## 1tzaea2020001 - 2.8 percent in the upcoming fiscal year (the fiscal year ends in June)

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---

### Executive Board statement and immediate policy guidance
- The COVID-19 pandemic is having an adverse economic impact on Tanzania, creating exceptional fiscal and balance of payments needs.
- The authorities implemented containment measures and avoided an economic lockdown; they remain vigilant to the risk of spiraling infections and uncertainty surrounding the pandemic.
- IMF debt service relief under the Catastrophe Containment and Relief Trust (CCRT) will free up public resources to help address the pandemic.
- The authorities commit to using additional resources for their intended purposes and in a transparent manner, including through ex-post audits of COVID-related spending.
- Policy guidance and coordination:
  - Safeguard appropriate funding for health and other priority social spending in the FY2020/21 budget.
  - Ensure close cooperation with the World Health Organization, multilateral agencies, and donors.
  - Proceed with structural reforms to support recovery: address arrears on VAT refunds and government expenditures, enhance human capital and the business environment, and improve the affordability of bank credit.

### Health impact (reported data and assessment)
- Reported cases and deaths:
  - 509 cases and 21 deaths (as of May 8).
- Data limitations:
  - Since May 8 the authorities have not reported new cases or deaths and there is no information regarding the number of tests conducted; reported data may significantly underestimate true figures owing to lack of data on testing and deaths at home.
- Measures taken and current status:
  - In March the authorities banned large gatherings (except for worship), suspended attendance to schools and educational institutions, cancelled international flights, and mandated wearing of face masks in Dar Es Salaam.
  - Some restrictions began to be lifted in late May as authorities considered the situation under control.
  - Thus far there has been no evidence of a major worsening or a health crisis; hospital system does not seem to have been overwhelmed, although the risk of spiraling infections remains.

### Economic impact and macroeconomic outlook
- Channels of impact:
  - Collapse of international travel (tourism accounts for 15 percent of GDP and 35 percent of export receipts).
  - Lower activity in hospitality and food service sectors.
  - Slowdown in economies of Tanzania’s main trading partners.
- Growth projections and scenarios:
  - Real GDP growth is expected to fall to about 4 percent this fiscal year (ending in June) and further decelerate to less than 3 percent next year compared to the pre-crisis projection of nearly 6 percent.
  - Baseline projections assume the health impact is contained and the economic impact is mainly through external channels; downside risks to growth are pronounced.
- Fiscal and external impacts:
  - Foreign reserves projected to decline by nearly 25 percent, reducing import coverage from 5.2 months at end-2019/20 to 3.7 months at end-2020/21 (if exceptional financing is not secured, reserve coverage would fall to 3.2 months of imports).
  - FY2019/20 fiscal revenue loss due to COVID-19 is estimated to be 0.1 percentage points of GDP relative to pre-COVID projections; higher gold receipts may offset some loss.
  - FY2020/21 fiscal projections:
    - Fiscal revenues projected to fall by about 0.6 percentage points of GPD.
    - Spending needs could rise by about 0.4 percentage points owing to additional health and protection measures.
    - Resulting fiscal and balance of payments financing gaps in the order of US$693 million (1 percent of GDP).
  - The authorities submitted a request for emergency financial support from the IMF under the RCF/RFI.

### Macroeconomic and financial sector policies implemented
- Bank of Tanzania actions:
  - Reduced the discount rate from 7 percent to 5 percent.
  - Lowered minimum reserve requirements from 7 percent to 6 percent.
  - Increased daily limits of mobile money transactions.
  - Will provide regulatory flexibility to banks for loan restructuring operations.
- Fiscal adjustments and reprioritization:
  - VAT and customs duties exemptions granted to medical equipment supplies.
  - Expedited repayment of expenditure arrears.
  - Allocated increased spending to health and social protection; authorities indicated intent to reallocate funds and use contingency reserves.
  - In FY2020/21 authorities are planning for an 8.8 percent increase in priority social spending and expect to scale up spending further once external financing is secured.

### Staff appraisal, eligibility, and recommendations
- Eligibility and assessment:
  - Staff supports Tanzania’s request for debt relief under the CCRT.
  - Tanzania meets the income threshold with GNI per capita of US$1,020, below the threshold of US$1,175.
  - Staff assesses that Tanzania faces exceptional balance of payments needs stemming from the impact of COVID-19.
- Staff view of policies:
  - Given current financing constraints and plans to seek external support, staff considers Tanzania is pursuing appropriate macroeconomic policies, though risks remain.
  - Authorities committed to audits of external support for COVID-related spending and are working to implement governance measures, especially AML/CFT reforms and repayment of expenditure arrears.
- Staff recommendations and priorities:
  - Ensure ex-post audits of COVID-19 related spending.
  - Safeguard and, where possible, increase health and priority social spending in FY2020/21.
  - Maintain close cooperation with WHO, multilateral agencies, and donors.
  - Proceed with reforms addressing arrears on VAT refunds and government expenditures, improve the business environment, and implement reforms to increase bank lending and lower interest rates.

