Press Release No. 00/25

Press Release: IMF Approves Poverty Reduction and Growth Facility Loan for Tanzania

April 5, 2000

The International Monetary Fund (IMF) approved a three-year loan for Tanzania under the Poverty Reduction and Growth Facility (PRGF)¹ equivalent to SDR 135 million (about US$181.5 million) to support the government's 2000-2002 economic program. The first annual loan, equivalent to SDR 60 million (about US$80.7 million), will be available in 3 installments, with the equivalent of SDR 20 million (about US$26.9 million) available immediately.

In commenting on the Executive Board discussion on Tanzania, Shigemitsu Sugisaki, Deputy Managing Director of the IMF, made the following statement:

"The Tanzanian authorities are to be commended for the strong record in stabilizing the economy under the 1996-99 program supported by a previous three-year arrangement under the PRGF. The large decline in inflation from close to 30 percent in 1995 to little more than 6 percent in February 2000 and the strengthened external position are the result of strong macroeconomic policies, which have been implemented despite setbacks due to adverse weather conditions in recent years.

"While growth has increased, it has fallen short of the objectives because of the adverse weather and poor infrastructure, as well as delays in structural reforms and the unfinished reform agenda. The authorities intend to address the remaining structural reform issues during the coming three years. Poverty remains widespread in Tanzania and the authorities are placing increased emphasis on poverty reduction policies, which are being developed in a broad-based consultative process. The authorities have already prepared an interim Poverty Reduction Strategy Paper (PRSP) and a full PRSP is scheduled to be completed later this year.

"Tanzania intends to make further rapid progress in completing the transition to a private sector-led economy in the context of the new PRGF arrangement. Important aspects of this are the transfer to private management of most of the larger parastatals, but also continuing the civil service reform and improving transparency and eliminating corruption. With the reforms that are now being undertaken, Tanzania will be well placed to move onto a path of sustained high growth and poverty reduction. Nevertheless, there will be a continued need for large amounts of highly concessional international assistance," Sugisaki said.

ANNEX

Program Summary

Since renewing its adjustment efforts at the beginning of 1996, Tanzania has made major progress in macroeconomic stabilization and has carried its far-reaching program of structural reform substantially further. Monetary restraint has brought inflation to less than 7% and kept real interest rates positive. Annual economic growth has fallen short of the targeted 6%, partly because of erratic weather; it nonetheless averaged 4.2% during the last few years, resulting in a rise in per capita incomes.

With macroeconomic stability largely achieved, Tanzania's economic program for 2000-2002 focuses on removing impediments to higher growth, with the aim of reducing poverty. To this end, the key objective is to achieve economic growth of at least 6% annually. At the same time, expenditure control mechanisms and tax administration are being strengthened, while monetary policy is designed to further reduce inflation. Structural reforms to deepen financial and capital markets are expected to provide additional resources for private sector investment.

With the progress in stabilization, the government should no longer need to repay domestic financing, freeing fiscal resources for the priority sectors. In addition to the completion of the tax reform and further improvements in tax administration and a focus of expenditures on the priority sectors in the context of a medium-term framework, an important aspect of fiscal policies in the next few years will be the strengthening of expenditure control through the full implementation of a new integrated financial information and management system.

The structural reform agenda includes the restructuring and privatization of utilities and other parastatal monopolies and the implementation of regulatory frameworks. Other public sector reforms will be based on the recently approved Public Service Reform Program, which includes further rationalization of the civil service and the continuing improvement of salaries, resources permitting, to competitive levels.

Poverty Reduction Strategy

By August 2000, the government intends to prepare a Poverty Reduction Strategy Paper (PRSP), outlining its policies to reduce poverty by raising growth and involving the poor in development. The strategy will be based on a consultative process. The PRSP will provide a basis for monitoring the implementation and evaluating the impact of poverty reduction programs, and facilitate the development of baseline data for assessing the status of poverty and welfare. During 2000, a household budget survey, a pilot labor force survey, and a large part of the district-based school mapping survey will be carried out. The results will be used to further develop monitoring indicators, following short and medium-term targets that can be set. Immediate actions to improve the health of the population will include increased immunization of children, as well as the launching of campaigns to raise awareness of HIV/AIDS.

Tanzania joined the IMF on September 10, 1962. Its quota² is the equivalent of SDR 198.9 million (about US$267.5 million). Its outstanding use of IMF financing currently totals the equivalent of SDR 223.3 million (about US$300.3 million).