## 1tzaea2022001 ## Source details **Canonical URL:** [1tzaea2022001](https://www.imf.org/-/media/files/publications/cr/2022/english/1tzaea2022001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2022/english/1tzaea2022001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2022/english/1tzaea2022001.pdf.json) --- ### Executive summary — context and program request - Tanzania gradually recovering from COVID-19; IMF emergency financing (0.8 percent of GDP) in 2021 helped address fiscal pressures and finance the COVID-19 response. - Authorities requested a 40-month Extended Credit Facility (ECF) arrangement with access of 200 percent of quota (SDR 795.58 million) to address protracted balance of payments needs associated with COVID-19 and the war in Ukraine and to support FYDPIII reforms. - Immediate ECF priorities: - Complete the COVID-19 health and economic response and growth recovery. - Preserve macroeconomic stability and cope with spillovers from the war in Ukraine. - Strengthen fiscal space, resume structural reforms, deepen and stabilize the financial sector, and deliver capacity development. ### Recent economic developments (selected) - Growth and inflation - Real GDP growth: 4.8 percent in 2020 (authorities’ reported deceleration); authorities estimate growth at 4.9 percent in 2021. - Staff projects calendar year 2022 growth of 4.7 percent. - Inflation: expected end-FY2021/22 6.4 percent; inflation increased to 4.0 percent in May 2022 (from 3.2 in April 2021). - COVID-19 health indicators - As of May 27, 2022: 34,031 cases and 803 deaths reported. - Vaccination since July 2021: about 7.6 percent of the population (4.6 million people) inoculated; target to vaccinate 70 percent of the adult population by end-June 2023. - External sector and reserves - Current account deficit: widened to 3 percent of GDP in 2021 (from 1.8 percent in 2020). - Imports of goods and services increased by 27.4 percent y/y in 2021. - Gross international reserves declined by about US$1.2 billion since last September to around US$5.5 billion in April 2022 (4.8 months of prospective imports). - Fiscal and financial sector - FY2020/21 fiscal deficit: widened by 2 percentage points to 3.9 percent of GDP. - FY2021/22 overall deficit projected at 2.8 percent of GDP. - Private sector credit growth: 13.4 percent (y/y) in April 2022. - Banking sector vulnerabilities: high legacy NPLs, undercapitalization of smaller banks, under provisioning, increased restructured loans, foreign exchange vulnerabilities in a dollarized system. ### Program objectives, financing, and phasing - ECF arrangement: 40 months, access 200 percent of quota (SDR 795.58 million) with semi-annual reviews. - Financing needs: balance of payments needs estimated at about US$2,103 million over FY2022/23–FY2025/26. - Financing gap and IMF role: - Financing gap before budget support and IMF financing estimated at US$2,103 million over FY2022/23-FY2025/26. - ECF expected to contribute about 47 percent of the exceptional financing gap in the first year. - Proposed ECF phasing (selected entries, SDR millions / US$ millions / Tsh billions / percent of GDP): - Approval (July 18, 2022): 115.36 SDR — 155.50 US$ — 359.21 Tsh — 0.19 percent of GDP. - First review (March 29, 2023): 113.37 SDR — 152.83 US$ — 353.03 Tsh — 0.19 percent of GDP. - Total: SDR 795.58 — US$ 1072.46 — Tsh 2477.37 — 1.32 percent of GDP. - Exchange rates used: - 1 SDR = 1.348030 US$ (as of June 2, 2022). - 1 USD = 2,309.99 Tanzanian shillings (as of March 31, 2022). ### Fiscal policy stance and measures - Fiscal anchor: domestic primary balance (QPC) to safeguard debt sustainability. - FY2022/23 budget (aligned with program): - Domestic primary deficit projected to be 2.3 percent of GDP (QPC). - Tax revenues projected to reach 12.6 percent of GDP in FY2022/23. - Spending projected to increase to 18.7 percent of GDP in FY2022/23. - Priority social spending (PSS) projected to increase to 6.6 percent of GDP (Indicative Target). - Development spending rebalanced; development spending expected to increase by 0.8 pp. of GDP to 11.3 percent of GDP (program text). - FY2020/21–medium-term deficits (percent of GDP): - Fiscal primary balance: 2020/21 -2.2; 2021/22 -1.3; 2022/23 -1.8; 2023/24 -1.2; 2024/25 -0.8; 2025/26 -0.5; 2026/27 -0.6. - Fiscal overall balance: 2020/21 -3.9; 2021/22 -2.8; 2022/23 -3.3; 2023/24 -3.1; 2024/25 -2.7; 2025/26 -2.5; 2026/27 -2.5. - Fiscal package in FY2022/23 draft Budget (total = 0.7 percent of GDP): - Petroleum subsidies (waiving excise duties): Tsh 500 billion or 0.3 percent of GDP (July–December 2022). - Reduced import duties on cooking oil: projected revenue losses Tsh 26.9 billion. - Fertilizer subsidies: Tsh 100 billion (0.1 percent of GDP). - Waiving VAT for locally produced fertilizers and royalty reduction: projected revenue losses Tsh 400 million. - Increased cash transfers: Tsh 524 billion (0.3 percent of GDP). ### Medium-term macro-framework and projections (scenario assumptions) - Scenario assumes pandemic scarring, Ukraine spillovers, and active policy reforms. - Growth and inflation projections (selected): - Real GDP (percent): 2020/21 Est. 4.9; 2021/22 4.8; 2022/23 Proj. 5.0; 2023/24 Proj. 5.8; 2024/25 Proj. 6.3; 2025/26 Proj. 6.6; 2026/27 Proj. 6.9. - CPI (period average, percent): 2020/21 3.3; 2021/22 4.2; 2022/23 5.3; 2023/24 4.4; 2024/25 4.0; 2025/26 4.0; 2026/27 4.0. - Investment: increase towards 40 percent of GDP; private investment projected to rise by almost 6 pp. of GDP over the medium term with reforms. - Revenues: total revenue to increase by 1.3 pp. of GDP over the program. - Current account and reserves: current account deficit expected to decline and stabilize around 2.5 percent of GDP; reserves expected to recover to 4.5 months of imports over the medium-term. ### War in Ukraine — impacts and program response - Channels: deterioration in terms of trade (oil, food, fertilizer prices); disrupted tourist flows from Russia and Ukraine. - Projected near-term impacts: - Widen current account deficit by more than 1 percent of GDP in the next few years. - Lead reserves to decline by about US$800 million over the next few years. - Reduce growth in 2022 and 2023 by about 0.3 pp relative to pre-war scenario. - Increase operational costs and potentially raise NPLs, especially for institutions with sectoral exposures. - Program response: - Targeted fiscal measures (e.g., temporary petroleum subsidies, cooking oil duty reductions, fertilizer support). - Structural reforms and social spending under ECF to partly compensate for war effects in 2023. ### External financing, SDR use, and capacity to repay - Financing gap under program baseline (Millions of US dollars; exact figures preserved): - Financing Gap Under Program Baseline: 2020/21 Est. 23; 2021/22 866; 2022/23 Proj. 661; 2023/24 Proj. 659; 2024/25 Proj. 626; 2025/26 Proj. 157. - In percent of GDP: 0.0; 1.2; 0.8; 0.7; 0.6; 0.1. - Expected budget support (Millions of US dollars): 2021/22 300; 2022/23 350; 2023/24 350; 2024/25 313. - IMF financing (Millions of US dollars): 2022/23 311; 2023/24 309; 2024/25 313; 2025/26 157. - BoT intends to use new SDR allocation of about US$543 million to boost reserves; invested in US money market instruments and treasury bonds and may be used to close financing gaps if needed. - Capacity to repay the Fund: - Outstanding credit would peak in 2025/26 at 1.5 percent of GDP (or 9.7 percent of revenue, excluding grants). - Annual repayments projected to peak at 0.2 percent of GDP and 1.2 percent of government revenue in FY2030/31. ### Debt sustainability and safeguards - Public debt: 2020/21 41.5 percent of GDP; projected to decline to 33.6 percent of GDP by 2026/27 (Text Table 1). - DSA: Tanzania remains at moderate risk of external debt distress and moderate risk of overall public debt distress under baseline. - Enhanced safeguards: - Multilateral debt share above 61 percent at program initiation; projected to reach 66.6 percent by 2024. - No collateralized debt reported. - Program introduces a QPC and IT on external debt to preserve medium risk under adverse scenarios. - BoT safeguards assessment: relatively good safeguards; BoT to prepare draft amendments to BoT Act to strengthen governance and autonomy; revisit MoU with MoFP given ECF budget support. ### Financial sector reform and risks - Banking sector: 46 financial institutions (34 commercial banks, 5 community banks, 5 microfinance institutions, 2 development banks). - Dollarization: among the most dollarized in the EAC; FX loans and liabilities largely matched at institution level but pose vulnerability to depreciation. - Restructured loans: about 11 percent of gross loans at end-December 2021. - Stress tests: - Severe credit shock: NPLs could rise to 15 percent and above; capital of 7 small-to-medium banks could fall below 10 percent regulatory minimum. - Severe interest rate shock: about 5 banks could experience a capital shortfall. - Supervisory priorities: - Step up enforcement on undercapitalization, NPLs, restructured loans, provisioning, and prompt corrective action. - Expand real-time data collection and improve stress testing and crisis management frameworks. - FSAP reform program: implement Basel II/III by December 2023; draft Emergency Liquidity Assistance framework expected by end-2022; publish operational monetary policy guidelines by June 2023 (structural benchmark). ### Social spending, human capital, and public employment - Priority social spending (PSS): - PSS execution expected to reach 5.8 percent of GDP in current fiscal year; FY2022/23 allocation increases to 6.7 percent of GDP and expected to remain at that level during the program. - Indicative target: PSS floor monitored. - Education and health staffing: - Government plans to hire 10,000 additional health workers and 15,000 primary and secondary teachers in FY2022/23 (structural benchmark/by June 2023). - Student-teacher ratios: 41 (2015) → 58 (2019); population growth about 3 percent per year; fertility rate 5. - Teacher hiring needs: about 40,000 primary and 44,000 secondary teachers; Ministry estimate of primary teacher shortage: 55,000. - Social safety nets: - TASAF cash transfer program covers close to 900,000 households. - World Bank estimates poverty rate (national definition) in 2021 at 27 percent; extreme poverty rate close to 50 percent. ### Fiscal risks, arrears, and mitigation - Main fiscal risks: - Stock of verified arrears: 1.9 percent of GDP by end-FY2020/21. - Outstanding VAT refunds: about 0.6 percent of GDP at end-FY2020/21; outstanding refunds declined to 0.4 percent of GDP by end-December 2021; likely 0.1 percent of GDP of outstanding arrears moving to FY2022/23. - Contingent liabilities from SOEs and LGAs; TANESCO-related risks: TANESCO outstanding debt to government about 1.6 percent of GDP. - Non-cash bond issued to settle PSSSF arrears: Tsh 2.2 trillion (about 1.3 percent of GDP); outstanding claim 1.4 percent of GDP subject to verification. - Mitigation measures: - Develop and implement a plan to reduce arrears over next three years; ensure commitments recorded in IFMIS; adopt new arrears definitions and quarterly verification. - Implement plan for VAT refunds repayment and risk-based verification. - Contain TANESCO risks: clear arrears, build generation capacity, resolve outstanding debt through modalities including potential conversion of on-lent loan into equity. - Accelerate verification and clearance plan for social security fund claims. ### Program monitoring, conditionality, and reporting - Monitoring modalities: - Semi-annual reviews; continuous QPCs and periodic QPCs; indicative targets for PSS, stock of domestic arrears, and newly disbursed external non-concessional borrowing. - Selected QPCs and ITs (Tsh billions or US$ where indicated; end-period/test dates): - Continuous PC: external payment arrears (zero ceiling) and PV of new external debt (ceiling). - Performance criteria (floor on domestic primary balance; ceiling on NDA of BoT; floor on change in net international reserves). - Indicative targets: floor on priority social spending; ceilings on stock of domestic arrears and newly disbursed external non-concessional borrowing. - Reporting and data obligations: comprehensive monthly and quarterly data reporting schedule (BoT, MoFP, NBS, TRA). ### Risks, contingency measures, and policy responses - Outlook highly uncertain; risks tilted downward. - Key risks: escalation of war in Ukraine effects; higher/volatile commodity prices; lagging vaccinations; monetary policy normalization in advanced economies; delays in FSAP reforms. - Contingency policy options: - Allow exchange rate to fully adjust; use reserves to prevent disorderly markets; strengthen financial system preparedness; reprioritize spending to protect PSS; provide targeted transparent fiscal support to affected sectors. ### Selected numeric tables and indicators (high-frequency highlights) - Real GDP (percent): 2020/21 Est. 4.9; 2021/22 4.8; 2022/23 Proj. 5.0; 2023/24 Proj. 5.8; 2024/25 Proj. 6.3; 2025/26 Proj. 6.6; 2026/27 Proj. 6.9. - CPI (period average, percent): 2020/21 3.3; 2021/22 4.2; 2022/23 5.3; 2023/24 4.4; 2024/25 4.0; 2025/26 4.0; 2026/27 4.0. - Credit to private sector (end of period, percent): 2020/21 3.6; 2021/22 9.1; 2022/23 10.7; 2023/24 11.5; 2024/25 11.6; 2025/26 11.7; 2026/27 12.0. - Public debt (percent of GDP): 2020/21 41.5; 2021/22 39.5; 2022/23 38.3; 2023/24 37.2; 2024/25 35.8; 2025/26 34.6; 2026/27 33.6. - Current account balance (percent of GDP): 2020/21 -1.9; 2021/22 -4.5; 2022/23 -4.3; 2023/24 -3.5; 2024/25 -3.1; 2025/26 -2.9; 2026/27 -2.7. - Reserves (months of imports): 2020/21 4.9; 2021/22 4.5; 2022/23 4.2; 2023/24 4.4; 2024/25 4.5; 2025/26 4.5; 2026/27 4.5. - Financing gap under program baseline (Millions US$): 2022/23 Proj. 661; 2023/24 Proj. 659; 2024/25 Proj. 626; 2025/26 Proj. 157. ### Governance, statistics, and transparency commitments - Commitments: - Publish quarterly RCF spending reports and pandemic procurement/contracts; post beneficial owners and contract details. - Complete post-crisis audit of pandemic-related spending by December 2022 (structural benchmark). - Reconcile national accounts and balance of payments and publish revised national accounts by June 2023 (structural benchmark). - Strengthen AML/CFT framework and implement new NACSAP (2023–28). - Improve public finance statistics, include public entities in consolidated reporting, and modernize IFMIS to capture commitments by June 2023. ### Capacity development and technical assistance priorities - CD priorities aligned with program: - Tax policy and administration reforms, MTRS preparation and implementation. - Reliable national accounts and fiscal statistics. - Public Financial Management improvements (PIMA). - Monetary and financial sector oversight, FSAP implementation, and transition to interest rate-based monetary policy. *Source: UNITED REPUBLIC OF TANZANIA — IMF staff report (excerpts), content unit 1tzaea2022001.* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context - Tanzania’s economy is gradually recovering from the negative effects of the COVID-19 pandemic. - IMF emergency financing (0.8 percent of GDP) in 2021 helped address fiscal pressures, preserve stability, and finance the authorities’ COVID-19 economic and health response. - The authorities are seeking renewed Fund assistance to support the country facing protracted balance of payments needs associated with two external shocks—the COVID-19 pandemic and the war in Ukraine—and to support the authorities’ reform agenda summarized in their Five-Year Development Plan. - Tanzania has abundant natural resources, including gold and natural gas, and its location is a potential gateway for regional trade. Rapid population growth has resulted in a growing number of people below the poverty line and put pressure on education and health services. Low levels of human capital and an infrastructure deficit limit growth potential and pose challenges to achieve the Sustainable Development Goals (SDGs). ### Recent economic developments - Growth and inflation - Real GDP growth: 4.8 percent in 2020 (authorities’ reported deceleration); authorities estimate growth at 4.9 percent in 2021. - Staff projects calendar year 2022 growth of 4.7 percent. - Inflation is now expected to be significantly higher at the end of FY2021/22 (6.4 percent) than in the previous fiscal year. - Inflation increased to 4.0 percent in May 2022 (from 3.2 in April 2021), mainly due to rising oil and food prices and supply chain delays. - COVID-19 response and health indicators - As of May 27, 2022, Tanzania has officially reported 34,031 cases and 803 deaths. - Since July 2021 vaccination start, about 7.6 percent of the population (4.6 million people) have been inoculated. - Government released a fourth version of their COVID-19 Response Plan (TCRP) and passed the FY2021/22 Supplementary Budget in mid-February incorporating additional COVID-19 spending, partly financed by RCF disbursements. - External sector and reserves - Current account deficit widened to 3 percent of GDP in 2021, from 1.8 percent of GDP in 2020. - Imports of goods and services increased sharply by 27.4 percent y/y in 2021, driven by large construction and consumer goods imports and a larger oil bill. - Despite new SDR allocation and RCF disbursements in 2021, gross international reserves declined by about US$1.2 billion since last September to around US$5.5 billion in April 2022 (4.8 months of prospective imports). - Fiscal developments - FY2020/21 fiscal deficit widened by 2 percentage points to 3.9 percent of GDP, as revenues contracted by 1.3 pp. of GDP and development spending increased by 0.7 pp. of GDP. - Authorities and staff project an overall deficit for FY2021/22 of 2.8 percent of GDP. - Total and tax revenue collection recovered by approximately 1.1 pp of GDP, despite acceleration of VAT refunds (Tsh 950 billion or 0.4 pp of GDP). - Grants expected to increase by 0.2 pp. of GDP; non-tax revenues remain flat. - Correcting for cash adjustments in FY2020/21, total spending projected to increase by around 0.2 pp. of GDP, with a larger increase in goods and services spending than in development spending. - Financial sector - Private sector credit growth increased to 13.4 percent (y/y) in April 2022, from less than 5 percent throughout most of 2021. - Banking sector vulnerabilities persist: high legacy non-performing loans (NPLs), undercapitalization of smaller banks, under provisioning, increased ratio of restructured loans, and foreign exchange vulnerabilities in a dollarized banking system. - Significant financial sector reform program underway following the 2018 Financial Sector Assessment Program, including data improvements, system stress testing, and merging small undercapitalized banks. ### Program objectives and modalities - Authorities have requested an Extended Credit Facility (ECF) arrangement to assist recovery, preserve macroeconomic stability, and support structural reforms toward sustainable and inclusive growth. - Staff proposes a 40-month ECF arrangement with access of 200 percent of quota (SDR 795.58 million), with semi-annual reviews. - Financing under the arrangement will help address balance of payment needs estimated at about US$2,103 million over FY2022/23-FY2025/26. - Based on the program baseline, Tanzania’s risk of debt distress remains moderate for both external and overall public debt, and capacity to repay the Fund is adequate. - Immediate priority of the ECF: complete the COVID-19 health and economic response and growth recovery, maintain macroeconomic stability, and help Tanzania cope with spillovers from the war in Ukraine. - The authorities’ FYDPIII priorities include: - Completing ongoing public sector investment program in key infrastructure projects. - Deepening industrialization and service provision. - Addressing institutional bottlenecks through streamlining business environment procedures. - Investing and promoting trade. - Improving human development through targeted social spending and developing technical education and vocational training. - ECF priorities (drawing on FYDPIII and MEFP ¶7): - Strengthen fiscal space to allow for social spending and high-yield public investment through improved revenue mobilization and spending quality. - Resume and advance structural reform agenda to unlock growth potential, improve business environment and competitiveness. - Strengthen financial deepening and stability, including enhancing the monetary framework and improving supervision. - Capacity development is key for program success. ### Program policies and implementation - Program will focus on: - Completing pandemic health and economic response. - Preserving macro stability amid spillovers from the war in Ukraine. - Supporting structural reforms for sustainable and inclusive growth aligned with government priorities. - Fiscal policy emphasis: - Improve revenue mobilization and spending quality to create fiscal space for social spending and public investment. - Financial sector and monetary policy emphasis: - Enhance the monetary policy framework and improve financial sector supervision. - Continue financial sector reforms initiated after the 2018 Financial Sector Assessment Program. ### Staff views and mission - Staff supports the authorities’ request for an ECF arrangement. - The Letter of Intent and Memorandum of Economic and Financial Policies demonstrate program ownership, appropriate policies to pursue objectives, and needed safeguards. - Discussions took place in Dar es Salaam, Dodoma, and Zanzibar during May 4–19, 2022, and virtually during May 22–June 9, 2022. - Staff team included Charalambos Tsangarides (head), Sebastian Acevedo, Xiangming Fang, Chiara Ferrero, Cameron McLoughlin, Marcos Poplawski Ribeiro, Jens Reinke (Resident Representative), Chelaus Rutachururwa (local economist), and participation by Tamsir Cham (OEDAE). Nourdine Ouattara (AFR) managed document production. *Source: EXECUTIVE SUMMARY, 1tzaea2022001 - EXECUTIVE SUMMARY* ### 12. The ECF arrangement will support the continued implementation of the TCRP. ### 12. The ECF arrangement will support the continued implementation of the TCRP. ### Health sector response and COVID-19 - Continued resources required to achieve the target of vaccinating 70 percent of the adult population by end-June 2023 (MEPF, ¶2). - Additional needs: expanding testing capacity and availability, and hiring additional healthcare personnel. ### Fiscal package financed by the ECF arrangement (FY2022/23 draft Budget measures; total = 0.7 percent of GDP) - Subsidies on the importation of gasoline, diesel and kerosene petroleum products via the waiving of excise duties: estimated total expenditure of Tsh 500 billion or 0.3 percent of GDP (from July until December 2022) to reduce consumer prices. - Reduced import duties on cooking oil by lowering import duty rates for refined edible oil and crude cooking oil: projected revenue losses of around Tsh 26.9 billion. - Fertilizer subsidies: Tsh 100 billion (0.1 percent of GDP) to support producers and boost local production. - Waiving of VAT for locally produced fertilizers and reduction of royalty charges on minerals used in the energy and fertilizer industries: projected revenue losses of around Tsh 400 million. - Increased envelope for cash transfers for social protection: Tsh 524 billion allocated to cash transfers (0.3 percent of GDP), including to support food security. ### Program medium-term macro-framework (scenario assumptions and summary) - Scenario incorporates scarring from the pandemic, spillovers from the war in Ukraine, and active policy reforms (Box 1, Text Table 1). - Growth: - Gradual growth rebound, leveling at 7 percent in the outer years. - Spillovers from the war in Ukraine are expected to keep growth around 4.7 in 2022; growth is expected to accelerate in 2023 and beyond, stabilizing at around 7 percent.1F2 - Inflation: - A hump-shaped path of average inflation. - After peaking at 5.3 percent in FY2022/23 2F3, average inflation is expected to stabilize around 4 percent over the medium term. - Investment: - Investment to increase towards 40 percent of GDP, driven notably by the private sector. - Private investment projected to increase over the medium term by almost 6 pp. of GDP with implementation of the Investment Act and the Blueprint for Regulatory Reforms (MEFP ¶35). - Revenue and fiscal balance: - Total revenue would gradually increase by 1.3 pp. of GDP over the course of the program. - Tax and revenue administration reforms are projected to improve tax revenues by about 1 pp. of GDP. - Overall deficit to be reduced to below 3 percent of GDP. - Current account and reserves: - Current account deficit expected to decline over the medium-term, stabilizing at around 2.5 percent of GDP. - Reserves expected to recover to 4.5 months of imports over the medium-term. ### Selected economic and financial indicators under the ECF arrangement (Text Table 1: 2020/21–2026/27) - Real GDP (percent): 2020/21 Est. 4.9; 2021/22 4.8; 2022/23 Proj. 5.0; 2023/24 Proj. 5.8; 2024/25 Proj. 6.3; 2025/26 Proj. 6.6; 2026/27 Proj. 6.9. - GDP deflator (index): 2020/21 117.5; 2021/22 122.7; 2022/23 129.2; 2023/24 136.1; 2024/25 142.4; 2025/26 148.8; 2026/27 155.6. - CPI (period average, percent): 2020/21 3.3; 2021/22 4.2; 2022/23 5.3; 2023/24 4.4; 2024/25 4.0; 2025/26 4.0; 2026/27 4.0. - Credit to the private sector (end of period, percent): 2020/21 3.6; 2021/22 9.1; 2022/23 10.7; 2023/24 11.5; 2024/25 11.6; 2025/26 11.7; 2026/27 12.0. - Fiscal primary balance (percent of GDP): 2020/21 -2.2; 2021/22 -1.3; 2022/23 -1.8; 2023/24 -1.2; 2024/25 -0.8; 2025/26 -0.5; 2026/27 -0.6. - Fiscal overall balance (percent of GDP): 2020/21 -3.9; 2021/22 -2.8; 2022/23 -3.3; 2023/24 -3.1; 2024/25 -2.7; 2025/26 -2.5; 2026/27 -2.5. - Public debt (percent of GDP): 2020/21 41.5; 2021/22 39.5; 2022/23 38.3; 2023/24 37.2; 2024/25 35.8; 2025/26 34.6; 2026/27 33.6. - Current account balance (percent of GDP): 2020/21 -1.9; 2021/22 -4.5; 2022/23 -4.3; 2023/24 -3.5; 2024/25 -3.1; 2025/26 -2.9; 2026/27 -2.7. - Reserves (months of imports): 2020/21 4.9; 2021/22 4.5; 2022/23 4.2; 2023/24 4.4; 2024/25 4.5; 2025/26 4.5; 2026/27 4.5. ### Box 1 — Effects of the war in Ukraine and program framework (summary) - Channels of impact: deterioration in terms of trade (oil, food, fertilizer prices); disrupted tourist flows from Russia and Ukraine. - Projected near-term impacts: - Widen current account deficit by more than 1 percent of GDP in the next few years. - Lead reserves to decline by about US$800 million over the next few years. - Reduce growth in 2022 and 2023 by about 0.3 pp relative to the pre-war scenario. - Cause higher operational costs and hence NPLs to increase, particularly affecting institutions with exposures (e.g., energy industry). - Program response: fiscal measures to safeguard the economy and protect the most vulnerable; structural reform and development agenda expected to deliver higher medium-term growth; fiscal and social spending under the ECF program and Business Act/Blueprint reforms to partly compensate for war effects in 2023. ### External financing and debt management - External financing will continue to be primarily on concessional terms and grants to preserve debt sustainability. - Long-term non- and semi-concessional borrowing may be considered to support critical expenditure needs for high-yield investment projects. - Public debt dynamics: - Public debt could reach about 42.2 percent of GDP in FY2021/22, higher than 39.7 percent of GDP in FY2020/21. - A new DSA shows Tanzania remains at moderate risk of external debt distress and moderate risk of overall public debt distress. ### Risks, uncertainty, and contingency measures - Outlook highly uncertain with risks tilted downward (Annex IV). - Key risks: worsening global economic and financial environment due to the war in Ukraine; higher/more volatile commodity prices; lagging vaccination rates; normalization of monetary policy in advanced economies; delays in implementing FSAP reforms. - Potential impacts: worsen external position, increase financing needs, undermine growth recovery, pressure reserves and liquidity, raise NPLs. - Contingency measures: - Allow the exchange rate to fully adjust. - Use reserve buffers to prevent disorderly market conditions. - Strengthen financial system preparedness. - Reprioritize spending to protect priority social spending (PSS) and safeguard fiscal and debt sustainability. - Provide targeted, timely, and transparent additional fiscal support to affected sectors if risks materialize. ### Promoting sustainable and inclusive growth — Fiscal policy priorities - FY2022/23 budget is fully aligned with program objectives and entails a moderate expansion warranted by external shocks (MEFP ¶12). - Overall deficit expected to increase by around 0.4 pp. of GDP to 3.3 percent of GDP. - Domestic primary balance (program’s operational fiscal tool) expected to reach 2.3 percent of GDP (MEFP Table 1). - Total revenues projected to increase by 0.2 pp. of GDP; total spending expected to increase by 0.5 pp. of GDP to 18.7 percent of GDP in FY2022/23. - Composition: development spending rebalanced towards recurrent spending; development spending expected to increase by 0.8 pp. of GDP to 11.3 percent of GDP, driven by increase in PSS. - Mid-year review: if revenue execution falls short, program envisages adjustment to the budget during the mid-year review in February 2023 to reprioritize spending while protecting PSS. ### Fiscal structural reforms and revenue mobilization - Key reform areas to raise tax revenues: - Broadening the tax base through electronic declarations and electronic payments. - Bringing the digital economy into the tax net. - Controlling and reducing tax exemptions granted in tax laws. - Enhancing tax administration systems and human resource capacity. - Improving risk-based programming and recovery action (MEFP ¶26). - Additional measures: recover tax arrears, expand registration of taxpayers (MEFP ¶23), rationalize