Press Release No. 24/228

IMF Executive Board Completes the Third Review of Extended Credit Facility Arrangement and Approves an Arrangement under the Resilience and Sustainability Facility for the United Republic of Tanzania

June 20, 2024

• The IMF Executive Board today completed the third review of the Extended Credit Facility (ECF) for Tanzania, allowing for an immediate disbursement of about US$ 149.4 million (SDR 113.37 million) for budget support.
• The Executive Board also approved a 23-month arrangement under the Resilience and Sustainability Facility (RSF) of about US$ 786.2 million (SDR 596.7 million) to support Tanzania’s efforts to build resilience to climate change.
• Performance under Tanzania’s economic reform program supported by the ECF remained strong. The authorities are committed to continue implementing reforms to preserve macro-financial stability, strengthen the economic recovery, and promote sustainable and inclusive growth.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed the third review of the Extended Credit Facility Arrangement (ECF) for Tanzania, which was approved in July 2022 (see press release 22/265) 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). The completion of the third review allows the immediate disbursement of about US$ 149.4 million (SDR 113.37 million), bringing Tanzania’s total access under the ECF to about US$ 606.4 million (SDR 455.47). The Executive Board also approved a six-month extension of the ECF to May 2026 and a rephasing of access to give sufficient time to the authorities to implement their reform agenda and realize the program’s key objectives. The ECF aims to preserve macroeconomic stability, strengthen the economic recovery, and promote a sustainable and inclusive growth.

The Executive Board also approved Tanzania’s request for an arrangement under the Resilience and Sustainability Facility (RSF) of about US$786.2 million (SDR 596.7 million,150 percent of quota). The RSF will support Tanzania’s ambitious reform efforts to implement climate policy reforms that address risks and challenges associated with climate change and enhance the resilience of the Tanzanian economy. The RSF duration will coincide with the period remaining under the ECF, as extended (May 2026).

Tanzania’s economic reform program remained strong. All end-December 2023 quantitative performance criteria and indicative targets were met. The authorities’ structural reform agenda is progressing well, having met two of the three structural benchmarks for end-December 2023 and a structural benchmark for end-January 2024 on time, reflecting their commitment to the reform agenda.

After slowing down in 2022, economic growth rebounded in 2023. Inflation remained well-within the Bank of Tanzania’s target. A growth-friendly fiscal consolidation is underway and is expected to continue through FY2024/25. The current account deficit is narrowing, reflecting fiscal consolidation, easing commodity prices, and tight external financing conditions.

The economic recovery is expected to gain momentum going forward but faces headwinds from the unfavorable global economic environment. Near-term policy priorities include allowing exchange rate flexibility and implementation of fiscal consolidation as envisaged in the budget, while preserving priority social spending. The medium-term outlook is positive subject to steadfast implementation of the authorities’ reform agenda, anchored by the ECF.  

Following the Executive Board discussion, Mr. Li, Deputy Managing Director and Acting Chair, issued the following statement:

“Tanzania’s performance under the reform program supported by the Extended Credit Facility (ECF) has been strong. The program focuses on strengthening the economic recovery, preserving macroeconomic stability, and supporting sustainable and inclusive growth. The authorities’ strong commitment to their reform agenda will remain important amid downside risks.

“The ongoing growth-friendly fiscal consolidation will help buttress fiscal and debt sustainability. Efforts should be geared toward enhancing domestic revenue mobilization and strengthening cash management and commitment controls. Strengthening public financial and investment management will help contain fiscal risks and improve the efficiency of public investment. Closing gaps in Tanzania’s human and social development will require prioritizing social spending.

“A flexible and market clearing exchange rate system and a transparent FX intervention policy are key to addressing ongoing pressures in the FX market. The recent issuance of the FX intervention policy and the revised Interbank Foreign Exchange Market code of conduct are important steps in this regard. In line with the policy, FX interventions should be limited to addressing disorderly market conditions while maintaining adequate foreign exchange reserves. The Bank of Tanzania’s plan to publish the results of its FX auctions will enhance transparency.

“The recent launch of the interest rate-based monetary policy is an important step toward enhancing the effectiveness of monetary policy. Going forward, the Bank of Tanzania should strengthen its ability to align the operational target with the policy rate and develop the interest rate transmission channel. Launching a comprehensive communication strategy, strengthening the analytical tools and capacity of the central bank, and supporting the development of money markets would also be important steps. Upgrading the financial supervision framework, including by implementing FSAP recommendations, will help to buttress financial sector stability and promote financial deepening and inclusion. Completing the remaining steps to align Tanzania’s legal framework with FATF standards will improve the effectiveness of the AML/CFT framework.

“Structural reforms are essential to promote inclusive, resilient, and sustainable growth. Business reforms should focus on streamlining bureaucratic procedures, simplifying the regulatory regime, and enhancing regulatory transparency. Implementation and enforcement of the authorities’ anti-corruption legislation and strategies is central to enhancing governance.

“The Resilience and Sustainability Facility (RSF) will support the authorities’ effort to implement macro-critical climate reforms and strengthen the resilience of Tanzania’s economy to climate change. Reforms supported by the RSF will aim to enhance governance and coordination of climate change policies, strengthen disaster risk management, mainstream climate policies in budget and investment planning, align sectoral climate policies with national policies and commitments, and enhance supervision of financial sector climate-related risks. The RSF can help catalyze official technical and financial assistance and private sector financing.”