IMF Projects Brief Slowdown, Quick Recovery in Tanzania

Press Release No. 11/92
March 18, 2011

A mission from the African Department of the International Monetary Fund (IMF) visited Tanzania during March 4-16, 2011, to conduct the 2011 Article IV consultation and the second review under Tanzania’s Policy Support Instrument (PSI).1 The mission met with Minister of Finance and Economic Affairs, Hon. Mustafa Mkulo; Governor of the Bank of Tanzania, Prof. Benno Ndulu; other senior government officials; private sector representatives; and members of civil society.

At the end of the mission, Ms. Martine Guerguil, IMF mission chief for Tanzania, issued the following statement in Dar es Salaam today:

“Tanzania experienced another strong economic performance in 2010, supported by continuing accommodative fiscal and monetary policies, designed in part to help the economy recover from the global financial crisis, Output growth is estimated to have reached 7 percent for the year, with inflation declining to 5.6 percent by the end of 2010. Exports, both traditional and non-traditional, expanded at a particularly rapid pace, with manufacturing exports nearly doubling through the year.

The IMF mission team projects output growth for 2011 to decline to 6 percent, largely as a result of widespread weather-induced power shortages, but to rebound quickly thereafter. High global food and fuel prices could also contribute to a slowdown in activity and a rise in headline inflation. The economy should however recover promptly once the government’s investments in additional generation kick in and the weather conditions normalize. Thus, barring further adverse developments, the mission team projects growth to return to 7 percent by the end of 2011. Careful monetary management should also ensure that the uptick in food and fuel prices does not give rise to lasting inflationary pressures.

“Going forward, it will be important for the Tanzanian government to gradually withdraw the fiscal stimulus that was introduced to combat the global financial crisis, in order to return the fiscal deficit to a sustainable path. Over the coming months, that will require careful control of expenditure commitments to keep them in line with available resources. The budget for the 2011/12 fiscal year (July to June) should begin the process of reigning in the fiscal deficit. Given the significant and legitimate spending needs—in areas such as health, education, and infrastructure—this will require a careful re-prioritization of expenditures, eliminating or reducing low priority spending, as well as measures to increase tax revenues.

“ In addition, as the Tanzanian government begins to access international capital markets to finance infrastructure spending, it will be vital to strengthen the government’s capacity in two areas: First, enhanced external debt management will be critical to ensure Tanzania borrows only on reasonable terms, and consistent with a debt management strategy that ensures the maintenance of debt sustainability. Second, improvements in the selection, implementation, and monitoring of investment projects will be essential to ensure that the most important projects are implemented, and that Tanzania receives value for money.

“The banking system has weathered the global crisis well, with continued strong capital, although the recent upturn in the level of non-performing loans will need to be monitored carefully. The key challenge facing Tanzania’s financial sector today is to ensure that the pension funds are strong, and managed professionally, in the interests of the existing and prospective pensioners. In that regard, the mission attaches high priority to making the new regulator, the Social Security Regulation Authority, operational as soon as possible.

“It is expected that the review of Tanzania’s performance under the current PSI will be considered by the IMF’s Executive Board in early May.”





1 The PSI is an instrument of the IMF designed for countries that do not need balance of payments financial support. The PSI helps countries design effective economic programs that, once approved by the IMF's Executive Board, signal to donors, multilateral development banks, and markets the Fund's endorsement of a member's policies. (See http://www.imf.org/external/np/exr/facts/psi.htm.) Details on Tanzania’s current PSI are available at www.imf.org/tanzania.



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