tax and customs exemptions (MEFP ¶24). - Diagnostics and strategies: two diagnostics (on tax policy and administration) and preparation/implementation of a Medium-Term Revenue Strategy (MTRS) envisaged (MEFP ¶26). ### Rebalancing spending towards social priorities and public employment - Priority social spending (PSS): - PSS budget execution expected to reach 5.8 percent of GDP in the current fiscal year, reversing the declining trend. - FY2022/23 PSS allocation increases in nominal terms reaching 6.7 percent of GDP and expected to remain at that level during the program (supported by an indicative target, Annex VI). - Public employment: - Wage bill for education and health sectors expected to increase gradually by 0.7 percentage points of GDP due to recruitment to address severe personnel shortages. - FY2022/23 budget envisions appointing 10,000 additional health workers and 15,000 primary and secondary teachers (MEFP ¶24). ### Fiscal risks and mitigation (Box 2 summary) - Main sources of fiscal risk: - Accumulation of domestic arrears: stock of verified arrears was 1.9 percent of GDP by end-FY2020/21. - Unpaid VAT refunds: tax arrears of about 0.6 percent of GDP at end-FY2020/21; government paid about 0.4 percent of GDP in VAT refunds in first half of FY2021/22; outstanding refunds declined to 0.4 percent of GDP by end-December 2021; likely 0.1 percent of GDP of outstanding arrears moving to FY2022/23. - Contingent liabilities from SOEs and local governments (LGAs): external financing requires government guarantees, posing risks if SOEs/LGAs become insolvent. - Outstanding liabilities to social security funds: MoFP issued non-cash bond worth Tsh 2.2 trillion (about 1.3 percent of GDP) to settle arrears to the Public Service Social Security Fund; outstanding claim of 1.4 percent of GDP subject to verification. - Preserving and enhancing fiscal resilience—recommended actions: - Prevent expenditure arrears by: (i) developing a plan to reduce arrears over next three years with adequate budget allocations; (ii) ensuring all committed budget expenditures are properly included in IFMIS; (iii) developing properly costed budget baselines and realistic revenue projections; and (iv) amending definition of arrears as unpaid claims over 30 and 90 days for goods and services and construction work, respectively, and implementing quarterly verification of arrears by the Internal Auditor General. - Implement plan for repayment of arrears on VAT refunds and adopt risk-based procedures on claims verification. - Contain risks emanating from the energy company TANESCO: implement plan to clear its arrears to suppliers and government arrears to TANESCO; build generation capacity based on cost-benefit analysis and diversified energy sources; resolve TANESCO’s outstanding debt to the government (about 1.6 percent of GDP). - Accelerate verification of claims from social security funds and propose a plan for clearing those arrears. *Source: 1tzaea2022001 - 12. The ECF arrangement will support the continued implementation of the TCRP.* ### 27.2 percent in the first half for this fiscal year. ### 1tzaea2022001 - 27.2 percent in the first half for this fiscal year. ### Structural reform agenda and governance - Enhancing the business environment to promote private sector development and expand growth potential through: - Ongoing reviews of the Tanzania Blueprint for Regulatory Reform (Annex II), the Investment Act and the National Investment Promotion Policy of 1996. - Amendments to several business-related laws (MEFP ¶35). - Streamlining non-tariff trade barriers and continuing to implement a risk-based approach for all inspections. - Enhancing engagement with the private sector and other stakeholders in the formulation of new legislation to improve the business environment. - Improving predictability in government policies (MEFP ¶36). - Improving the quality of National Accounts statistics to enhance credibility, improve budget forecasting and attract investment by: - Improving national account source data, including the use of administrative data from the Tax Revenue Administration. - Reconciling national accounts and balance of payment statistics to maintain country-wide consistency (MEFP ¶37). - Anti-corruption and AML/CFT: - Tanzania has a comprehensive anti-corruption and AML/CFT strategy and legislation; implementation and enforcement should be strengthened. - Since 2016: special High Court Division for corruption and economic crimes set up, judiciary budget increased, and National Anti-Corruption Strategy and Action Plan 2017-22 (NACSAP) prepared. - A new NACSAP under preparation focuses on investigative capabilities, prevention strategies, and improving adherence to asset declaration of public officials. - An ESAAMLG Mutual Evaluation Report (MER) identified serious weaknesses with high near-term likelihood of Tanzania’s public listing by FATF for strategic AML/CFT deficiencies. - Authorities have amended AML/CFT laws in Tanzania and Zanzibar; further work needed to align with FATF standards, adopt policy and procedures for AML/CFT risk-based supervision of banks (MEFP ¶38), and ensure effective enforcement against money laundering and terrorism financing. - Governance commitments under the RCF Letter of Intent: - Two quarterly reports of RCF spending published (December 2021 and May 2022). - Posting of all pandemic-related public procurement contracts and related documents close to being finalized in June. - Audit of pandemic-related spending financed with debt relief under the Catastrophe Containment and Relief Trust published in April 2022. - Audit of all pandemic-related spending expected to be published by December 2022 (structural benchmark) (Table 9; ¶25). ### Monetary policy and financial stability - Monetary policy stance and operations: - BoT committed to tightening monetary policy should the need arise while allowing exchange rate flexibility to cushion shocks (MEFP ¶14). - Accommodative monetary policy cushioned COVID-19 effects through loosening liquidity conditions and promoting private sector credit growth. - Extent of monetary accommodation reduced since March 2022; authorities ceased reverse repo operations since this time. - Current monetary stance aims to contain demand-side inflationary pressures and address second round effects of global shocks. - BoT intervenes in the foreign exchange market to smooth exchange rate volatility and for reserve management needs (Text Figure 5). - Inflation developments, particularly reflecting fuel prices, will play a key role in exchange rate intervention policy which needs to be mindful of financial dollarization. - A layer of financial sector contingency measures (see Annex I, FSAP recommendations) will be key. - Transition to interest rate-based framework: - Progress made with IMF TA support; many components of financial market infrastructure are in place. - Forecasting Policy and Analysis System implemented, strengthening BoT’s modelling and forecasting capability. - Further work needed on a comprehensive communication strategy around the transition, including introduction and announcement of the policy rate. - Authorities committed to publishing operational guidelines of the new monetary policy framework by June 2023 (MEFP ¶39, structural benchmark). - Financial sector reforms and FSAP: - Progress in identifying domestic systemically important banks. - Improvements to stress testing and crisis management frameworks envisaged over next year. - Draft Emergency Liquidity Assistance framework undergoing approval (expected by end-2022). - Near-term priorities: expand real-time data collection, ensure adequate loan provisioning. - Supported by Fund TA: enhance risk-based supervision, solvency stress testing capabilities; reduce NPLs and increase provisioning (including for restructured loans); enhance buffers to manage liquidity, credit, and concentration risks (Annex I). - Supervisory challenges and program role: - Capacity constraints amid increased supervisory demands; persistence of inadequate credit underwriting and monitoring in some banks. - Some financial institutions failed to meet timelines of their Capital Restoration Plans. - Under the program, authorities will step up monitoring and enforcement of prudential guidelines related to undercapitalization, NPLs and restructured loans (MEFP ¶42). ### Program modalities, monitoring, and financing - Program monitoring: - Semi-annual reviews (MEFP Tables 1 and 2). - Two continuous Quantitative Performance Criteria (QPCs) and three QPCs for end of second and fourth quarters; Indicative Targets (ITs) for end of first and third quarters. - QPCs: (i) external payment arrears incurred by the central government or the BoT (zero ceiling); (ii) external borrowing in present value terms of the central government or the BoT (ceiling); (iii) domestic primary balance excluding grants (floor); (iv) net domestic assets of the BoT (ceiling); (v) change in net international reserves of the BoT (floor). - Additional ITs: floor for priority social spending; ceilings for stock of domestic arrears and newly disbursed external non-concessional borrowing by the central government or the BoT. - Reform progress evaluated based on structural benchmarks (¶30). - Financing needs and gap: - Financing gap before budget support and IMF financing estimated at US$2,103 million over FY2022/23-FY2025/26, declining from 0.8 percent of GDP in FY2022/23 to 0.1 percent of GDP in FY2025/26. - Access to PRGT resources will remain below the annual access limit and the cap of 435 percent of quota during the program. - Firm commitments of full program financing in place for the first year; good prospects for remainder. - Financing gap in the first year projected to be closed with the ECF arrangement contributing about 47 percent of the exceptional financing gap (¶31). - Text Table 2 excerpts (Millions of US dollars; exact figures preserved): - 1. Financing Gap Under Program Baseline: 2020/21 Est. 23; 2021/22 866; 2022/23 Proj. 661; 2023/24 Proj. 659; 2024/25 Proj. 626; 2025/26 Proj. 157. - In percent of GDP: 0.0; 1.2; 0.8; 0.7; 0.6; 0.1. - 2. Expected Budget Support: 2020/21 0; 2021/22 300; 2022/23 350; 2023/24 350; 2024/25 313; 2025/26 0. - World Bank: 0; 0; 350; 350; 0; 0. - Other donors: 0; 300; 0; 0; 313; 0. - 3. Residual Financing Gap (1-2): 23; 566; 311; 309; 313; 157. - 4. IMF Financing: 23; 566; 311; 309; 313; 157. - In percent of GDP: 0.0; 0.8; 0.4; 0.3; 0.3; 0.1. - ECF (200 percent of quota): 0; 0; 311; 309; 313; 157. - RCF: 0; 566; 0; 0; 0; 0. - CCRT: 23; 0; 0; 0; 0; 0. - SDR allocation and use: - BoT intends to use new SDR allocation of about US$543 million to boost reserves; invested in US money market instruments and treasury bonds. - If after the first fiscal year financing fails to materialize as expected, those investments can be used to close the financing gap without undermining the ECF arrangement (¶34). - Capacity to repay the Fund: - With a disbursement of 200 percent of quota, outstanding credit would peak in 2025/26 at 1.5 percent of GDP (below the median of UCT-quality arrangements for LICs) or 9.7 percent of revenue (excluding grants). - Annual repayments projected to peak at 0.2 percent of GDP and 1.2 percent of government revenue in FY2030/31. - Most Capacity to Repay indicators are within the interquartile range for PRGT programs or below the lowest quartile (¶35). - Safeguards assessment and BoT governance: - Recent safeguards assessment found BoT has implemented relatively good safeguards, including on financial reporting and internal audit. - BoT will prepare draft amendments to the BoT Act in consultation with IMF staff to strengthen governance arrangements and personal and financial autonomy, including Board composition to be a clear majority of non-executive (independent) members. - Technical assistance will be requested as needed; existing MoU between BoT and Ministry of Finance and Planning on responsibilities for servicing financial obligations to the IMF will be revisited given ECF financing as direct budget support (¶36). ### Capacity development (CD) - A revised CD strategy discussed with the authorities, taking stock of remote work and evolving needs (Annex VII). - Priorities aligned and integrated with program objectives: - Strengthening ongoing reforms in tax policy and administration. - Reliable national accounts and fiscal statistics. - Public Financial Management (PFM). - Monetary and financial sector oversight (¶32). ### Macroeconomic outlook and staff appraisal - Recent macroeconomic developments: - Growth decelerated to 4.8 percent in 2020 and barely recovered to 4.9 percent in 2021. - Tourism receipts in 2021 remained 50 percent below pre-pandemic levels. - External sector affected by surging global fuel prices. - Current account deficit and fiscal deficit more than doubled relative to pre-pandemic years. - Rapid population growth pressures education and health services; low human capital and infrastructure deficit limit growth potential (¶37). - Rationale for ECF arrangement: - Authorities requested an ECF arrangement to address protracted balance of payments needs, support reform agenda in Five-Year Development Plan III, continue fight against COVID-19, and cope with spillovers from the war in Ukraine (¶38). - Program priorities: - Rebuild and strengthen fiscal space to allow for social spending and investment. - Resume and advance structural reform agenda. - Improve the business environment. - Strengthen stability and financial sector development. - Capacity development tailored to program objectives (¶39). - Macroeconomic framework assumptions: - Gradual recovery from the pandemic and implementation of reform agenda. - Growth expected to recover and accelerate, supported by private and public investment and export recovery. - Tax revenue to gradually increase, creating space for investment and additional social spending. - Gross official reserves to converge to a level consistent with reserve adequacy (¶40). - Fiscal policy priorities: - Raise government revenue and improve quality of spending. - Contain fiscal risks from accumulation of domestic arrears and contingent liabilities, including monitoring PPPs and SOEs. - Improve expenditure control and quality of statistics (¶41). - Social spending emphasis: - Program seeks adequate levels of social spending for health, education, and social protection, and improved efficiency and execution through strengthened planning, execution, and monitoring (¶42). *Source: UNITED REPUBLIC OF TANZANIA — IMF staff report (excerpts).