Press Release No. 04/172

Press Release: IMF Completes Second Review Under Tanzania's PRGF Arrangement and Approves US$4 Million Disbursement

August 6, 2004

The Executive Board of the International Monetary Fund (IMF) today completed the second review of Tanzania's economic performance under the three-year Poverty Reduction and Growth Facility (PRGF) arrangement (see Press Release No. 03/127). This decision will entitle Tanzania to the release of a further SDR 2.8 million (about US$4 million) under the arrangement, and will bring the total disbursements under the program to SDR 8.4 million (about US$12 million).

Following the Executive Board's discussion on Tanzania's economic performance, Agustín Carstens, Deputy Managing Director and Acting Chair, stated:

"The Tanzanian authorities are to be commended for their strong policy performance under their three-year program supported by the Fund. Economic activity continued to be robust in 2003, with GDP growth benefiting from sound economic policies and strong performance in the manufacturing, mining, and construction sectors. Inflation remains in check, though somewhat higher than programmed due to recent food shortages and higher oil prices. Donor confidence and aid flows remain high and the external current account deficit is lower than envisaged in the program, resulting in a further build-up of foreign exchange reserves.

"Looking ahead, Tanzania's main challenge is to sustain, and, if possible, further accelerate broad-based growth in a low-inflation environment, aimed at achieving a substantial reduction in poverty. This will require the pursuit of prudent macroeconomic policies, including strong liquidity management and fiscal efforts, as well as vigorous implementation of the structural reform agenda—especially in tax administration and customs, agriculture, governance, and the financial sector. Locking in reforms in advance of next year's elections is a priority.

"Consistent with these objectives, the authorities' program for 2004/05 entails significant expenditure management and revenue mobilization measures, higher priority sector expenditures, and the strengthening of capacity and institutions. The program also envisages further advancement of reforms consistent with Financial Sector Assessment Program (FSAP) recommendations, and removal of other structural impediments to growth in agriculture and other sectors. Particularly welcome are the authorities' intentions to strengthen central bank independence and financial sector efficiency, to issue final bid instructions for privatization of the National Microfinance Bank, and to limit discretionary powers to grant tax exemptions.

"The new poverty reduction strategy now under development should provide a clearer roadmap for future steps in these areas. To be effective, it should be well-prioritized, be consistent with the budget and other government activities, include strong quantitative monitoring and evaluation, and be based on dialogue involving all segments of civil society," Mr. Carstens said.

The PRGF is the IMF's concessional facility for low-income countries. 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 annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½-year grace period on principal payments.