Press Release No. 23/127

IMF Executive Board Completes the First Review Under the Extended Credit Facility Arrangement and Concludes the 2023 Article IV Consultation with Tanzania

April 24, 2023

• The IMF Executive Board today completed the first review of the ECF Arrangement and the 2023 Article IV Consultation with Tanzania. Approval of the first review enables the immediate disbursement of SDR 113.37 million (about US$ 153 million) for budget support.
• Tanzania’s economic reform program is progressing well in a challenging global economic environment and the authorities remain committed to the Extended Credit Facility Arrangement.
• Reforms focus on strengthening the economic recovery, preserving macroeconomic stability, and supporting structural reforms towards sustainable and inclusive growth

Washington, DC: Today, the Executive Board of the International Monetary Fund (IMF) completed the first review of the Extended Credit Facility (ECF) Arrangement and the 2023 Article IV Consultation ^[1] with Tanzania. The completion of the first review allows the immediate disbursement of SDR 113.37 million (about US$ 153 million), bringing Tanzania’s total access under the arrangement to about US$ 304.7 million.

Tanzania’s three-year ECF Arrangement for a total access of SDR 795.58 million (200 percent of quota- about US$ 1,046.4 million at the time of program approval) was approved on July 18, 2022. The arrangement aims to support economic recovery, preserve macro-financial stability, and promote sustainable and inclusive growth. Reforms center on strengthening fiscal space to allow for much needed social spending and high-yield public investment, enhancing the monetary policy framework and improving financial sector supervision, and advancing structural reforms.

Tanzania’s economic reform program is progressing. All quantitative performance criteria and indicative targets for December 2022 were met. The structural benchmarks to prepare and begin implementing a plan to clear all expenditure arrears and to submit the amendments to the Banking and Financial Institutions Act to Parliament were completed ahead of time. The structural benchmark to complete and publish the post-crisis audit of pandemic-related spending and to submit the FY2023/24 preliminary Budget to the Parliament were completed with delay

The Executive Board also concluded the 2023 Article IV consultation with Tanzania.

Spillovers from the war in Ukraine and domestic factors have weighed on Tanzania’s economic recovery from the pandemic. After a modest recovery to 4.9 percent in 2021, real GDP growth is estimated to have slowed to 4.7 percent in 2022, reflecting the impact of global economic conditions and shortfalls in rainfall. In 2023, growth is expected to recover to 5.2 percent as global commodity price shocks subside and the business environment improves.

The authorities have responded to the spillovers from the war in Ukraine with a combination of temporary fiscal support and monetary policy tightening. Although Tanzania’s inflation is relatively low, partly reflecting low passthrough, the authorities responded to the recent increase in inflationary pressures with temporary fuel and fertilizer price subsidies and tightening of liquidity in the financial system. The authorities’ draft budget for FY2023/24 is appropriately based on conservative revenue and expenditure projections and aims to achieve fiscal consolidation while safeguarding priority social spending.

Following the Executive Board’s discussion, Ms. Antoinette Sayeh, Deputy Managing Director and acting Chair, issued the following statement:

“Tanzania’s reform program supported by the Extended Credit Facility (ECF) focuses on completing the pandemic health and economic response, preserving macroeconomic stability, and addressing long-term challenges to support sustainable and inclusive growth, drawing on the government’s reform priorities articulated in their Five-Year Development Plan.

“The Tanzanian authorities remain committed to their economic reform program despite a challenging global economic environment. Program performance has been strong. All quantitative performance criteria and indicative targets for December 2022 were met, and two of the three structural benchmarks for December 2022 were completed on time.

“Efforts to enhance domestic revenue mobilization and improve efficiency of expenditures will help create the fiscal space needed to finance priority investment and social spending while safeguarding debt sustainability. Strengthening public finance management and oversight of state-owned enterprises is critical to contain fiscal risks. Building on recent progress in verifying domestic arrears, the authorities should clear verified arrears and prevent accumulation of new ones by strengthening cash management and commitment controls. While Tanzania's risk of debt distress remains moderate, it is important to continue prioritizing concessional financing and ensure that fiscal risks from contingent liabilities are well-contained.

“While inflation remains below target, the Bank of Tanzania should stand ready to tighten monetary policy as needed while allowing more exchange rate flexibility against external shocks. Completing the ongoing transition to an interest rate-based monetary policy is key to enhance the effectiveness of monetary policy. Upgrading the financial supervision framework, including by implementing FSAP recommendations will help buttress financial sector stability and promote financial deepening.

“Structural reforms are essential to promote inclusive, resilient, and sustainable growth. Business reforms should focus on streamlining bureaucratic procedures, simplifying the business regulatory regime, and enhancing regulatory transparency. Implementation and enforcement of the authorities’ anti-corruption strategy and establishing a risk-based AML/CFT supervisory approach would help improve governance and address deficiencies in Tanzania’s AML/CFT framework. Tanzania’s high vulnerability to climate change calls for increasing resilience through mitigation and adaptation policies.”

Executive Board Assessment ^[2]

Executive Directors welcomed the authorities’ policy response to the spillovers of the war in Ukraine and commended the strong performance under the ECF arrangement. While the economic recovery is expected to continue and the medium-term outlook is favorable, downside risks and uncertainties stem from global factors. In this context, the authorities’ continued commitment to reforms under the program will be critical to strengthen the economic recovery, preserve macroeconomic stability, and support sustainable and inclusive growth. Continued engagement and capacity development support by the Fund and other partners remain imperative.

Directors commended the authorities’ plan for fiscal consolidation starting in FY2023/24, while continuing to protect the vulnerable. They noted that creating additional fiscal space and prioritizing concessional financing will allow much needed priority investment and social spending—including on health and education to build human capital—while safeguarding debt sustainability. In this context, Directors encouraged the authorities to enhance domestic revenue mobilization; improve efficiency of expenditures, particularly public investments; strengthen public finance management and transparency, including for effective management of future gas revenues; and contain fiscal risks from SOEs. While welcoming recent progress in addressing the long-standing domestic arrears problem, Directors underscored that strengthening cash management and commitment controls will be key to prevent accumulation of new arrears. Directors also looked forward to the implementation of recommendations from the audit of pandemic-related spending.

Directors welcomed the authorities’ data-dependent monetary policy and encouraged the Bank of Tanzania (BoT) to stand ready to tighten further should second-round inflation effects emerge. They noted progress in modernizing the monetary policy framework and emphasized the importance of limiting budget financing by the BoT. Directors also called for strengthening financial supervision to promote financial stability and deepening. Against the backdrop of global economic uncertainties, Directors underscored the importance of allowing more exchange rate flexibility, enhancing transparency in FX operations, and maintaining adequate reserve buffers.

Directors noted that structural reforms are essential to promote inclusive, resilient, and sustainable growth. They emphasized that streamlining bureaucratic procedures, simplifying the business regulatory regime, and enhancing regulatory transparency would support private sector development. They also underscored that implementing and enforcing the authorities’ anti-corruption strategy and establishing a risk-based AML/CFT supervisory approach would help improve governance and address deficiencies. In light of Tanzania’s high vulnerability to climate change, Directors called for increasing resilience through mitigation and adaptation policies supported by a broad financing strategy. They took note of the authorities’ interest in the Resilience and Sustainability Facility.