* ### 44. The authorities intend to continue progress on budget transparency, beyond ### 44. The authorities intend to continue progress on budget transparency, beyond ### Budget transparency and fiscal reporting - Authorities made important progress publishing information on the use of emergency financing received in 2021. - Authorities reiterated determination to implement the full range of RCF commitments in a timely manner. - Remaining needs: strengthen budget transparency notably in terms of execution, monitoring, and reporting. ### Anti-corruption and AML/CFT - Strengthening the implementation and enforcement of the anti-corruption strategy and legislation is crucial. - Preparation of the new five-year National Anti-corruption Strategy and Action Plan will focus on measures to continue progress in reducing corruption. - Authorities committed to further steps to improve Tanzania’s AML/CFT framework, including amending relevant laws and adopting policies and procedures for AML/CFT risk-based supervision of banks. ### Monetary framework and financial sector stability - Continued progress in improving the monetary framework and strengthening the financial sector is welcome. - Bank of Tanzania (BoT) is committed to tightening monetary policy should the need arise, while allowing exchange rate flexibility to cushion shocks. - Progress needed in establishing the necessary financial market infrastructure for the new monetary policy framework and implementing the Forecasting Policy and Analysis System framework. - Addressing reform implementation challenges is necessary to keep up the pace of FSAP reform implementation to buttress financial sector stability and mitigate near-term banking sector vulnerabilities. ### Debt management - Prudent debt management is important to preserve debt sustainability. - Tanzania’s debt is sustainable, and the country is at a moderate risk of debt distress. - In view of increased vulnerabilities, it is important that every effort is made to limit non-concessional financing. *Source: 1tzaea2022001 - https://www.imf.org/-/media/files/publications/cr/2022/english/1tzaea2022001.pdf* ### 48. Based on the protracted balance of payment need and policy commitments, staff ### 1tzaea2022001 - 48. Based on the protracted balance of payment need and policy commitments, staff ### Program request and financing - Staff supports the authorities’ request for a 40 month-arrangement under the ECF, with access equivalent to 200 percent of SDR 397.8 million quota (SDR 795.58 million). - Proposed access and phasing under the ECF Arrangement (selected entries): - July 18, 2022 (Approval of the ECF Arrangement): 29.00 percent of quota — 115.36 SDR (millions) — 155.50 US dollars (millions) — 359.21 Tsh (billions) — 0.19 percent of GDP. - March 29, 2023 (first review): 28.50 percent of quota — 113.37 SDR (millions) — 152.83 US dollars (millions) — 353.03 Tsh (billions) — 0.19 percent of GDP. - Subsequent semi-annual phasing entries repeat 28.50 percent of quota disbursements, culminating in: - Total: 200.00 percent of quota — SDR 795.58 (millions) — US$ 1072.46 (millions) — Tsh 2477.37 (billions) — 1.32 percent of GDP. - Exchange rates used in calculations: - 1 SDR = 1.348030 US$ (as of June 2, 2022). - 1 USD = 2,309.99 Tanzanian shillings (as of March 31, 2022). ### Real sector developments (high-level findings and projections) - Growth and per capita: - Real GDP (panel projections, selected): 2021/22 Est. 4.8; 2022/23 Proj. 5.0; 2023/24 Proj. 5.8; 2024/25 Proj. 6.3; 2025/26 Proj. 6.6; 2026/27 Proj. 6.9 (percent change). - Real GDP per capita indexed (1990=100, PPP 2017 international dollars) shows Tanzania lagging the EAC average, with the spread gradually diminishing. - Demand composition (selected observations): - A contraction in net exports and a deceleration in private investment reduced growth in 2021. - Public investment has been picking up lately. - Inflation: - CPI (period average) — 2021/22: 4.2; 2022/23 proj: 5.3; 2023/24 proj: 4.4; 2024/25 proj: 4.0; 2025/26 proj: 4.0; 2026/27 proj: 4.0 (y-o-y percent change). - Inflation has been well anchored at around 4 percent since 2018; transport and other components have been driving a pick-up in inflation. ### External sector developments - Exports and imports: - Goods exports have increased since 2018, driven by higher exports of gold and other minerals. - Contraction of the oil-import bill led to contained goods imports between 2015 and 2020. - Current account and financing: - Current account deficit (percent of GDP, Table 1): 2021/22 -4.5; 2022/23 -4.3; 2023/24 -3.5; 2024/25 -3.1; 2025/26 -2.9; 2026/27 -2.7. - The current account deficit has narrowed since 2015, reflecting mainly lower oil imports; the deficit was mainly financed by FDI and public-sector borrowing. - Reserves and exchange rate: - Gross international reserves (billions of US$): 2021/22 5.2; 2022/23 proj 5.2; 2023/24 proj 5.8; 2024/25 proj 6.5; 2025/26 proj 7.1; 2026/27 proj 7.9. - Reserves were boosted by the new SDR allocation and IMF emergency financing in 2021, but have been declining since last September (figure note). - The exchange rate has remained relatively stable since 2015. ### Fiscal developments and projections (central government) - Revenues and expenditures (percent of GDP, selected): - Revenues and grants: 2021/22 15.0; 2022/23 15.4; 2023/24 16.1; 2024/25 16.3; 2025/26 16.4; 2026/27 16.5. - Total Expenditure: 2021/22 17.8; 2022/23 18.7; 2023/24 19.2; 2024/25 19.1; 2025/26 19.0; 2026/27 19.0. - Development expenditure (percent of GDP): 2021/22 7.2; 2022/23 7.5; 2023/24 7.1; 2024/25 6.6; 2025/26 6.3; 2026/27 6.2. - Wages and salaries (percent of GDP): 2021/22 4.0; 2022/23 4.6; 2023/24 4.9; 2024/25 5.1; 2025/26 5.1; 2026/27 5.2. - Balances and debt: - Overall balance (cash basis, percent of GDP): 2021/22 -2.8; 2022/23 -3.3; 2023/24 -3.1; 2024/25 -2.7; 2025/26 -2.5; 2026/27 -2.5. - Primary balance (cash basis, percent of GDP): 2021/22 -1.3; 2022/23 -1.8; 2023/24 -1.2; 2024/25 -0.8; 2025/26 -0.5; 2026/27 -0.6. - Gross nominal public debt (percent of GDP): 2021/22 42.2; 2022/23 42.1; 2023/24 41.9; 2024/25 41.3; 2025/26 40.4; 2026/27 39.5 — projected to decline in the medium-term and remain sustainable. - Financing composition (selected, trillions of TSh and percent of GDP): - Table 2a (Trillions of TSh): Total Revenue 2021/22: 24.4; 2022/23 proj: 28.0; Total Expenditure 2021/22: 20.6; 2022/23 proj: 30.3. - Table 2b (Percent of GDP) highlights the projected role of grants, program and project support, and declining reliance on external budget support over the medium term. ### Monetary and financial sector developments - Monetary aggregates and credit: - Broad money (M3, end of period) growth projections: 2021/22 9.2; 2022/23 10.3; 2023/24 11.1; 2024/25 11.2; 2025/26 11.4; 2026/27 11.6 (percent). - Credit to the private sector (end of period): 2021/22 9.1; 2022/23 10.7; 2023/24 11.5; 2024/25 11.6; 2025/26 11.7; 2026/27 12.0 (percent change). - Interest rates, yields, and dollarization: - Lending and deposit rates have remained relatively stable; money markets consistent with an accommodative monetary stance. - Government bond yields have fallen across the yield curve; measures of dollarization have declined. - Financial sector soundness (selected indicators): - Banking sector well capitalized and not overleveraged; capital adequacy measures (Table 5) show Total capital to risk-weighted assets around the high teens to low 20s (end-period values across 2017–2022). - Non-performing loans (NPLs to total loans) remain elevated but have come down: 2021 end of period figures around 9.2–10.8 across tables and series. - Profitability increased in recent years; liquidity remains adequate. - Foreign exchange risks have mounted in recent years (foreign exchange loans to total loans and net open FX positions indicators). ### Balance of payments and external financing framework - Balance of payments (selected, millions of US$): - Current account (millions): 2021/22 -3,313; 2022/23 proj -3,521; 2023/24 proj -3,193; 2024/25 proj -3,006; 2025/26 proj -3,113; 2026/27 proj -3,196. - Exports, f.o.b. (millions): 2021/22 6,854; 2022/23 7,434; 2023/24 8,189; 2024/25 9,047; 2025/26 9,977; 2026/27 11,005. - Imports, f.o.b. (millions): 2021/22 -11,207; 2022/23 -12,155; 2023/24 -13,010; 2024/25 -13,888; 2025/26 -15,127; 2026/27 -16,581. - External financing requirements and sources (Table 7): - Financing needs (millions US$): 2021/22 3,267; 2022/23 proj 3,541; 2023/24 proj 3,821; 2024/25 proj 3,657; 2025/26 proj 3,746. - Financing sources (millions US$): 2021/22 2,401; 2022/23 proj 2,879; 2023/24 proj 3,162; 2024/25 proj 3,032; 2025/26 proj 3,588. - Financing gaps filled by IMF and other concessional sources in projections (IMF ECF, IMF RCF, World Bank, Global Fund, other donors), leaving a Remaining Financing Gap of 0 in the projection table for 2022/23–2025/26. ### IMF obligations, capacity to repay, and program role - IMF obligations and prospective credit (Table 6, selected): - Assumes access of 200 percent of quota as ECF disbursements. - Total IMF existing and prospective obligations (in millions of U.S. dollars): 2026/27 61.7; 2027/28 133.3; 2028/29 196.8; 2029/30 260.1; 2030/31 323.3. - IMF Credit outstanding based on existing and prospective drawings (end of period, in millions of SDRs): 2021/22 397.8; 2022/23 626.6; 2023/24 853.3; 2024/25 1080.0; 2025/26 1193.4; 2026/27 1153.6; 2027/28 1062.5; 2028/29 925.9; 2029/30 743.9; 2030/31 516.5. - IMF credit outstanding as percent of quota: rises from 100.0 in 2021/22 to 300.0 in 2025/26, then declines thereafter. - IMF credit outstanding as percent of gross international reserves: 2021/22 10.7; 2022/23 16.4; 2023/24 20.1; 2024/25 23.1; 2025/26 23.4; 2026/27 20.3; 2027/28 17.0; 2028/29 13.5; 2029/30 9.9; 2030/31 6.3. - Net use of IMF credit (disbursements and repayments in SDRs and US$) is detailed with projected disbursements through 2024/25 and scheduled repayments starting in 2026/27. ### Program implementation and transparency commitments (RCF disbursements LOI progress) - Commitments and status highlights: - Resume regular reporting of COVID-19 epidemiological data to the WHO: Reporting resumed as of end-September 2021. - Create pandemic-specific IFMIS codes to track RCF spending: The IFMIS code prepared; all COVID-19 spending using project No. 5441. - Publish quarterly reports of RCF spending and related procurement/contracts, and post contact details for whistleblower reporting: Second quarterly report published in May 2022; lists of contracts and awarded companies posted, with ongoing work to add/correct information and contact details. - Complete and publish a post-crisis audit of pandemic-related spending by December 2022: Controller and Auditor General started preparatory work to complete the report by December 2022. - Publish ongoing audit of COVID-19 related spending financed with CCRT debt relief by April 2022: Office finalizing report expected to be sent to the President around end-March and publicly available around mid-April. *Sources: Tanzanian authorities; IMF staff calculations, projections, and tables from the provided content.* ### Annex I. Recent Financial Sector Developments and Reform ### Annex I. Recent Financial Sector Developments and Reform ### Program - The Tanzanian banking system is highly concentrated and dominated by commercial banking activities. - The banking sector is highly dollarized relative to peer countries in the region, with foreign exchange loans and liabilities seemingly well matched for individual financial institutions. - Aggregate Financial Soundness Indicators (FSIs) paint a relatively benign picture, but granular analysis reveals emerging problems related to undercapitalization, Nonperforming Loans (NPLs), provisioning and restructured loans. ### A. Recent Banking Sector Developments - Sector composition and concentration: - The Tanzanian banking sector consists of 46 financial institutions: 34 commercial banks, 5 community banks, 5 microfinance institutions, and 2 development banks. - The top 4 banks account for over 50 percent of system-wide capital. - Commercial banks control the vast majority of system-wide assets and liabilities; community banks and microfinance institutions play prominent roles in deposit taking and loan extension. - By ownership, the majority of both deposits and loans is locally owned. - Fintech and financial inclusion enablers: - A reported 33 fintech startups operated in the country as of May 2021. - Six mobile money operators offer services in Tanzania. - Dollarization: - A significant portion of both loans and liabilities are denominated in foreign exchange. - These ratios have declined in recent years but Tanzania remains among the most dollarized countries in the EAC region. - The extent of dollarization could affect banking sector health in the event of a significant exchange rate depreciation due to credit risk from unhedged borrowers. - Restructured loans and NPLs: - Bank of Tanzania (BoT) permitted banks to restructure customers’ loans on a case-by-case basis during the pandemic. - Restructured loans increased during the pandemic, reaching about 11 percent of gross loans at end-December 2021. - BoT is closely monitoring restructured loans to ensure adequate provisioning. - Aggregate FSIs and granular findings: - Aggregate FSIs: banks appear liquid and capital adequacy appears adequate; profitability declined in recent years; NPLs started to come down but remain at elevated levels; foreign exchange vulnerabilities ticked upwards. - Granular bank-level analysis reveals several banks appear undercapitalized, have relatively elevated NPL ratios, and perform relatively poorly on liquidity and profitability ratios; wide dispersion across individual FSI indicators. - Stress test results related to the war in Ukraine: - A severe credit risk shock would see NPLs rise to 15 percent and above. - The capital of 7 small to medium size banks could potentially fall below the 10 percent regulatory minimum. - The capital adequacy ratio of the top ten banks would remain above 12 percent in that scenario. - A severe interest rate shock would see about 5 banks experiencing a capital shortfall. - Bank liquidity would also be affected. - Anecdotal evidence suggests institutions with exposures (for example to the energy industry) may be more at risk. - Supervisory and policy priorities: - Prudential supervisors must step up monitoring and enforcement of prudential guidelines, particularly on undercapitalization (prompt corrective action guidelines); NPLs and restructured loans (strictly enforcing the limit on the number of times loans can be restructured and ensuring NPLs are correctly measured to avoid evergreening); and provisioning. - Regulators need to be cognizant of potential fiscal-financial risks related to SOE borrowers. - Swift action would prevent individual bank problems from morphing into systemic stability issues and would assist in reducing credit risk that may contribute to elevated bank lending rates and a weak interest rate monetary policy channel. - Supplementary numeric context: - As of 31st March 2022, the four undercapitalized banks had a combined market share of 8.5% of total banking sector assets. - The capital shortfall accounted for 0.06% and 0.22% of GDP and banking sector assets respectively. ### B. Financial Inclusion - BoT role and reforms: - The Bank of Tanzania coordinates and regulates financial inclusion activities. - Tanzania developed the Second National