On January 9, 2017, the Executive Board of the International Monetary Fund
(IMF) completed the fifth review of Tanzania’s economic performance under
the program supported by a three-year Policy Support Instrument (PSI).
[1]
The Board’s decision was taken on a lapse of time basis.
[2]
In completing the review, the Board also granted waivers for the
non-observance of the end-June 2016 assessment criteria on the overall
fiscal deficit and the non-accumulation of domestic expenditure arrears on
the grounds that the slippages were minor. The PSI for Tanzania was
approved by the Board on July 16, 2014 (see
Press Release No. 14/350).
Tanzania’s macroeconomic performance remains strong. Economic growth was
robust during the first half of 2016 and is projected to remain at about 7
percent this fiscal year. Inflation came down below the authorities’ target
of 5 percent and is expected to remain close to the target, while the
external current account deficit was revised down on account of lower
imports of capital goods. Nevertheless, there are risks that could
adversely affect economic growth going forward, arising from the currently
tight stance of macroeconomic policies, the slow pace of credit growth that
may become protracted, slow implementation of public investment, and
private sector uncertainty about the government’s new economic strategies.
Program performance was broadly satisfactory and most assessment criteria
for June 2016 and all indicative targets for September 2016 were met. While
progress in structural reforms identified under the program has been
generally slow, the authorities have recently stepped up efforts to advance
them. These include measures taken to strengthen public financial and debt
management, modernize the monetary policy framework, and improve monitoring
of parastatal enterprises. The authorities have committed to further
reforms in these areas.
The current tight macroeconomic conditions should be addressed by loosening
the short-term policy stance, in line with program targets. After recording
a small fiscal surplus in July-September, the government is committed to
stepping up budget implementation, particularly in public investment,
including by mobilizing external financing. Monetary policy should be eased
to address the tight liquidity situation and support credit to the private
sector. The Bank of Tanzania’s steps in this regard are appropriate, but
will need to be fine-tuned when the planned fiscal spending materializes.
The increase in international reserves recorded since the beginning of the
fiscal year is a welcome step to gradually rebuild buffers.
The authorities are implementing an ambitious development and reform agenda
over the medium term, as described in their recently-released second
Five-Year Development Plan. The strong drive against corruption and tax
evasion has led to higher fiscal revenues, which, if sustained, will
provide a good foundation for the envisaged scaling up of infrastructure
investment, starting with the 2016/17 budget. The Plan also envisages a
significant structural transformation of the economy by nurturing human
development. Full involvement of all stakeholders in policy design and
implementation—including importantly the private sector—will be crucial.
[1]
The PSI is an instrument of the IMF designed for countries that do
not need balance of payments financial support. The PSI helps
countries design effective economic programs that, once approved by
the IMF's Executive Board, signal to donors, multilateral
development banks, and markets the Fund's endorsement of a member's
policies (see
http://www.imf.org/external/np/exr/facts/psi.htm
). Details on Tanzania’s PSI program are available at www.imf.org/tanzania.
[2]
The Executive Board takes decisions without a meeting when it is
agreed by the Board that a proposal can be considered without
convening formal discussions.