### Risks, financing, and debt service
- Downside risks:
  - Possible second wave of infections could require a stronger public health response and negatively impact economic activity.
  - Donor support might not materialize on time or as needed, requiring larger fiscal effort.
- Financing gaps and support:
  - Financing gaps included in baseline projections in tables 1 and 2; exceptional financing and CCRT relief shown in balance of payments projections.
  - The Fund’s emergency request and support by development partners are under discussion.
- Upcoming IMF debt service (as reported):
  - Tanzania has debt service to the Fund of SDR 10.3 million falling due in the initial period of debt service relief up to October 13, 2020.
  - Debt service falling due in the 24 months from April 14, 2020 amounts to SDR 18.6 million.
  - Table 3 (As of May 15, 2020) lists Total 18,566,777 SDR eligible for CCR debt relief.

### Key statistics and projection highlights (selected figures preserved exactly as reported)
- Health and cases:
  - 509 cases and 21 deaths (as of May 8).
- Growth and inflation (Real GDP and CPI period average rows from Table 1):
  - Real GDP: 6.8, 6.9, 6.6, 4.0, 2.8, 4.9, 6.3, 6.5 (2017/18–2023/24).
  - CPI (period average): 5.3, 4.3, 3.2, 3.6, 3.9, 4.2, 4.5, 5.0.
- External sector and reserves:
  - Tourism accounts for 15 percent of GDP and 35 percent of export receipts.
  - Gross international reserves (in billions of U.S. dollars): 5.0, 5.5, 4.4, 4.7, 3.5, 3.5, 4.1, 4.6 (2016/17–2023/24).
  - Months of next year's imports: 6.1, 6.4, 5.0, 5.1, 3.7, 3.5, 3.8, 4.0.
- Fiscal figures:
  - FY2019/20 health additional spending pledged: US$8.4 million (authorities indicated reallocation and contingency use); additional shilling 19.5 billion spent in FY 2019/20 per Letter of Intent.
  - FY2020/21 planned increase for priority social sectors: 8.8 percent (from shillings 5,534.1 billion to shillings 6,022.1 billion as stated in Letter of Intent).
  - Financing gap reported in staff analysis: US$693 million (1 percent of GDP).
  - Letter of Intent projects emerging balance of payments needs on the order of US$696 Million (1 percent of GDP and 12.6 percent of our end-March official external reserves).
- IMF debt service (selected):
  - SDR 10.3 million due up to October 13, 2020 (initial period of relief).
  - SDR 18.6 million due in the 24 months from April 14, 2020 (Table 3 total 18,566,777 SDR).