Financial Inclusion Framework (2018 – 2022) based on the 2017 FinScope survey. - Reforms introduced include: enacting the microfinance law and regulations; developing financial consumer protection regulations (2019); launching the financial services registry; launching the Women Affairs Committee for Financial Inclusion; implementing the first phase of the Tanzania Instant Payment System (TIPS). - Progress on financial inclusion (FinScope survey highlights): - The most recent FinScope survey was conducted in 2017; the next survey planned for 2023. - Selected indicators (2013 → 2017): - Percent of population with access to formal financial services: 57 → 86 - Percent of population using formal financial services: 57.7 → 65 - # of Mobile Network Operators (MNO) agents: 153,544 → 379,254 - # of bank agents: 591 → 7,717 - Point of sales: 2,552 → 8,474 - # of ATMs: 1,481 → 2,017 - # of insurance companies: 29 → 31 - # of securities brokers: 7 → 12 - # of electronic money issuers: 4 → 6 - % of the adult population with a registered M-wallet: 55 → 76 - % of adults saving through mobile wallets: 21 → 35 - % of adults who save formally: 30.4 → 43 - % of adults who save in banks: 13 → 16 - Constraints and technological solutions: - Chief constraints: lack of financial literacy, unfavorable social norms, collateral constraints, and challenges reaching unbanked rural populations. - Technological developments (digital solutions such as mobile lending) are expected to address some constraints and reach unbanked populations (e.g., in agriculture). - Planned introduction of a hybrid retail/wholesale Central Bank Digital Currency (CBDC) is intended to enhance financial inclusion. ### C. Financial Sector Reform Program - FSAP priority reform areas identified: - Reduce nonperforming loans and increase provisioning and buffers to manage liquidity, credit, and concentration risks. - Strengthen banking supervision and problem bank oversight. - Deepen financial markets and modernize the monetary policy framework with new prudential tools to enhance systemic liquidity management. - Progress and outstanding work as of 15th May 2022: - Authorities have made much progress in implementing FSAP recommendations but further work remains, notably to enhance solvency stress test and network analysis capabilities and implement risk-based supervision. - Addressing supervisory capacity constraints and ongoing technical assistance, including from the IMF, will be key to further reform progress. - Selected implementation steps reported (as of 15th May 2022): - Financial Stability Surveillance: - BoT expanded data collection and improved submission quality; each bank assigned a Relationship Officer for regular data verification. - Data collected via EDI with daily, weekly, monthly and quarterly frequencies. - BoT embarked on a Real Time Data collection and analytics system, with data requirements and API specifications to be completed in financial year 2021/22. - Further improvements expected when BoT implements Basel II/III by December 2023. - Real time data project expected to provide solutions for disaggregation of maturities and granular data for inter-connectedness for contagion risk assessment. - TA on scenario development for aggregated credit risk on probability of default and loss given default conducted in April 2019. - BoT conducted stress testing in June 2021, September 2021, December 2021 and March 2022 using satellite models; review required on scenario and shocks development with possible IMF TA on macro and multi-period stress testing. - A draft Stress Testing Framework is in place to be finalized in financial year 2022/23; Stress Testing Guidelines effective from 1st July 2022. - IMF facilitated training on Network analysis for EAC Central Banks in September 2019; BoT conducted Network Analysis in December 2020 and June 2021 using Matlab; a draft Network Analysis Framework expected to be finalized in 2022/23 financial year. - Banking Supervision: - BoT employed 16 staff to the supervision function to address the shortage (30); in 2020 and 2022, 10 and 9 staff respectively were deployed to continue addressing the shortage. - Several in-house trainings on offsite and onsite supervision were conducted. - Follow-up NPL guidance issued to banks in February 2018 to clarify conditions under which NPLs may be restructured; BoT left restructuring criteria to banks and limited the number of times a loan may be restructured. - BoT uses two rating systems: Supervisory Risk Assessment Framework (SRAF) and CAMELS; plan to merge into a single rating framework by end of December 2024, commencing upon completion of Basel II and III implementation. - Prompt Corrective Action regulations are in place and enforcement is ongoing; current regulatory framework including Risk Based Supervision provides guidance for consistent and timely corrective action. - Managing Systemic Liquidity: - BoT developed an IBCM trading platform, which went live in March (text ends here in source). *Source: Annex I. Recent Financial Sector Developments and Reform* ### 2019. The IFEM code of conduct was reviewed in collaboration with ### 1tzaea2022001 - 2019. The IFEM code of conduct was reviewed in collaboration with ### Financial market infrastructure, monetary policy framework, and repo market - The IFEM code of conduct was reviewed in collaboration with commercial banks and is operational since May 2020. - The draft operational framework for interest rate-based monetary policy is undergoing an internal review process before it is cleared by the Management. - The Tanzania Annex for adopting GMRA 2011 has been approved by the BoT Management. - BoT has enhanced the Central Depository System Web Portal, an electronic trading platform, to include a module that facilitates operations of horizontal repo transactions. ### FX liquidity risk oversight and prudential toolkit - Prudential instruments are in place e.g. swaps. Other prudential tools have been identified, including forwards. - Plans to conduct a survey among EAC Partner States and banks on the pricing of derivative instruments. - BoT plans to adopt guidelines for swaps based on International Swaps and Derivatives Associations (ISDA) Master Agreement in 2022-23 financial year. ### Emergency Liquidity Assistance (ELA) framework and resolution preparedness - A draft Emergency Liquidity Assistance (ELA) framework is in place incorporating eligible collateral for accessing ELA with an operational framework. - Strengthening the ELA framework operationalization is underway, including a framework to identify and monitor DSIBs that has been approved and will be operationalized in the 2021/22 financial year. - BoT has put in place a draft resolution funding concept note and has requested technical assistance from the World Bank for finalization. - A draft ELA framework that will be in line with existing laws is expected to be finalized during 2022/23 financial year. - The BoT, Cap. 197 (41) gives authority to the Bank of Tanzania to provide ELA subject to ministerial approval and lodgment of debt securities. - BoT has initiated consultation with Ministry of Finance and Planning to secure government indemnity for ELA operations. ### Deposit Insurance, crisis prevention and management - DIB board of directors was appointed in August 2018. - BoT has a draft banking sector crisis management framework. - Through the Forum, each regulator has been tasked to prepare and submit contingent plans to the Bank of Tanzania during 2021/22 financial year. - TFSF activities include coordinating and operationalizing a crisis management communication strategy, carrying out awareness sessions for internal and TFSF members, and conducting a crisis simulation exercise through World Bank technical assistance. - Preparation of draft System Requirement Specifications for Phase One of the DIB automation project is done. Project to automate DIB business operations, which will accommodate single customer view to facilitate quick verification and compilation of depositors’ data for pay out purpose has been initiated. - A no objection of E-Government Agency (EGA) to proceed with the project has been granted and the concept note has been approved. - BoT continues engagement with the MoFP on the legal framework for providing financial support. ### AML-CFT measures - The NRA report was adopted in May 2019 and uploaded to the BoT website. - An Action Plan was approved by the MoFP and is accessible on the Financial Intelligence Unit’s website. - BoT conducted awareness on AML/CFT to MLROs, selected staff from multiple Directorates and departments. - Database on AML/CFT statistics and AML/CFT risk-based supervision procedures are activities to be carried out in 2023/24 financial year. - AML/CFT examination procedures to be reviewed taking into consideration new developments in law. ### FYDPIII: objectives, targets, and financing - The Third Tanzania National Five-Year Development Plan 2021/22 – 2025/26 (FYDPIII) aims to boost progress towards Tanzania becoming a competitive, semi-industrialized, middle-income country, while strengthening human capital and assuring inclusive growth. - FYDPIII seeks to accelerate economic growth to average above 8 percent over the medium term; improve the business environment, public revenues, and exports; reduce poverty; improve the human development index; and reduce mortality. - The plan’s financing needs over its 5-year lifespan amounts to about Tsh 15 tn (about US$50bn or 70 percent of GDP). - Two-thirds of the plan’s financing is expected to come from public resources (85 percent of which are to be raised domestically), with the remainder to be financed by the private sector (split evenly between domestic and foreign private sources). - Priority investment areas include social sector investments (water and sanitation, health, education), irrigation for crop production, water/grazing/veterinary services for livestock, fishing industry support, tourism sector investments, and support for petty traders through formal markets. ### FYDPIII selected socio-economic targets (2019/20 → 2025/26) - GDP Growth: 5.2 → 8.0 - Inflation Rate: 3.3 → 4.4 - Domestic Revenue / GDP: 14.7 → 16.9 - Tax Revenue / GDP: 12.9 → 14.4 - Budget Deficit (%): -2.6 → ≤ -3.0 - Public Debt (% of GDP): 27.9 → 28.2 - Extended Broad Money Growth (%): ≥ 10.0 → ≥ 10.0 - Foreign Reserves (months of imports): ≥ 4 → ≥ 4 - Human Development Index: 0.57 → 0.6 - Proportion of Population Below Basic Need Poverty Line (national): 26.4 (2018) → 22 - Infant Mortality Rate per 1,000 births: 36 → 30 - Share of exports in GDP (%): 16.1 → 28 ### Private sector reforms and business environment - FYDPIII emphasizes promoting private sector development and addressing limited private sector participation as a key obstacle. - The government implemented a “Blueprint for Regulatory Reforms” and removed about 80 percent of overlapping fees and charges. - In 2021, the government relaxed regulations for foreign work permits and implemented an electronic verification of VAT refunds. - The government is preparing amendments to the Investment Act and the National Investment Promotion Policy in FY2022/23. ### External sector assessment — overall and current account - Overall assessment: Tanzania’s external position in 2021 is assessed to have been stronger than the level implied by fundamentals and desirable policies. - International reserves remained above the adequate level as estimated by the ARA methodology. - The current account deficit is estimated to have widened to 3 percent of GDP in 2021, up from 1.8 percent of GDP in 2020. - The current account deficit is expected to remain high at 4.3 percent of GDP in 2022/23 and slowly decline over the medium-term. - Based on the CA model, the cyclically adjusted CA is -4 percent of GDP in 2021 and the CA norm is -6 percent of GDP, indicating a current account gap of 2 percent of GDP in 2021. - The REER model has implied a CA gap of 2.6 in 2021. - Both analyses suggest the external position is stronger than the norm. ### Real exchange rate assessment - The Tanzanian shilling depreciated 11 percent in real terms (more than 20 percent in nominal terms) historically; the average real effective exchange rate depreciated by about 3 percent in 2021. - The CA approach indicates the real effective exchange rate is undervalued in 2021; using an elasticity of the trade balance to REER changes of -0.12, the Tanzanian shilling would need to appreciate by 16.6 percent. - The REER approach also points to an undervaluation; REER Gap figures shown: -16.6 and -21.6 (model outputs). - Staff assesses the real effective exchange rate to be undervalued based on the CA approach but believes the misalignment is lower than what the model suggests due to uncertainties and policy considerations. ### Capital flows and reserves - Historically, the large current account deficit was financed mainly by FDI, grants, and concessional public-sector borrowing; more recently grants and FDI have declined. - International reserves were boosted by new SDR allocation (US$543 million) and RCF disbursements (US$566 million) in 2021. - International reserves are expected to stand at around US$5.2 billion at the end of FY2021/22, equivalent to 4.5 months of prospective imports. - Reserve coverage (4.5 months) is closer to the upper bound of the range in the ARA metric (3.6 to 5.4) for credit-constrained economies. - The authorities’ own lower bound of reserves’ cover is 4.5 months of prospective imports of goods and services. - Staff recommends keeping international reserves higher than the level suggested by the ARA metric given additional risks (plans for higher borrowing from financial markets, capital account liberalization, high dollarization, pandemic, war in Ukraine, vulnerability to shocks to tourism, elevated oil prices, and potential sharp fall in gold prices). *Source: Bank of Tanzania; Tanzanian authorities; IMF staff calculations as presented in the source document.