Press Release: Statement by an IMF Staff Mission at the Conclusion of a Visit to Tanzania
March 14, 2008Press Release No. 08/51
An International Monetary Fund (IMF) mission to Tanzania led by Roger Nord issued the following statement in Dar es Salaam on March 12, 2008:
"An IMF mission visited Tanzania February 27-March 12, 2008 to conduct the third review under the Policy Support Instrument (PSI).1 The mission met with Minister of Finance and Economy, Hon. Mustafa Mkulo; Governor of the Bank of Tanzania, Prof. Benno Ndulu; and other senior government officials.
"Tanzania's economy continues to perform strongly. Despite global and regional headwinds, economic growth is on track to reach 7½ percent in 2007/08, fueled by a robust expansion in the manufacturing, construction, and services sectors. Fiscal performance has continued to anchor economic stability, thanks to further strong growth in domestic revenue generation and public spending in line with the budget. At the same time, the welcome strengthening in monetary policy implementation has reaped fruits. Monetary targets for end-2007 have been met and thanks to improvements in the Bank of Tanzania's conduct of open market operations, interest rates have declined sharply from the high levels reached in 2007. However, inflation remains above the Bank of Tanzania's target path, reflecting primarily pressures from global fuel and food prices.
"The outlook for 2008/09 is positive. Investment, both foreign and domestic, is expected to remain buoyant, underpinning continued high economic growth. The challenge for economic policy will be two-fold:
• Monetary policy will need to strive to return inflation to its target level while ensuring sufficient liquidity to allow further healthy growth in bank credit to the private sector. This will require building on the recent success in strengthening monetary policy operations to reinforce the credibility and predictability of the Bank of Tanzania, including through enhanced communications and transparency.
• The 2008/09 budget currently under preparation will need to balance the significant demands on public resources for Tanzania's second generation growth and poverty reduction strategy (MKUKUTA) priorities, including agricultural development, education, health, and infrastructure, with safeguarding the solid state of public finances that is critical to long-term economic stability. Some uncertainty prevails regarding the scale of foreign assistance available to support the 2008/09 budget. While it is expected that the uncertainty will be reduced in the coming weeks, prudence suggests that the fiscal framework underpinning the 2008/09 economic program should provide for a more modest level of public spending until the foreign financing has been assured.
"The mission welcomes the decisive action taken by the Tanzanian authorities to address the recommendations of the special audit of the External Payment Arrears (EPA) account at the Bank of Tanzania. Enabling the Bank of Tanzania to focus on its core functions of inflation control and financial supervision, by clarifying the division of responsibilities between the Ministry of Finance and the Bank of Tanzania, and divesting the Bank of Tanzania of its noncore activities, including the EPA, are important steps toward further strengthening the Bank of Tanzania's operations. Rapid progress towards these objectives will assist effective economic policy making in the period ahead.
"It is expected that the IMF's Executive Board will discuss the third review of Tanzania's economic program under the PSI by end-June 2008."
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 two reviews have been concluded so far-the first on June 27, 2007, and the second on December 21, 2007.