### Authorities’ request and message
- Request and context:
  - Authorities request debt service relief under the Catastrophic Containment Relief Trust (CCRT) in the amount of SDR 18.6 million to cover repayments to the Fund, falling due in 24 months from April 14, 2020.
  - The authorities consider the relief critical to freeing up public resources to address public health needs and help contain balance of payments needs resulting from the COVID-19 pandemic.
  - In parallel, the authorities are engaging the Fund to secure additional support by accessing emergency financing facilities.
  - To ensure transparency and accountability in the use of COVID-related expenditure, the authorities have committed to:
    - undertake a post-audit of COVID-19 spending; and
    - publish the letter of request for debt-relief under the CCRT.
- Impact of the Pandemic (authorities’ view):
  - Tanzania averaged 6-7 percent a year economic growth over the last decade; the outbreak of the COVID-19 pandemic threatens to reverse this performance, with a significant growth impact in FY20/21.
  - Key channels of shock:
    - contraction in tourism and exports from suspension of international travel;
    - lower activity in hospitality services; and
    - economic slowdown in major trading partners.
  - Tourism constitutes 35 percent of export receipts and has been severely hit by temporary containment measures.
  - GDP growth is expected to register significant deceleration in FY19/20 and thereafter; growth effects are expected to be more pronounced during the peak of the tourism season starting in June.
- Policy response (authorities’ actions):
  - Immediate containment and mitigation measures taken since the first confirmed case in March 2020:
    - restriction on large gatherings;
    - temporary closure of academic institutions and non-essential businesses;
    - suspension of international air travel.
  - Fiscal measures:
    - reallocated funds under the FY19/20 budget to increase spending on health and social protection needs, equivalent to $8.4 million;
    - waived VAT and customs duties on medical equipment supplies;
    - prioritized the settlement of arrears to the business sector;
    - earmarked a higher budgetary allocation (approximately 8.8 percent) for priority social spending, including on health and social protection in FY20/21.
    - Government remains committed to undertake additional measures, should the pandemic continue for an extended period.
  - Monetary and financial sector measures by the Bank of Tanzania (BoT):
    - implemented measures to ease liquidity conditions in the monetary sector, including a reduction in the discount rate;
    - reduced reserve requirements to enhance credit to the private sector;
    - stands ready to help banks deploy regulatory flexibility for loan restructuring, where warranted, while pursuing strong oversight to ensure financial sector stability.
  - Structural and governance actions:
    - intend to strengthen budget planning and expenditure control as well as tax administration;
    - improve public investment management;
    - address arrears and delays in VAT refunds;
    - implement improvements in the business environment;
    - implementing various governance measures, including in the context of the AML/CFT framework.
- Conclusion (authorities’ statement):
  - Authorities look forward to Executive Directors’ favorable consideration of their request for debt relief under the CCRT.
  - They remain confident that Fund support will create the much-needed fiscal space to help alleviate strains on the fiscal position.
  - They value Fund’s support and look forward to further engagement to help address their medium-term macroeconomic objectives.

*Source: UNITED REPUBLIC OF TANZANIA — REQUEST FOR DEBT RELIEF UNDER THE CATASTROPHE CONTAINMENT AND RELIEF TRUST (IMF staff appraisal and supporting tables), June 4, 2020.*

### 2.8 percent in the upcoming fiscal year (the fiscal year ends in June).

### 1tzaea2020001 - 2.8 percent in the upcoming fiscal year (the fiscal year ends in June)

### Executive Board statement and immediate policy guidance
- The COVID-19 pandemic is having an adverse economic impact on Tanzania, creating exceptional fiscal and balance of payments needs.
- The authorities implemented containment measures and avoided an economic lockdown; they remain vigilant to the risk of spiraling infections and uncertainty surrounding the pandemic.
- IMF debt service relief under the Catastrophe Containment and Relief Trust (CCRT) will free up public resources to help address the pandemic.
- The authorities commit to using additional resources for their intended purposes and in a transparent manner, including through ex-post audits of COVID-related spending.
- Policy guidance and coordination:
  - Safeguard appropriate funding for health and other priority social spending in the FY2020/21 budget.
  - Ensure close cooperation with the World Health Organization, multilateral agencies, and donors.
  - Proceed with structural reforms to support recovery: address arrears on VAT refunds and government expenditures, enhance human capital and the business environment, and improve the affordability of bank credit.

### Health impact (reported data and assessment)
- As of May 8, 509 cases and 21 deaths have been reported.
- Data limitations: since May 8 the authorities have not reported new cases or deaths and there is no information regarding the number of tests conducted; reported data may significantly underestimate true figures owing to lack of data on testing and deaths at home.
- Measures taken and current status:
  - In March the authorities banned large gatherings (except for worship), suspended attendance to schools and educational institutions, cancelled international flights, and mandated wearing of face masks in Dar Es Salaam.
  - Some restrictions began to be lifted in late May as authorities considered the situation under control.
  - Thus far there has been no evidence of a major worsening or a health crisis; hospital system does not seem to have been overwhelmed, although the risk of spiraling infections remains.

### Economic impact and macroeconomic outlook
- Channels of impact:
  - Collapse of international travel (tourism accounts for 15 percent of GDP and 35 percent of export receipts).
  - Lower activity in hospitality and food service sectors.
  - Slowdown in economies of Tanzania’s main trading partners.
- Growth projections and scenarios:
  - Real GDP growth is expected to fall to about 4 percent this fiscal year (ending in June) and further decelerate to less than 3 percent next year compared to the pre-crisis projection of nearly 6 percent.
  - Baseline projections assume the health impact is contained and the economic impact is mainly through external channels; downside risks to growth are pronounced.
- Fiscal and external impacts:
  - Foreign reserves projected to decline by nearly 25 percent, reducing import coverage from 5.2 months at end-2019/20 to 3.7 months at end-2020/21 (if exceptional financing is not secured, reserve coverage would fall to 3.2 months of imports).
  - FY2019/20 fiscal revenue loss due to COVID-19 is estimated to be 0.1 percentage points of GDP relative to pre-COVID projections; higher gold receipts may offset some loss.
  - FY2020/21 fiscal projections:
    - Fiscal revenues projected to fall by about 0.6 percentage points of GPD.
    - Spending needs could rise by about 0.4 percentage points owing to additional health and protection measures.
    - Resulting fiscal and balance of payments financing gaps in the order of US$693 million (1 percent of GDP).1
  - The authorities submitted a request for emergency financial support from the IMF under the RCF/RFI.