* ### 3.6 months. ### 1tzaea2022001 - 3.6 months. ### External Balances and Reserves - Current Account: figure shows series labeled "Current Account (%GDP): Actual, Fitted, and Norm" with lines CA-Fitted, CA, CA-Norm (years plotted 1995–2021). No single summary value provided. - IREER: figure shows "IREER: Actual, Fitted, and Norm" with lines IREER-Norm, IREER-Fitted, IREER (years plotted 1995–2021). No single summary value provided. - Gross International Reserves (Billions of USD, and months of imports): - Time series plotted from 2010Q1 to 2022Q1 for "Gross International Reserves (US$ billion)" and "Months of imports". - Listed monthly-reserves values in figure: 5.8, 4.8, 4.1, 3.6, 3.2, 2.8, 2.5, 2.3, 2.1, 1.9. - Additional series in figure: 8.7, 7.2, 6.2, 5.4, 4.8, 4.2, 3.8, 3.5, 3.2, 2.9. - Reserve target range: "100%-150% of Metric" (target range label). - "Reserves in months of imports" plotted alongside "Cost of holding reserves, in percent". - Tanzania Optimal Reserves note: "Tanzania Optimal Reserves 1/ (Target range and current levels, in months of imports)" with footnote: "1/ Assuming no IMF program and the unconditional probability of a large shock event is 0.5." - Source for reserves calculations: "IMF staff calculations." ### Risk Assessment Matrix (Annex IV) - Purpose: RAM shows events that could materially alter the baseline path; relative likelihoods are staff subjective assessments (low <10 percent, medium 10–30 percent, high 30–50 percent). Conjunctural shocks likely over 12 to 18 months; structural risks over longer horizon. - Key conjunctural risks, likelihood, expected impact, and possible policy responses: - Russia’s invasion of Ukraine leads to escalation of sanctions and other disruptions. - Likelihood: High - Expected impact if realized: High - Expected effects: - Higher import bills on commodities will worsen external position, push up domestic prices and dampen economic activity. - Disrupted tourist flows from Russia and Ukraine and decline in tourists from long-haul destinations. - Possible policy responses: - Provide subsidies on the importation of petroleum products including diesel and kerosine. - Reduce import duty on cooking oil. - Enhance tourism promotion within the regional markets. - Rising and volatile food and energy prices. - Likelihood: High - Expected impact if realized: High - Expected effects: - Hurt domestic economic activity and corporate profits. - Erode household’s purchasing power and increase poverty levels. - Possible policy responses: - Ramp up domestic production of some imported commodities, including cooking oil, and wheat. - Provide targeted fiscal support as needed and avoid policies that could distort market incentives. - Tighten monetary policy if needed to combat inflation. - Abrupt growth slowdown in China. - Likelihood: Medium - Expected impact if realized: Medium - Expected effects: - Lower trade flows and fewer investment inflows from China. - Possible policy responses: - Improve business environment and competitiveness to attract more foreign investment. - Boost regional and international trade. - Outbreaks of lethal and highly contagious Covid-19 variants. - Likelihood: Medium - Expected impact if realized: Medium - Expected effects: - Slower-than-expected recovery in Tanzania’s tourism sector. - Businesses providing services in tourism and related industries will face solvency problems. - Possible policy responses: - Accelerate targeted government fiscal and financial support to affected businesses and households. - Scale-up health response to the pandemic in line with the National Deployment and Vaccination Plan (NDVP) and the National COVID-19 Response Plan (NCRP). - Collect and publish more detailed health data on the pandemic to inform decisions and the public. - Key structural risks, likelihood, expected impact, and possible policy responses: - Cyberthreats. - Likelihood: Medium - Expected impact if realized: Medium - Expected effects: - Interruption in economic activity, loss of important data and endanger financial stability. - Possible policy responses: - Step up efforts to strengthen cyber security. - Ensure financial service providers frequently test the resilience of their IT systems. - Natural disasters related to climate change. - Likelihood: Medium - Expected impact if realized: Medium - Expected effects: - Lower agriculture sector output, increase in poverty levels, need for increased development and social spending. - Possible policy responses: - Implement counter-cyclical fiscal and monetary policies, provide fiscal support as needed. - Improve economic resilience to shocks, build fiscal and external buffers. - Include contingency spending plans in fiscal framework and strengthen food security programs. - A hurried scaling-up of large infrastructure projects. - Likelihood: Medium - Expected impact if realized: Medium - Expected effects: - Low return on public investments, insufficient priority spending, and higher public debt vulnerability. - Possible policy responses: - Implement all provisions of the Public Investment Management Manual and improve costing, evaluation, and prioritization of projects. - Delays in improving fiscal management. - Likelihood: Medium - Expected impact if realized: High - Expected effects: - Low public investment and weak growth. - Possible policy responses: - Implement fiscal structural reforms to improve tax administration and policy and expenditure management. - Delays in implementing key structural reforms. - Likelihood: Medium - Expected impact if realized: High - Expected effects: - Subpar medium-term growth and fail to create employment. - Possible policy responses: - Accelerate the implementation of reforms involving experts and stakeholders to improve the business climate (including revising legislation) and attract foreign investment. ### Revenue Mobilization and the Tax Frontier (Annex V) - Current tax revenue context: - In 2019, Tanzania recorded the sixth lowest tax revenue ratio to GDP among 42 SSA selected economies, at 11.4 (Panel I of Figure 1). - Tanzania’s tax revenue ratio (11.4) is below the average tax revenue ratio of other EAC members (15.6 percent of GDP) and the SSA average (17.7 percent of GDP). - Literature-estimated thresholds enabling development cited as "around 13 to 15 percent of GDP." - Potential tax revenue: - Econometric estimations suggest a range for Tanzania’s potential tax revenue between 17.5 and 19.6 percent of GDP (Panel II of Figure 1). - Tanzania’s estimate is below the potential range of other SSA country groups but closer to the EAC’s potential. - Reaching tax-collection potential could create substantial fiscal space while keeping debt sustainable; absence of revenue increases could lead to debt sustainability risks. - ECF-supported program expectations: - Program envisages fiscal structural reforms to gradually increase tax revenue ratio to GDP. - Expected increase above pre-pandemic level: pre-pandemic FY2019/20 tax-to-GDP ratio was 12.1 percent of GDP; program expects increase by the ECF arrangement’s second year (FY 2023/24). - Revenue sources expected to deliver faster and larger increases: excise duties, VAT reforms, the income tax, and digital taxes. - Reforms also target accounting systems and transparency in revenue collection; noted issue: VAT refunds arrears and net VAT collection statistical issues. - Grants and revenue composition: - Grants have historically been an important component of total revenues; grants fell recently and their contribution to total revenues is expected to fall in the medium- to long-term. - Tax- and fiscal structural reforms in the ECF arrangement are expected to increase tax- and non-tax revenue ratio to GDP to compensate for declining grants. - Fiscal balance and debt implications: - Moving towards tax revenue potential would help keep the overall primary balance at lower values and maintain debt sustainability. - Although total spending under the ECF arrangement is expected to be larger than total revenues amid higher social and development spending needs as well as interest payments, given increased revenues the overall primary deficit is expected to remain at low levels. - The overall fiscal deficit is expected to remain below the 3-percent-of-GDP fiscal target of the EAC. - Outcome: public debt sustainable in the medium- and long-term with its ratio to GDP declining over time, notably with a reduction of the external (non-concessional) debt. Key numeric items in revenue section (preserve exact values as provided): - Tanzania tax revenue ratio (2019): 11.4 - EAC average tax revenue ratio: 15.6 percent of GDP - SSA average tax revenue ratio: 17.7 percent of GDP - Literature threshold: "around 13 to 15 percent of GDP" - Potential tax revenue range for Tanzania: 17.5 and 19.6 percent of GDP - Pre-pandemic tax-to-GDP ratio FY2019/20: 12.1 percent of GDP - ECF arrangement second year target: FY 2023/24 - Fiscal deficit target: 3-percent-of-GDP fiscal target of the EAC ### Social Spending (Annex VI) - Overview: - Priority social spending (PSS) includes education, health, social protection and other social spending (mainly rural roads). - Recent trend: PSS and development spending budgets declined from FY2017/18 until FY2020/21; development spending implementation increased by about 1½ percent of GDP while PSS implementation remained stable until FY2020/21 when PSS spending shrank by ½ pp of GDP. - Health spending: "0.1 pp of GDP was cut from health spending in FY2020/21, at the peak of the pandemic." - FY2021/22 and medium-term commitments: - FY2021/22 PSS budget increased to 7.8 percent of GDP, supported partly by RCF disbursements included in the supplementary budget. - FY2021/22 outturn up to March 2022 suggests actual spending could be about 5.8 percent of GDP. - Authorities committed to rebalance spending towards PSS and spend 6.7 percent of GDP in social sectors in each of the next three fiscal years (2022/23-2024/25). - Education sector pressures and staffing needs: - Fee Free Basic Education Policy introduced in 2015 caused surge in primary and secondary enrollment. - Consequence: primary student-teacher ratio increased from 41 in 2015 to 58 in 2019. - Demographic trends: population growth of "about 3 percent per year" and a fertility rate of "5" expected to double primary school age population between 2015 and 2025. - World Bank estimate: tripling of secondary students from about 2 million in 2018 to 6.3 million by 2025 if enrollment, retention, and transition trends hold. - To reduce student-teacher ratio to about 44, would require hiring about "40,000 primary teachers and 44,000 secondary teachers" over the next few years. - Ministry of Education estimate: shortage of primary school teachers is about "55,000". - Government plan: hire "15,000" new primary and secondary teachers in FY2022/23. Key numeric items in social spending section (preserve exact values as provided): - PSS budget FY2021/22: 7.8 percent of GDP - PSS actual up to March 2022 (outturn suggestion): about 5.8 percent of GDP - Planned PSS spending 2022/23-2024/25: 6.7 percent of GDP (each year) - Student-teacher ratio: 41 (2015) and 58 (2019) - Population growth: about 3 percent per year - Fertility rate: 5 - Secondary students: about 2 million in 2018 to 6.3 million by 2025 (World Bank estimate) - Teacher hiring needs: about 40,000 primary and 44,000 secondary teachers - Ministry estimate of primary teacher shortage: 55,000 - Government hiring plan: 15,000 new primary and secondary teachers in FY2022/23 *Source: IMF staff calculations and text from the provided IMF chapter.* ### 3. Improving human capital also ### 3. Improving human capital also ### Education: attendance, outcomes, and spending patterns - Tanzania’s female labor force participation is high at about 84 percent in 2014—raising women’s educational attainment will have significant positive impacts on productivity, growth, and poverty reduction, while helping curb rapid population growth. - Despite improvements in recent years: - less than half of lower secondary school-aged girls attend school. - gross enrollment in upper-secondary was 2 pp lower than for boys in 2018. - Spending patterns: - The government spends more for each student in tertiary education than the average for the OECD. - Spending per student in tertiary education is 4½ higher than in LIDCs, and almost 3 times higher than in the EAC. - The government spends less per student in primary and secondary levels than these two groups with a similar level of development. - Fertility and education (Tanzania Demographic and Health Survey 2015): - No education: 6.9 (births per woman for the 3-year period before the 2015 survey) - Primary incomplete: 6.2 - Primary complete: 5.3 - Secondary +: 3.6 - Primary student-teacher ratio (Ministry of Education, Science and Technology, and NBS): - 2015: 41 - 2016: 42 - 2017: 47 - 2018: 52 - 2019: 58 ### Health: capacity shortfalls and COVID-19 pressures - Health sector weaknesses relative to peers: - Tanzania lags LIDCs and the EAC in number of hospital beds, nurses, and physicians. - Public sector health spending is lower than in the EAC and LIDCs. - Pandemic impacts: - The influx of COVID-19 patients and the vaccination campaign have further pressured the health system while also dealing with lower spending. - Facilities and staffing: - Despite the construction of about 300 new clinics and local health facilities in recent years, only about A1 E AA3E A are fully operational, while the rest are either understaffed or lack sufficient equipment or supplies. - The Ministry of Health estimates that Tanzania faces a shortage of 110,000 health workers to fully address the growing needs of the country. - The government has committed to significantly increase hiring in the sector over the next three years, and ensure all new medical facilities are fully equipped. - The government plans to start by hiring 10,000 additional health workers in FY2022/23 to address these significant shortfalls. ### Social protection and poverty - Social assistance: - Tanzania spends about a third of what the EAC and LIDCs spend in social assistance programs. - The Tanzania Social Action Fund (TASAF) has a cash transfer program covering close to 900,000 households. - Tanzania’s COVID-19 Socioeconomic Response Plan (TCRP) supported by RCF disbursements sought to further increase coverage by about A1 E AA3E A. - Poverty: - The World Bank estimates that following the national definition the poverty rate in 2021 was 27 percent. - The poverty rate measured at the international extreme poverty line is close to 50 percent of the population. ### Recommendations to bolster human capital - Overarching priority: - Reversing the declining trend in priority social spending is critical to achieve sustainable growth and development; budgetary allocations and implementation need to accommodate increasing demands for social services. - Education policy reforms: - Increase budgetary allocations for education to expand coverage, improve quality, and reduce gender and rural-urban disparities. - Increase and improve teacher training to accompany expansion in hiring. - Cost-effective efficiency gains to expand access and reduce student-teacher ratios: - (i) revise the construction parameters of schools to use multipurpose laboratories and in-class libraries; - (ii) limit the use of boarding schools and teacher-housing; - (iii) reallocate teachers to use them more effectively; - (iv) implement double shifts to reduce school construction needs. - Reduce the gender gap in attendance and outcomes by building and improving sanitary facilities in schools, providing a larger share of female teachers, and supporting more gender-friendly teaching practices. - Rebalance resources between primary/secondary and tertiary education to increase efficiency. - Reform the Higher Education Students Loans Board (HESLB) by refining targeting mechanisms for eligible students (e.g., means-testing), strengthening loan recovery efforts, and exploring options for commercial student loans. - Modernize equipment and technologies