IMF Executive Board Completes Third PSI Review for TanzaniaPress Release No. 16/20
January 22, 2016
The Executive Board of the International Monetary Fund completed today the third review of Tanzania’s economic performance under the program supported by the Policy Support Instrument (PSI)1.
In completing the review, the Board also approved modification of the December 2015 assessment criteria on net international reserves and tax revenue, a waiver for the missed June 2015 assessment criterion on tax revenue, and modification of program design consistent with the new debt limits policy.
The PSI for Tanzania was approved by the Executive Board on July 16, 2014 (see Press Release No. 14/350). Tanzania’s program under the PSI supports the authorities’ medium-term objectives. These include: the maintenance of macroeconomic stability, the preservation of debt sustainability, and the promotion of more inclusive growth and job creation.
Following the Board discussion, Mr. Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair, made the following statement:
“Macroeconomic performance in Tanzania remains strong and medium-term prospects are favorable. Performance under the Policy Support Instrument, however, has been mixed. While most assessment criteria for June 2015 were met, program implementation slowed ahead of the October 2015 elections.
“The overall deficit for 2014/15 exceeded the program target once the significant accumulation of expenditure arrears is taken into account, reflecting shortfalls in revenue and financing, and weak expenditure commitment controls. The incoming authorities have taken action to strengthen controls and sanctions against accounting officers that breach rules, in order to contain the accumulation of new arrears. The authorities also plan to complete the settlement of existing verified arrears, including those to pension funds.
“Budget implementation in 2015/16 faces challenges arising from possible shortfalls in financing and revenue, unbudgeted expenditures carried forward from 2014/15, and the need to make space for the new government’s priorities. Against this backdrop, early action to adjust the budget is welcome and will help prevent further arrears accumulation. Changes to program design will provide more flexibility in debt management and should be accompanied by continued efforts to enhance debt and public investment management capacity.
“The current monetary policy stance should bring inflation down to the authorities’ 5 percent target by the end of 2016. The use of foreign exchange intervention should be limited to liquidity management and smoothing volatility in the foreign exchange market, with higher reliance on domestic-currency instruments to address excess liquidity. Better coordination of fiscal and monetary policy would make it easier for the Bank of Tanzania to focus on its main inflation objective.
“Putting TANESCO, the power utility, on a sound financial footing is critical for the development of the energy sector, making the completion of the authorities’ strategy to address TANESCO’s arrears a priority.”
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 PSI program are available at www.imf.org/tanzania.