### Macroeconomic and financial sector policies implemented
- Bank of Tanzania actions:
  - Reduced the discount rate from 7 percent to 5 percent.
  - Lowered minimum reserve requirements from 7 percent to 6 percent.
  - Increased daily limits of mobile money transactions.
  - Will provide regulatory flexibility to banks for loan restructuring operations.
- Fiscal adjustments and reprioritization:
  - VAT and customs duties exemptions granted to medical equipment supplies.
  - Expedited repayment of expenditure arrears.
  - Allocated increased spending to health and social protection; authorities indicated intent to reallocate funds and use contingency reserves.
  - In FY2020/21 authorities are planning for an 8.8 percent increase in priority social spending and expect to scale up spending further once external financing is secured.

### Staff appraisal, eligibility, and recommendations
- Eligibility and assessment:
  - Staff supports Tanzania’s request for debt relief under the CCRT.
  - Tanzania meets the income threshold with GNI per capita of US$1,020, below the threshold of US$1,175.
  - Staff assesses that Tanzania faces exceptional balance of payments needs stemming from the impact of COVID-19.
- Staff view of policies:
  - Given current financing constraints and plans to seek external support, staff considers Tanzania is pursuing appropriate macroeconomic policies, though risks remain.
  - Authorities committed to audits of external support for COVID-related spending and are working to implement governance measures, especially AML/CFT reforms and repayment of expenditure arrears.
- Staff recommendations and priorities:
  - Ensure ex-post audits of COVID-19 related spending.
  - Safeguard and, where possible, increase health and priority social spending in FY2020/21.
  - Maintain close cooperation with WHO, multilateral agencies, and donors.
  - Proceed with reforms addressing arrears on VAT refunds and government expenditures, improve the business environment, and implement reforms to increase bank lending and lower interest rates.

### Risks, financing, and debt service
- Downside risks:
  - Possible second wave of infections could require a stronger public health response and negatively impact economic activity.
  - Donor support might not materialize on time or as needed, requiring larger fiscal effort.
- Financing gaps and support:
  - Financing gaps included in baseline projections in tables 1 and 2; exceptional financing and CCRT relief shown in balance of payments projections.
  - The Fund’s emergency request and support by development partners are under discussion.
- Upcoming IMF debt service (as reported):
  - Tanzania has debt service to the Fund of SDR 10.3 million falling due in the initial period of debt service relief up to October 13, 2020.
  - Debt service falling due in the 24 months from April 14, 2020 amounts to SDR 18.6 million.
  - Table 3 (As of May 15, 2020) lists Total 18,566,777 SDR eligible for CCR debt relief.

### Key statistics and projection highlights (selected figures preserved exactly as reported)
- Health and cases:
  - 509 cases and 21 deaths (as of May 8).
- Growth and inflation:
  - Real GDP: 6.8, 6.9, 6.6, 4.0, 2.8, 4.9, 6.3, 6.5 (2017/18–2023/24 row from Table 1).
  - CPI (period average): 5.3, 4.3, 3.2, 3.6, 3.9, 4.2, 4.5, 5.0.
- External sector and reserves:
  - Tourism accounts for 15 percent of GDP and 35 percent of export receipts.
  - Gross international reserves (in billions of U.S. dollars): 5.0, 5.5, 4.4, 4.7, 3.5, 3.5, 4.1, 4.6 (2016/17–2023/24).
  - Months of next year's imports: 6.1, 6.4, 5.0, 5.1, 3.7, 3.5, 3.8, 4.0.
- Fiscal figures:
  - FY2019/20 health additional spending pledged: US$8.4 million (authorities indicated reallocation and contingency use); additional shilling 19.5 billion spent in FY 2019/20 per Letter of Intent.
  - FY2020/21 planned increase for priority social sectors: 8.8 percent (from shillings 5,534.1 billion to shillings 6,022.1 billion as stated in Letter of Intent).
  - Financing gap reported in staff analysis: US$693 million (1 percent of GDP).
  - Letter of Intent projects emerging balance of payments needs on the order of US$696 Million (1 percent of GDP and 12.6 percent of our end-March official external reserves).
- IMF debt service (selected):
  - SDR 10.3 million due up to October 13, 2020 (initial period of relief).
  - SDR 18.6 million due in the 24 months from April 14, 2020 (Table 3 total 18,566,777 SDR).