used for vocational and technical education. - Ensure quarterly consultations with the private sector on training and vocational programs and follow up recommendations from the National Skills Council. - Health and social assistance measures: - Near-term: complete the COVID-19 response through a successful vaccination campaign and adequate availability of testing. - Continue supporting affected low-income households with cash transfers to aid recovery and protect the most vulnerable. - Medium-term: increase resources for health to meet growing demand and reduce coverage gaps. - Expand TASAF to more families while properly targeting aid to reduce poverty and inequality and protect human capital accumulation of poor households. *Source: 1tzaea2022001 - 3. Improving human capital also* ### Annex IX. Enhanced Safeguards for Tanzania ### Annex IX. Enhanced Safeguards for Tanzania ### Assessment of debt composition and exposure - The size of Tanzania’s de facto senior debt plus other multilateral debt as a share of total external debt is above 61 percent at program initiation, remaining below 67 percent over the medium term under the baseline projection. - Tanzania’s average ratio of multilateral debt to total external PPG is around 60 percent, slightly above the median for LICs, indicating that buffers of restructurable debt remain. - At program initiation, debt held by institutions afforded preferred creditor status—the IMF, World Bank, and other major development banks—accounts for 45 percent of external debt; adding debt held by other multilaterals brings the total to around 61.6 percent. - The combined share of such debt is projected to increase to 66.6 percent of external debt by 2024. - Total multilateral debt as a share of GDP is projected to remain close to 18 percent of GDP under the program. - The authorities report that there is no collateralized debt in Tanzania. - Risks from the exposure are expected to be contained through envisaged fiscal consolidation and reforms to increase revenue collection. - To keep medium risk of debt distress under adverse scenarios the program introduces a quantitative performance criterion and an indicative target on external debt. - Measures for improving debt coverage and transparency are also envisaged (MEFP ¶14). ### Key statistics (from Table 1) - Total (2021): 26,760 - Total (2022): 31,187 - Total (2023): 34,382 - Total (2024): 37,323 - External Debt (2021): 19,757 - External Debt (2022): 20,995 - External Debt (2023): 22,095 - External Debt (2024): 23,586 - Multilateral creditors (2021): 12,173 - Multilateral creditors (2022): 13,091 - Multilateral creditors (2023): 14,605 - Multilateral creditors (2024): 15,703 - o/w: IMF and World Bank (2021): 8,851 - o/w: IMF and World Bank (2022): 9,561 - o/w: IMF and World Bank (2023): 10,943 - o/w: IMF and World Bank (2024): 11,972 - o/w: IMF (2021): 557 - o/w: IMF (2022): 557 - o/w: IMF (2023): 868 - o/w: IMF (2024): 1,178 - o/w: World Bank (2021): 8,294 - o/w: World Bank (2022): 9,004 - o/w: World Bank (2023): 10,074 - o/w: World Bank (2024): 10,794 - o/w: AfDB (2021): 317 - o/w: AfDB (2022): 438 - o/w: AfDB (2023): 482 - o/w: AfDB (2024): 471 - o/w: Other Multilaterals (2021): 3,005 - o/w: Other Multilaterals (2022): 3,091 - o/w: Other Multilaterals (2023): 3,181 - o/w: Other Multilaterals (2024): 3,260 - Bilateral creditors (2021): 1,300 - Bilateral creditors (2022): 1,622 - Bilateral creditors (2023): 1,705 - Bilateral creditors (2024): 1,682 - o/w: Paris Club (2021): 743 - o/w: Paris Club (2022): 895 - o/w: Paris Club (2023): 939 - o/w: Paris Club (2024): 931 - o/w: Non-Paris Club (2021): 557 - o/w: Non-Paris Club (2022): 727 - o/w: Non-Paris Club (2023): 766 - o/w: Non-Paris Club (2024): 751 - o/w: Loans (2021): 6,285 - o/w: Loans (2022): 6,282 - o/w: Loans (2023): 5,785 - o/w: Loans (2024): 6,200 - Domestic Debt (2021): 7,003 - Domestic Debt (2022): 10,193 - Domestic Debt (2023): 12,287 - Domestic Debt (2024): 13,737 - Nominal GDP (US$, millions) (2021): 67,356 - Nominal GDP (US$, millions) (2022): 73,800 - Nominal GDP (US$, millions) (2023): 81,638 - Nominal GDP (US$, millions) (2024): 90,051 - Multilateral debt (absolute) (2021): 12,173 - Multilateral debt (absolute) (2022): 13,091 - Multilateral debt (absolute) (2023): 14,605 - Multilateral debt (absolute) (2024): 15,703 - Multilateral debt as Percent of external debt (2021): 61.6 - Multilateral debt as Percent of external debt (2022): 62.4 - Multilateral debt as Percent of external debt (2023): 66.1 - Multilateral debt as Percent of external debt (2024): 66.6 - Multilateral debt as Percent of GDP (2021): 18.1 - Multilateral debt as Percent of GDP (2022): 17.7 - Multilateral debt as Percent of GDP (2023): 17.9 - Multilateral debt as Percent of GDP (2024): 17.6 - o/w: IMF and WB (absolute) (2021): 8,851 - o/w: IMF and WB (absolute) (2022): 9,561 - o/w: IMF and WB (absolute) (2023): 10,943 - o/w: IMF and WB (absolute) (2024): 11,972 - o/w: IMF and WB Percent of external debt (2021): 44.8 - o/w: IMF and WB Percent of external debt (2022): 45.5 - o/w: IMF and WB Percent of external debt (2023): 49.5 - o/w: IMF and WB Percent of external debt (2024): 50.8 - o/w: IMF and WB Percent of GDP (2021): 12.6 - o/w: IMF and WB Percent of GDP (2022): 12.9 - o/w: IMF and WB Percent of GDP (2023): 13.4 - o/w: IMF and WB Percent of GDP (2024): 13.4 - o/w: AFDB Percent of external debt (2021): 1.6 - o/w: AFDB Percent of external debt (2022): 2.1 - o/w: AFDB Percent of external debt (2023): 2.2 - o/w: AFDB Percent of external debt (2024): 2.0 - o/w: AFDB Percent of GDP (2021): 0.5 - o/w: AFDB Percent of GDP (2022): 0.6 - o/w: AFDB Percent of GDP (2023): 0.6 - o/w: AFDB Percent of GDP (2024): 0.5 - o/w: Other Multilaterals Percent of external debt (2021): 15.2 - o/w: Other Multilaterals Percent of external debt (2022): 14.7 - o/w: Other Multilaterals Percent of external debt (2023): 14.4 - o/w: Other Multilaterals Percent of external debt (2024): 13.8 - o/w: Other Multilaterals Percent of GDP (2021): 4.3 - o/w: Other Multilaterals Percent of GDP (2022): 4.2 - o/w: Other Multilaterals Percent of GDP (2023): 3.9 - o/w: Other Multilaterals Percent of GDP (2024): 3.7 - o/w: Collateralized debt (2021): 0.0 - o/w: Collateralized debt (2022): 0.0 - o/w: Collateralized debt (2023): 0.0 - o/w: Collateralized debt (2024): 0.0 - Collateralized debt Percent of external debt (2021): 0.0 - Collateralized debt Percent of external debt (2022): 0.0 - Collateralized debt Percent of external debt (2023): 0.0 - Collateralized debt Percent of external debt (2024): 0.0 - Collateralized debt Percent of GDP (2021): 0.0 - Collateralized debt Percent of GDP (2022): 0.0 - Collateralized debt Percent of GDP (2023): 0.0 - Collateralized debt Percent of GDP (2024): 0.0 ### Program response and policy measures - Introduce a quantitative performance criterion and an indicative target on external debt to preserve medium risk of debt distress under adverse scenarios. - Envisage fiscal consolidation and reforms to increase revenue collection to contain risks from exposure. - Envisage measures for improving debt coverage and transparency (MEFP ¶14). *Source: Tanzanian Authorities & IMF Staff estimates (Annex IX. Enhanced Safeguards for Tanzania).* ### Appendix I. Letter of Intent ### Appendix I. Letter of Intent ### Context and recent developments - Tanzania faces balance of payments financing difficulties resulting from the response to the COVID-19 pandemic, spillovers from the war in Ukraine, and addressing socio-economic development needs. - The contraction in revenues and increased spending, including to fight the pandemic, widened the overall fiscal balance in the fiscal year 2020/21 to 3.9 percent of GDP. - The current account deficit widened in 2021 as rising imports more than offset the recovery in exports. - The country is facing rising prices for many basic commodity imports following effects of the war in Ukraine, while tourism receipts remain well-below pre-pandemic levels. - IMF emergency financing under the RCF has been instrumental to address fiscal pressures, preserve macroeconomic stability, and help finance the economic and health response. ### Financing request and program scope - The Government of the United Republic of Tanzania requests financing under the Extended Credit Facility (ECF) in the amount equivalent to SDR 795.58 million, corresponding to 200 percent of quota, over a forty-month period. - The Government is confident IMF involvement will play a catalytic role in securing additional financial support from development partners, which it will continue to actively seek during the program. - The program includes a set of quantitative performance criteria and indicative targets set out in the Technical Memorandum of Understanding (TMU), Attachment II. - The program includes a series of structural benchmarks covering reform actions to strengthen Tanzania’s economic performance. ### Policy objectives and main priorities - The attached Memorandum of Economic and Financial Policies (MEFP) outlines policy measures and structural reforms to: - complete the post-COVID-19 health and economic response, - preserve macroeconomic stability, - address long-term challenges to support sustainable and inclusive growth, drawing on the reform agenda and development plans envisaged in the National Third Five Year Development Plan (FYDP III). - Main priorities under the program: - strengthening fiscal space to allow for much-needed social spending and high-yield public investment by improving revenue mobilization and spending quality; - resuming and advancing the structural reform agenda to unlock growth potential, improve the business environment and competitiveness; - enhancing financial deepening and stability, including through strengthening the monetary policy framework and improving financial sector supervision. ### Commitments, safeguards, and transparency - The Government considers the policies described in the attached MEFP adequate to achieve program objectives and stands ready to take additional measures if needed, consulting with the IMF in advance of any necessary revisions in line with Fund policies. - The Government will provide Fund staff all data and information needed to assess performance of the policies, particularly those mentioned in the TMU. - The Bank of Tanzania (BoT) commits to comply with the recommendations of the 2022 safeguards assessment of the BoT, including strengthening the legal framework to ensure independent oversight of the BoT, in line with IMF safeguards policy. - The Government agrees to the publication of this Letter of Intent and the attached MEFP for FY2022/23–FY2025/26 and Technical Memorandum of Understanding, as well as the IMF staff report related to the request for a 40-month arrangement under the Extended Credit Facility and the Debt Sustainability Analysis, after approval by the Executive Board of the IMF. ### Signatories and attachments - Signed by: - /s/ Dr. Mwigulu Lameck Nchemba Madelu (MP.), Minister of Finance and Planning - /s/ Prof. Florens D.A.M. Luoga, Governor, Bank of Tanzania - Attachments (2): - Memorandum of Economic and Financial Policies - Technical Memorandum of Understanding *Source: Appendix I. Letter of Intent (Dodoma, June 30, 2022).* ### INTRODUCTION ### INTRODUCTION ### Development context and challenges - Tanzania faces considerable development and reform challenges to unleash the economy’s potential, which have been exacerbated by the COVID-19 pandemic and the effects of the war in Ukraine. - Endowments and constraints: - Abundant natural resources, including gold and natural gas. - Strategic geographical location as a potential gateway for regional trade. - Rapid population growth over the last decade has put pressure on provision of education and health services. - Low levels of human capital and an infrastructure deficit limit the achievement of growth potential and the Sustainable Development Goals. - The COVID-19 pandemic and the war in Ukraine have exacerbated these challenges, despite the economy weathering the crisis better than most countries. ### Emergency and program financing response - RCF disbursements in 2021 helped address fiscal pressures from the pandemic response and close the balance of payments gap. - IMF emergency assistance: - Amount: 0.8 percent of GDP. - Supported pandemic response measures including building and equipping ICUs and emergency facilities, improving sanitation, and reducing congestion in schools. - Fiscal transfers: - The government transferred about a fifth of the RCF disbursements to Zanzibar to address the archipelago’s pandemic needs. - Development partner support: - Primarily through vaccines from COVAX. - Vaccination progress: about 7.6 percent of the total population or 15.5 of the adult population (above 18 years) vaccinated. - Vaccination target: aim to vaccinate 70 percent of the adult population by June 2023. ### Role and objectives of the ECF arrangement - The ECF arrangement aims to: - Help continue the fight against COVID-19 and assist in coping with spillovers from the war in Ukraine. - Support the reform agenda to raise and sustain growth in line with the FYDP III and catalyze donor financing. - Support reforms to mobilize domestic revenue and create fiscal space for investment in human and physical capital. - Resume a strong structural reform agenda. - Short-term priorities under the ECF: - Continue health and economic response to COVID-19. - Cope with spillovers from the war in Ukraine. - Support growth recovery. - Alignment with FYDP III priorities: mobilizing domestic revenue, investment in human and physical capital, and structural reforms for sustainable and inclusive growth. ### Recent macroeconomic developments - Growth: - Decelerated to 4.8 percent in 2020. - Recovered to 4.9 percent in 2021. - Tourism receipts in 2021 remained 50 percent below pre-pandemic levels. - Inflation: - Picked up to 3.8 percent in April 2022 (from 3.3 percent in April 2021), due mainly to rising fuel, wheat, and edible oil prices. - External sector and reserves: - Current account deficit widened in 2021 as rising imports more than offset increases in exports. - Gross international reserves were boosted in 2021 by: - New SDR allocation: about US$543 million. - RCF disbursements: about US$566 million. - Reserves declined by about US$1.2 billion since September 2021 to about US$5.5 billion in April 2022 (4.8 months of prospective imports). - Monetary and financial sector: - Monetary policy accommodation supported the economy and helped private sector credit growth recover, but has started to be reduced in response to rising domestic prices. - Banking sector vulnerabilities persist despite ongoing reform efforts. ### Fiscal developments and pressures - Fiscal outcomes: - FY2020/21 fiscal deficit widened by 2 percentage points (pp) to 3.9 percent of GDP. - Drivers: revenues contracted by 1.3 pp of GDP and development spending increased by 0.7 pp of GDP. - FY2021/22 (first half) developments: - Fiscal deficit increased by about 1 pp of