Press Release: IMF Executive Board Completes the Second Review Under the Policy Support Instrument for Tanzania
December 21, 2007Press Release No. 07/305
The Executive Board of the International Monetary Fund (IMF) today completed the second review under a three-year Policy Support Instrument (PSI) for Tanzania.
The PSI was approved on February 16, 2007 (see Press Release no. 07/26) and is aimed at consolidating Tanzania's strong economic performance through market-oriented policies within an appropriate macroeconomic framework. The PSI seeks high and sustainable growth and more rapid poverty reduction based on enhancing public resource mobilization and efficiency of spending, increasing the financial sector's contribution to growth and the effectiveness of the monetary policy, and improving the business climate.
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:
"The Tanzanian economy continues to perform strongly. The authorities are to be commended for their sound economic policies, which have contributed to buoyant economic growth and moderate inflation. Their commitment to continued structural reforms and the maintenance of macroeconomic stability will further raise the country's growth potential so as to make decisive progress in poverty reduction.
"Recent steps by the Bank of Tanzania have succeeded in reining in monetary expansion and moderating interest rates, and the Bank's strategy is appropriately geared at further reducing inflationary risks and strengthening monetary control. In particular, it will be important to address the challenges stemming from large capital inflows by strengthening liquidity forecasting and increasing the reliance on foreign exchange sales as the primary tool for mopping up liquidity.
"Strong fiscal performance, underpinned by buoyant revenues and further improvements in tax administration, will continue to anchor macroeconomic stability. Pressing social and infrastructural needs warrant increased public spending, although careful planning will be needed to ensure that spending can be adjusted if domestic revenue falls short of its ambitious target. It is important to remain vigilant with regard to government guarantees and other contingent liabilities so as to ensure value for money in the area of public infrastructure projects. Public financial management will be strengthened through better cash management and expenditure tracking.
"Private sector development and continued productivity growth will be key to further accelerating economic growth. Priorities include accelerating regulatory reform to strengthen the business environment; deepening financial sector reform to improve access to financial services; strengthening prudential supervision, especially in the fast-growing pension fund sector; and reinforcing governance and public accountability. In particular, it will be important to address expeditiously any shortcomings that would be identified in the recently-completed special audit of the external payments arrears account managed by the Bank of Tanzania," Mr. Portugal said.