*Source: UNITED REPUBLIC OF TANZANIA — REQUEST FOR DEBT RELIEF UNDER THE CATASTROPHE CONTAINMENT AND RELIEF TRUST (IMF staff appraisal and supporting tables), June 4, 2020.*

### 1. Our Tanzanian authorities appreciate the Fund’s support for their request for debt

### 1. Our Tanzanian authorities appreciate the Fund’s support for their request for debt

### Request and context
- Authorities request debt service relief under the Catastrophic Containment Relief Trust (CCRT) in the amount of SDR 18.6 million to cover repayments to the Fund, falling due in 24 months from April 14, 2020.
- The authorities consider the relief critical to freeing up public resources to address public health needs and help contain balance of payments needs resulting from the COVID-19 pandemic.
- In parallel, the authorities are engaging the Fund to secure additional support by accessing emergency financing facilities.
- To ensure transparency and accountability in the use of COVID-related expenditure, the authorities have committed to:
  - undertake a post-audit of COVID-19 spending; and
  - publish the letter of request for debt-relief under the CCRT.

### Impact of the Pandemic
- Tanzania averaged 6-7 percent a year economic growth over the last decade; the outbreak of the COVID-19 pandemic threatens to reverse this performance, with a significant growth impact in FY20/21.
- Key channels of shock:
  - contraction in tourism and exports from suspension of international travel;
  - lower activity in hospitality services; and
  - economic slowdown in major trading partners.
- Tourism constitutes 35 percent of export receipts and has been severely hit by temporary containment measures.
- GDP growth is expected to register significant deceleration in FY19/20 and thereafter; growth effects are expected to be more pronounced during the peak of the tourism season starting in June.
- Fiscal and external projections and impacts:
  - Fiscal revenues are expected to decline by 0.6 percent of GDP in FY20/21.
  - Spending is expected to increase owing to additional health needs and support to vulnerable households and firms.
  - Foreign exchange reserves are projected to fall from 5.2 months of import cover in FY19/20 to 3.7 months in FY20/21.
  - The combined balance of payments and fiscal financing needs are projected to be US$693 million (1 percent of GDP) for FY20/21.
- While the health system continues to cope with a relatively mild human impact of COVID-19, a prolonged crisis may place a strain on capacity.

### Policy Response
- Immediate containment and mitigation measures taken since the first confirmed case in March 2020:
  - restriction on large gatherings;
  - temporary closure of academic institutions and non-essential businesses;
  - suspension of international air travel.
- Fiscal measures:
  - reallocated funds under the FY19/20 budget to increase spending on health and social protection needs, equivalent to $8.4 million;
  - waived VAT and customs duties on medical equipment supplies;
  - prioritized the settlement of arrears to the business sector;
  - earmarked a higher budgetary allocation (approximately 8.8 percent) for priority social spending, including on health and social protection in FY20/21.
  - Government remains committed to undertake additional measures, should the pandemic continue for an extended period.
- Monetary and financial sector measures by the Bank of Tanzania (BoT):
  - implemented measures to ease liquidity conditions in the monetary sector, including a reduction in the discount rate;
  - reduced reserve requirements to enhance credit to the private sector;
  - stands ready to help banks deploy regulatory flexibility for loan restructuring, where warranted, while pursuing strong oversight to ensure financial sector stability.
- Structural and governance actions:
  - intend to strengthen budget planning and expenditure control as well as tax administration;
  - improve public investment management;
  - address arrears and delays in VAT refunds;
  - implement improvements in the business environment;
  - implementing various governance measures, including in the context of the AML/CFT framework.

### Conclusion
- Authorities look forward to Executive Directors’ favorable consideration of their request for debt relief under the CCRT.
- They remain confident that Fund support will create the much-needed fiscal space to help alleviate strains on the fiscal position.
- They value Fund’s support and look forward to further engagement to help address their medium-term macroeconomic objectives.

*Source: 1tzaea2020001 — Our Tanzanian authorities appreciate the Fund’s support for their request for debt relief under the Catastrophic Containment Relief Trust (CCRT).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1tzaea2020001.pdf_