IMF Executive Board Concludes 2014 Article IV Consultation with Tanzania

Press Release No. 14/227
May 15, 2014

On April 25, 2014, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Tanzania and completed the third and final review of the country’s performance under an economic program supported by a Standby Credit Facility arrangement (see Press Release No. 14/182).

Economic growth in Tanzania is projected to remain strong at 7 percent next year and in the medium term. Inflation is at 6 percent, gradually converging to the authorities’ 5 percent medium term objective. The external current account deficit remains among the largest in the region, at 14 percent of GDP this year. Fiscal revenue shortfalls and overruns in domestically-financed spending led the deficit to rise to 6.8 percent of GDP in 2012/13. Revenue shortfalls in 2013/14 compared to the budget approved by parliament have prompted the authorities to undertake expenditure cuts during the fiscal year in an effort to meet their 5 percent of GDP deficit target. Based on the debt sustainability analysis, Tanzania remains at low risk of debt distress. A major opportunity for the long term, not yet incorporated in the baseline projections, relates to sizable finds of offshore natural gas that, if confirmed as commercially viable, could generate significant exports and government revenues during the 2020s.

Executive Board Assessment2

Executive Directors commended the skilful macroeconomic management that has delivered rapid growth, falling inflation, and continued poverty reduction in the context of Fund-supported economic programs. Noting risks to the outlook and remaining vulnerabilities, Directors encouraged the authorities to consolidate the gains so far by stepping up efforts to improve the policy frameworks, reconstitute buffers, and push ahead with structural reforms in a variety of areas.

To safeguard the sustainability of the public finances, Directors recommended containing public spending within the limit of the mid-term budget review, while addressing poverty alleviation and the large infrastructure deficit through careful expenditure prioritization. They also encouraged the authorities to intensify revenue mobilization, including through accelerated VAT reforms. More broadly, Directors agreed that the achievement of fiscal targets would benefit from further improvements in public financial management, which would prevent the recurrence of arrears and facilitate their resolution. It would also be important to improve the quality and dissemination of fiscal data.

Directors commended the Bank of Tanzania for reducing inflation to the mid-single digits and preserving financial stability. Looking ahead, they advised to further strengthen prudential oversight, including as regards the regime against money-laundering and the financing of terrorism. Directors also welcomed the central bank’s intention to transition to an interest rate-based monetary policy framework, and encouraged a review of the foreign exchange market to promote greater transparency and efficiency.

Directors took note of the staff’s assessment that the Tanzanian shilling appears to be somewhat overvalued in real effective terms, but agreed that Tanzania’s ongoing structural transformation amplifies the uncertainty surrounding such assessment. They nonetheless considered that the persistently high external current account deficit points to the need to boost external competitiveness through enhanced exchange rate flexibility as well as additional reforms to reduce implements to trade, promote financial deepening, and improve the business climate.

Noting that the recent offshore discoveries of natural gas could present a major opportunity for Tanzania, Directors recommended establishing over the medium-term transparent institutional frameworks for natural gas taxation and wealth management with a view to fostering good governance and inter-generational equity.


Tanzania: Selected Economic and Financial Indicators, 2010/11–2017/18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2010/11 2011/12 2012/13   2013/14 2014/15 2015/16 2016/17 2017/18
    Prog.1 Prel.   Prog.1 Proj. Proj. Proj. Proj. Proj.
 
(Annual percentage change, unless otherwise indicated)

National income and prices

 

 

 

 

 

 

 

 

 

 

 

Nominal GDP (in billions of TSh)

34,913 41,125 48,264 48,348   55,228 55,559 63,263 71,718 80,801 90,810

Real GDP growth (calendar year) 2

6.4 6.9 7.0 7.0   7.2 7.2 7.0 7.1 7.0 6.8

Real GDP growth

6.7 6.7 7.0 6.9   7.1 7.1 7.1 7.1 7.0 6.9

Consumer prices (period average)

7.0 17.8 11.6 11.3   7.2 5.8 5.1 5.0 5.0 5.0

Consumer prices (end of period)

10.9 17.4 9.5 7.6   6.0 5.0 5.0 5.0 5.0 5.0

GDP deflator (period average)

8.1 10.3 10.0   7.4 6.3 5.9 5.3 5.1

 

 

External sector

                     

Exports, f.o.b (in billions of U.S. dollars)

4.9 5.6 5.9 5.4   6.5 5.5 6.1 6.6 7.3 7.9

Imports, f.o.b. (in billions of U.S. dollars)

8.0 10.6 11.0 10.5   12.3 11.5 12.4 13.3 14.3 15.6

Export volume

10.9 8.9 2.0 -2.2   12.6 9.7 12.7 10.7 10.6 9.1

Import volume

6.2 28.8 3.2 -2.0   10.2 10.1 9.1 8.7 8.0 8.9

Terms of trade

1.2 1.6 3.4 -1.5   -2.5 -6.9 -1.3 0.2 -0.5 0.3
  • Nominal effective exchange rate (end of period; depreciation= -)3

-17.7 6.4 0.6 1.2   ... ... ... ... ... ...
  • Real effective exchange rate (end of period; depreciation= -)3

-13.6 21.5 6.0 6.1   ... ... ... ... ... ...

