IMF Executive Board Completes the First Review under the Policy Support Instrument for Tanzania

Press Release No. 07/144
June 27, 2007

The Executive Board of the International Monetary Fund (IMF) today completed the first review under a three-year Policy Support Instrument (PSI) for Tanzania. The PSI was approved on February 16, 2007 (see Press Release 07/26).

In completing the review, the Executive Board agreed to waive the missed ceiling on reserve money for end-December 2006, based on the relatively small excess and corrective actions taken.

The IMF's framework for PSIs is designed for low-income countries that may not need IMF financial assistance, but still seek close cooperation with the IMF in preparation and endorsement of their policy frameworks. PSI-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners. This is intended to ensure that PSI-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. Members' performance under a PSI is reviewed semi-annually, irrespective of the status of the program (see Public Information Notice No. 05/145).

Following the Board's discussion on Tanzania, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, made the following statement:

"For several years, Tanzania has sustained strong economic performance through market-oriented policies within an appropriate macroeconomic framework. Nevertheless, Tanzania remains a poor country, and the authorities will need to maintain sound policies and pursue structural reforms diligently in order to remove impediments to growth and achieve their long-term economic and social objectives.

"Tanzania's macroeconomic framework and structural reform agenda under the Policy Support Instrument remain a good basis for raising economic growth and reducing poverty. Fiscal policy will continue to anchor a stable macroeconomic environment by maintaining near-zero net domestic financing, while strong revenue growth and substantial donor support would allow for high levels of spending on economic and social priorities.

"The monetary stance remains appropriate. An important challenge for the authorities is to contain liquidity arising from donor-funded government spending while avoiding high and volatile short-term interest rates. In this context, greater reliance on foreign exchange sales is necessary, along with efforts to better coordinate monetary and fiscal policy and to develop the domestic bond market.

"A reliable and ample energy supply is key to economic growth. In this regard, rapid progress towards the commercial viability of the energy parastatal, TANESCO, is critical. The authorities should vigorously support TANESCO's financial recovery program, including its forthcoming application for an electricity tariff increase that would enable full recovery of operating costs.

"The Tanzanian authorities are undertaking appropriate actions and commitments to improve governance and transparency. They are making good efforts to strengthen the Prevention of Corruption Bureau and to address the allegations of improprieties in the management of the government's external payment arrears account at the Bank of Tanzania. The forthcoming special audit of this account should be conducted in a timely manner and in line with best international standards," Mr. Portugal said.



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