Press Release: IMF Executive Board Completes Third Review Under Tanzania's PRGF Arrangement and Approves US$4.2 Million Disbursement
February 24, 2005
The Executive Board of the International Monetary Fund (IMF) has completed the third review of Tanzania's economic performance under a three-year Poverty Reduction and Growth Facility (PRGF) arrangement (see Press Release No. 03/127.) The completion of the review enables a further release of an amount equivalent to SDR 2.8 million (about US$4.2 million) under the arrangement, and will bring the total disbursements under the program to the equivalent of SDR 11.2 million (about US$17 million.)
The Board also granted a waiver for the nonobservance of the end-September 2004 performance criterion on net international reserves, due to the temporary nature of the deviation, and modified a structural performance criteria related to amendments of banking laws.
Following the Executive Board's discussion on Tanzania's economic performance on February 23, 2005, Mr. Agustín Carstens, Deputy Managing Director and Acting Chair, stated:
"The Tanzanian authorities deserve much credit for maintaining a strong macroeconomic performance under their PRGF-supported program. The country has made further strides in enhancing macroeconomic stability and addressing key impediments to growth through the accelerated pursuit of structural reforms. This strong performance also reflects the broad ownership of the country's reform program. Despite these successes, Tanzania will need to sustain its reform efforts in the areas of energy, infrastructure, trade facilitation, governance, fiscal management, and financial sector reform to make deeper inroads against poverty. The draft National Strategy for Growth and Reduction of Poverty appropriately focuses on policies to improve the business and investment environment, and its outcome-based approach and intended links with the budget are welcome.
"While impressive progress has been made in revenue mobilization, continued efforts to generate domestic resources will provide critical support to growth and poverty reduction, and will help lower Tanzania's high level of aid dependence over the medium term. The authorities plan to further develop the reform agenda in this area, including by continuing the reorganization of the Tanzania Revenue Authority and further strengthening its Large Taxpayer Department. They will also continue efforts to improve public expenditure management, and the quality of spending and its allocation among sectors.
"Liquidity pressures arising from high aid inflows continue to present challenges to monetary policy. The Bank of Tanzania's (BoT) effort to meet its reserve money targets and to use a fuller range of options to mop up liquidity are commendable. This effort should be sustained, with continued emphasis on foreign exchange sales, and arrangements for ensuring that liquidity management does not undermine the financial position of the central bank. Close cooperation between the BoT and the Finance Ministry will also be important. More generally, the issues of liquidity management must be addressed through sustained efforts to improve Tanzania's absorptive and institutional capacity.
"The ambitious financial sector implementation plan currently being finalized is an important framework for further improvements, particularly with regard to the provision of credit to larger portions of the economy, notably agriculture. Swift implementation of the amendments to banking sector legislation and the privatization of the National Microfinance Bank will help sustain the progress in the financial sector. It will also be important that the authorities remain committed to ensuring that the development-oriented credit guarantee scheme is of limited size, transparent, and appropriately financed with strong governance, and refrain from policies that involve more direct government participation in development finance," Mr. Carstens said.