 

                     

Money and credit

                     

Broad money (M3)

22.0 10.9 14.5 14.9   13.0 14.5 15.5 14.8 14.1 13.8

Average reserve money

19.3 14.2 15.7 14.5   11.9 14.9 13.9 13.4 12.7 12.4

Credit to nongovernment sector

24.3 18.6 17.4 17.1   13.9 16.5 14.7 14.5 13.2 16.2

Velocity of money (GDP/M3; average)

3.2 3.2 3.3 3.3   3.4 3.4 3.3 3.3 3.3 3.2
  • Treasury bill interest rate (in percent; end of period)

4.8 13.8 13.9  
(Percent of GDP)

Public Finance

                     

Revenue (excluding grants)

16.4 17.6 18.1 17.5   19.9 18.4 19.3 19.5 19.5 19.5

Total grants

4.7 4.5 3.7 3.6   4.2 3.3 3.4 3.5 3.0 3.0

Expenditure4

27.0 26.2 27.6 28.0   29.1 26.9 27.6 27.1 26.6 26.6

Overall balance (excluding grants)5

-11.4 -8.6 -9.5 -10.5   -9.2 -8.5 -8.3 -7.5 -7.0 -7.0

Overall balance (including grants)5

-6.6 -5.0 -5.8 -6.8   -5.0 -5.2 -4.9 -4.0 -4.0 -4.0
  • Domestic financing (excluding gas pipeline financing)

3.6 0.8 1.0 2.2   1.0 1.4 1.0 0.5 0.7 0.7

Domestic debt stock (end of period)6

9.6 11.1 10.4 11.6   10.1 10.5 10.2 9.5 9.2 8.8

Total public debt6,7

39.4 39.8 41.6 40.8   43.3 41.4 42.5 42.1 42.4 42.5

Savings and investment

                     
  • Resource gap (net exports of goods and services)

-15.3 -17.6 -16.7 -15.6   -15.6 -14.8 -14.0 -12.9 -12.0 -11.4

Investment

34.5 35.5 39.2 34.4   38.3 33.4 32.1 31.5 31.5 31.6

Government

8.5 8.8 9.1 8.6   8.9 8.5 8.6 8.6 8.6 8.7

Nongovernment8

26.0 26.8 30.2 25.7   29.4 24.9 23.5 22.9 22.9  

Gross domestic savings

19.3 18.0 22.6 18.8   22.7 18.6 18.2 18.6 19.5 20.2

External sector

                     

Current account balance (excluding current transfers)

-12.5 -20.8 -16.0 -15.7   -17.0 -15.7 -14.5 -13.3 -12.7 -12.2

Current account balance (including current transfers)

-9.4 -18.4 -14.3 -14.0   -15.2 -14.5 -13.3 -12.3 -11.7 -11.3
(Billions of U.S. dollars, unless otherwise indicated)

Balance of payments

                     

Current account balance (excluding current transfers; deficit= -)

-3.0 -5.4 -4.8 -4.8   -5.7 -5.4 -5.6 -5.7 -6.0 -6.3

Gross official reserves (end of period)

3.6 3.8 4.2 4.4   4.5 4.6 5.2 5.6 6.2 6.8

In months of imports of goods and services (current year)

4.3 3.5 3.8 4.1   3.6 3.9 4.0 4.1 4.2 4.3

Total external debt stock (end of period; percent of GDP)7

33.1 34.4 35.0 35.7   36.8 36.7 37.6 37.3 37.5 37.7
 

Sources: Tanzanian authorities and IMF staff estimates and projections
1 From the sixth review under the PSI and the second review under the SCF arrangement
2 E.g. Calendar year corresponding to 2011/12 is 2012.
3 The figure for 2012/13 reflects the change from July 2012 through June 2013.
4 Including unidentified fiscal measures.
5 Actual and preliminary data include adjustment to cash basis.
6 Net of Treasury bills issued for liquidity management
7 Excludes external debt under negotiation for relief, and domestic unpaid claims (reported in Table 2b).
8 Including change in stocks. 2/ Based on relative unit labor costs in manufacturing.


1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

2 At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.



IMF COMMUNICATIONS DEPARTMENT

Public Affairs    Media Relations
E-mail: publicaffairs@imf.org E-mail: media@imf.org
Fax: 202-623-6220 Phone: 202-623-7100