IMF Executive Board Approves US$336 Million Exogenous Shocks Facility Arrangement for Tanzania and Completes Fifth Review Under the Policy Support InstrumentPress Release No. 09/190
May 29, 2009
The Executive Board of the International Monetary Fund (IMF) today approved a 12-month, SDR 218.79 million (about US$336 million) arrangement for Tanzania under the Fund’s Exogenous Shocks Facility (ESF) to cushion the country from the effects of the global economic crisis. The first disbursement amounting to SDR 159.12 million (about US$244 million) is immediately available.
The IMF financing will bolster Tanzania’s foreign reserves and support its balance of payments, which have been undermined by a 26-percent fall in the price for cotton, a major export, and by a severe downturn in tourism and foreign direct investment.
The ESF is designed to provide policy support and financial assistance to low-income countries facing exogenous but temporary shocks. It is available to countries eligible for the Poverty Reduction and Growth Facility (PRGF)—the IMF's main instrument for financial assistance to low-income countries—but that do not have a PRGF-supported program in place. Financing terms are equivalent to a PRGF arrangement and are more concessional than under other IMF emergency lending facilities.
The IMF’s Executive Board also completed the fifth review under Tanzania’s Policy Support Instrument (PSI), in which Fund staff work with the authorities to design effective economic programs without a formal financing arrangement.
Following the Executive Board’s discussion of Tanzania, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, stated:
“Tanzania’s track record of sound macroeconomic policies and structural reforms over the past decade has helped to sustain high rates of economic growth with generally low inflation. However, despite some important gains, progress in poverty reduction has been mixed.
“The global financial crisis is having a serious impact on Tanzania. Real GDP growth is expected to fall significantly in 2009, as key sectors of the economy, including exported cash crops and tourism, face a severe downturn and cutbacks in foreign investment weaken aggregate demand. The authorities’ expansionary fiscal and monetary policies in the current situation are appropriate to cushion the effects of the crisis. But short-term policies must not jeopardize Tanzania’s hard-won economic stability, which requires containment of inflationary pressures and long-term fiscal sustainability.
“The banking sector is sound, but vulnerabilities remain in some areas. Banks are well capitalized and non-performing loans remain at a low level. But the economic slowdown will raise banks’ credit risk, and the steps already taken to raise supervisory standards need to be reinforced, especially for the fast-growing pension funds.
“Raising Tanzania’s medium-term growth potential must remain paramount. The ongoing preparations for the update of the national poverty reduction strategy (MKUKUTA) scheduled to be completed in early 2010 are timely and welcome. Key priorities include raising agricultural productivity and improving Tanzania’s ailing infrastructure, which will require significant financing. Concessional financing remains the preferred funding source, consistent with medium-term debt sustainability. Strong public financial management will be critical to ensuring value for money and to avoiding the re-accumulation of unsustainable debt,” Mr. Portugal said.