. In the area of financial sector reform, the program foresees the removal of impediments to bank lending and the establishment of a regulatory and legal framework for microfinance operations. The program of privatization of parastatals will continue.

"Tanzania's public and publicly-guaranteed external debt burden remains sustainable after the HIPC completion point. However, some non-Paris Club and commercial creditors have yet to provide debt relief on terms comparable to those provided by the Paris Club. The Fund urges these creditors to participate in the HIPC Initiative for Tanzania, and to provide their share of debt relief.

"The Government of Tanzania intends to complete a second annual progress report on implementation of the Poverty Reduction Strategy Paper before the end of 2002. The report will include an updated poverty analysis based on the recently completed household budget survey," Mr. Sugisaki said.