Press Release: Statement by IMF Mission to the United Republic of Tanzania
October 10, 2007Press Release No. 07/225
An IMF mission to Tanzania led by Roger Nord issued the following statement in Dar es Salaam on October 9, 2007:
"An IMF mission visited Tanzania September 26-October 9, 2007 to conduct the second review under the Policy Support Instrument (PSI).1 The mission met with Minister of Finance, Hon. Zakia Hamdani Meghji; Permanent Secretary Treasury, Mr. Gray Mgonja; First Deputy Governor of the Bank of Tanzania, Prof. Benno Ndulu; and other senior government officials. The mission also met with Dr. Kigoda Chairman of the Parliamentary Committee on Economic Affairs, and representatives from the private sector and civil society. In addition, the mission visited Zanzibar and met with President Karume and senior government officials.
"Tanzania's economic performance continues to be strong. Fueled by a rebound in the agricultural sector and improved electricity supply, economic growth reached 6¾ percent in 2006/07 and is on track to exceed 7 percent in 2007/08. A strong fiscal performance provides the bedrock for economic stability. At the same time, a strong revenue performance and debt relief under the Multilateral Debt Relief Initiative (MDRI) allowed development expenditure to rise to 6 percent of GDP. The external position also strengthened. Gross foreign reserves increased to USD 2.3 billion while external debt fell.
"In the near term, Tanzania is facing two challenges. Returning underlying inflation to its downward trend and the Bank of Tanzania's target of 5 percent is critical toward reducing high interest rates, supporting productive investment and growth, and reducing poverty. In this regard, we welcome the Bank of Tanzania's efforts to strengthen monetary policy implementation. The second challenge is to ensure that the ambitious targets for revenue and expenditure in the 2007/08 budget are attained. The budget rightly reflects the key priorities of the government to further increase social spending while scaling up infrastructure investment significantly. Revenue performance in the first quarter of 2007/08 has been strong, thanks to continued progress by the Tanzanian Revenue Authority in strengthening tax administration. Going forward, it will be important to maintain the domestic revenue effort while remaining vigilant that the anticipated foreign financing is forthcoming. The mission supports efforts to improve further public financial management with the twin objectives of raising the efficiency of public spending while strengthening accountability."
"As a result of far-reaching reforms of the financial sector over the past decade, Tanzania today has a diversified banking system and a small but growing capital market. But challenges remain. Despite rapid growth in recent years, the financial sector remains small, and there is a need to accelerate financial sector development, notably by addressing the legal framework for land ownership and the weak capacity of the judicial system. At the same time, prudential supervision needs to be geared toward overseeing a fast-growing and diversifying financial system. In particular, there is a need to strengthen the regulatory framework for non-bank financial institutions, especially pension funds, which are growing rapidly.
"Prospects are for continued robust economic growth in the coming years and the scope for even higher growth is significant as Tanzania taps into the opportunities of increasing regional and global integration. This will require attracting more investment, particularly foreign direct investment, which in turn will require strengthening public infrastructure as well as institutions and governance. In this context, the mission welcomes the launch of the special audit of the EPA account at the Bank of Tanzania and looks forward to its timely completion."
1 The PSI 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. The three-year PSI for Tanzania was approved by the IMF Executive Board on February 16, 2007, and the first review was concluded on June 27, 2007.