GDP. - Tax collection recovered by 0.4 pp, but net tax revenues remained flat due to accelerated VAT refunds. - VAT refunds: about 0.4 pp of GDP in refunds—more in the last 6 months than during the last five years combined. - Government increased spending by 1.5 pp of GDP, with around 0.7 pp of GDP allocated toward development spending. ### FYDP III vision and priority intervention areas - Government commitment: support economic recovery, preserve macroeconomic stability, and pursue structural reforms toward sustainable and inclusive growth to become a competitive, middle-income country as laid out in the FYDP III. - FYDP III priority intervention areas: - (i) Realizing an inclusive and competitive economy by completing an ambitious public sector investment program in key infrastructure projects. - (ii) Deepening industrialization and service provision through interventions in diverse sectors, including tourism, construction, agriculture, manufacturing, health, and education. - (iii) Addressing institutional bottlenecks through streamlining business environment procedures, promoting investment and trade, consolidating business environment reforms under the umbrella of the Blueprint, simplifying business and investment processes, and boosting regional and international trade. - (iv) Improving human development and promoting inclusive growth through targeted interventions in education, health, water supply and sanitation, urban planning and housing, food security/nutrition, and social protection. - (v) Supporting skills development to target improvements in technical education, vocational training, and workforce skills to enhance productivity and competitiveness. - FYDP III strategies are aligned with and linked directly to the relevant SDG goals. *Source: INTRODUCTION (1tzaea2022001)* ### 7. The sequencing of the priorities of the ECF arrangement will be aligned with the ### 7. The sequencing of the priorities of the ECF arrangement will be aligned with the government's reform agenda ### Immediate priorities and reform areas - Immediate priority: complete the COVID-19 health and economic response and growth recovery, maintain macroeconomic stability, and help Tanzania cope with spillovers from the war in Ukraine. - ECF support will also target reforms for sustainable and inclusive growth and long-term challenges through: - Mobilizing domestic revenue and improving spending quality to create fiscal space for investment in human and physical capital. - Resuming and advancing a strong structural reform agenda, improving the business environment and competitiveness, strengthening governance and reinforcing the anti-corruption framework. - Strengthening financial deepening and stability, including enhancing the monetary policy framework and improving supervision of the financial sector. - ECF financing will help reverse the declining trend in social spending and maintain the public investment drive while structural and fiscal reforms mobilize revenue to sustain increased social spending. ### Near-term outlook and macro projections - Growth and headwinds: - Growth in 2022 is expected to be 4.7 percent, supported by the recovery in tourism, strong public investment, and a rebound in private sector activity. - Headwinds from the war in Ukraine are expected to be a drag on growth, raise inflation, and deteriorate the current account. - Inflation: - Average inflation is projected to increase to 5.4 percent in FY2022/23 following the sharp increase in global oil and wheat prices. - External position: - Current account deficit expected to be 4.2 percent of GDP in FY2022/23 to accommodate large capital-goods imports for major investment projects and rising oil and food-import bills. - Fiscal balance: - Fiscal deficit expected to increase from 2.8 percent of GDP in FY2021/22 to 3.3 percent of GDP in FY2022/23 to continue supporting the economic recovery, rebalance spending towards priority social spending (while continuing infrastructure investment plans), and address aftershocks of the war in Ukraine. ### Medium-term expectations and targets - Growth: - Over the medium-term, GDP growth is expected to reach its potential of 7 percent, driven by improvements in the business environment and supportive fiscal policy. - Fiscal consolidation and composition: - Revenues are projected to improve by about 1.3 pp of GDP by the end of the program. - Spending is projected to increase by about 0.3 pp of GDP. - These changes aim to keep the overall deficit below 3 percent of GDP and the primary deficit below 1 percent of GDP. - External sector and reserves: - Current account improvement of almost 2 pp over the medium-term supported by a recovery in tourism and lower imports as the public investment drive eases. - Reserves are expected to remain above 4 months of imports in line with BoT goals and within the IMF’s adequacy range. ### Program policies: COVID-19 response and social spending - Government commitment under the TCRP: - Continue implementing the TCRP to fight COVID-19, including providing adequate fiscal support. - Fiscal resources to be dedicated to expanding health and education services, improving water and sanitation facilities, and supporting the tourism sector. - Improve and expand preparedness and detection (e.g., boosting testing and contact tracing capacities), expand testing capacity and availability, hire additional healthcare personnel, and enhance COVID-19 and vaccination awareness campaigns. - Additional resources allocated for lower-level health facilities at the district and local levels to advance the goal of vaccinating all the population above 18 years by end-2022. ### Fiscal measures and targeted support to offset Ukraine spillovers - Targeted and temporary subsidies on petroleum products: - Government will set aside up to 100 billion Tanzanian shillings every month from June to December 2022 (with the amount of the subsidy reduced in tandem with the expected global price decrease), for a total of an estimated government expenditure of 500 billion Tanzanian shillings in FY 2022/23. - Reduced import duties on cooking oil: - Import duties on cooking oil will be reduced from 35 to 25 percent or 500 US dollars per MT (whichever amount is higher for refined edible oil) and from 25 percent to 0 percent for crude cooking oil, resulting in projected revenue losses of around 26.9 billion Tanzanian shillings. - Fertilizer subsidies: - Government is providing a subsidy of 100 billion Tanzania shillings to support local production of fertilizers and substitute part of the imports given higher international prices since the war in Ukraine. - Cash transfers for social protection: - Government will increase cash transfers to the poor and most vulnerable by an additional amount of 8 billion of Tanzania shillings for TASAF (over the additional 516.1 billion shillings allocated to TASAF). - VAT waiver and royalty reduction: - Waiving of VAT for locally produced fertilizers and reduction of royalty charges on minerals used in the energy and fertilizer industries, resulting in projected revenue losses of around 400 million Tanzanian shillings. - Offsetting tax measures: - Proposed stay application of CET rate to apply a 35 percent or U.S. dollar 1.5 per square meter rate (whichever is higher) instead of the current duty rate of 25 percent to ceramic and tiles products to protect domestic producers. - Several new domestic tax measures on excise duties, VAT, individual income tax, withholding taxes, and other central government taxes included in the FY2022/23 draft budget law. - Combined, these offsetting tax measures are expected to deliver 263 billion Tanzania shillings, which will net out part of the revenue losses from the diesel/gasoline/kerosene subsidy and cooking oil duty reductions. *Source: 1tzaea2022001 - 7.* ### 12. The budget for FY2022/23 submitted to Parliament (Prior Action) is fully aligned with ### 1tzaea2022001 - 12. The budget for FY2022/23 submitted to Parliament (Prior Action) is fully aligned with ### Fiscal stance, targets, and composition - The FY2022/23 budget is fully aligned with program objectives and entails a moderate expansion warranted by the ongoing external shocks. - Fiscal stance in FY2022/23: supportive to protect the economic recovery. - The domestic primary balance will be the main fiscal tool of the program as a Quantitative Performance Criterion (QPC) to safeguard debt sustainability. - Key projections and targets: - Domestic primary deficit projected to be 2.3 percent of GDP (QPC). - Tax revenues projected to reach 12.6 percent of GDP in FY2022/23. - Spending projected to increase to 18.7 percent of GDP in FY2022/23. - Development spending expected to fall slightly to 8.0 percent of GDP. - Recurrent spending projected to increase to 10.8 percent of GDP. - Priority social spending (PSS) projected to increase to 6.6 percent of GDP (Indicative Target). - Over the medium-term, the government will gradually increase the wage bill by 0.6 percentage points of GDP to hire more teachers and health care personnel. - Domestic primary deficit projected to narrow to 0.9 percent of GDP by FY2025/26, through efforts to increase domestic revenue mobilization. - Contingency and mid-year adjustments: - Should revenue projections not materialize in the first half of FY2022/23, the government commits to adjust the budget in accordance with Section 6 of the Appropriations Act and share with IMF staff the mid-year review report by mid-February indicating budgetary changes to reprioritize spending while protecting PSS. - If cuts to PSS are needed, the government commits to share with IMF staff the list of PSS that will be reduced. ### Statistical classification and reporting commitments - Two FY2022/23 budget items are not classified in line with GFSM 2014: transfers to HESLB and the fee-free basic education program (Elimu Msingi Bila Malipo). These are de facto transfers and should be classified as recurrent expenditure, not development spending in human capital. - Because preliminary submission occurred by March 11, 2022 and Parliament pre-approved allocations using the current presentation, immediate correction in the final Budget presentation would reopen approvals and delay FY2022/23 budget approval. - Interim reporting and corrective steps: - IMF reports will immediately use the correct fiscal classification. - Government commits to officially correct the misclassification during the next possible opportunity in the country’s budgetary process. - With IMF Technical Assistance, government will submit the FY2022/23 mid-year review report to Parliament with an annex indicating the statistical reclassification of Transfers to HESLB and the fee-free basic education program in budget execution for FY2022/23 and in future budget drafts, by end-January 2023. The annex will also verify overall conformity with the GFSM 2014. - Government will submit the FY2023/24 Preliminary Budget draft to Parliament with the statistical reclassification of Transfers to HESLB and the fee-free basic education program by end-February 2023 (structural benchmark). ### External financing and debt management - The government will seek external financing mainly on concessional terms and through grants to preserve debt sustainability. - Current assessment: Tanzania is assessed to have a moderate risk of external debt distress. - Debt management policy: - Newly contracted public debt will favor loans on concessional terms. - Some long-term non- and semi-concessional borrowing may be considered for critical expenditure needs for high-yield investment projects. - Government will avoid all non-concessional short-term external borrowing (original maturity of less than one year). - Government commits to maintaining a ceiling on new external debt of the central government or the BoT in present value terms as presented in the continuous Performance Criterion in Table 1. ### Government borrowing from the central bank - Parliamentary amendment in FY22/23 sets the limit on government borrowing from the central bank at 18 percent of the previous fiscal year’s actual domestic revenues. - Previous ceiling was one-eighth of the preceding fiscal year’s domestic revenue. - Purpose: harmonize Tanzania’s government borrowing limit with other East African Community (EAC) countries and facilitate budget execution. ### Monetary policy, exchange rate, and financial stability (Bank of Tanzania) - The Bank of Tanzania (BoT) stands ready to tighten monetary policy as needed, while allowing exchange rate flexibility to cushion shocks and being mindful of financial dollarization. - A tighter monetary policy stance might be needed to address heightened inflationary pressures stemming from the war in Ukraine and the global tightening cycle. - BoT policy actions and principles: - Develop a transparent foreign exchange intervention policy. - Allow exchange rate flexibility to absorb external shocks including from higher oil prices, intervening only to address disorderly market conditions and financial stability considerations. - Maintain a layer of financial sector contingency measures to buttress financial stability. - Continue to closely monitor financial stability and take measures to ensure nonperforming loans decline below the acceptable level of 5 percent. - Monetary policy will continue to aim at maintaining inflation around the 5 percent target through money market operations, while maintaining adequate international reserves. *Source: UNITED REPUBLIC OF TANZANIA — INTERNATIONAL MONETARY FUND* ### 17. The government will implement economic policies to achieve the objectives and ### 17. The government will implement economic policies to achieve the objectives and ### Objectives and macroeconomic framework - The medium-term economic program supported by the ECF aims at: mitigating the short-term economic impact of the pandemic and the war in Ukraine, maintaining macro-economic stability, reviving the reform momentum to raise and sustain growth, and reduce poverty. - The FYDP III aims at Tanzania becoming a competitive and semi-industrialized middle-income country, strengthening human capital, assuring inclusive growth, and sets a more ambitious goal of accelerating economic growth to 8 percent in the outer years. - The government will continue to discuss medium-term projections with IMF staff and stands ready to refine the medium-term macroeconomic framework in future budget laws. - Program coverage: FY2022/23 and the medium-term. ### Contingency plans and risk management - Recognized risks: - Adverse growth outlook and deteriorating macroeconomic conditions could materialize. - Worsening global economic and financial environment due to the war in Ukraine. - Lagging vaccination rates and threat of recurring COVID-19 outbreaks disrupting trade and tourism recovery. - Higher global oil and food prices and increased volatility in gold prices worsening the external position and increasing financing needs. - Normalization of monetary policy in advanced economies challenging management of foreign exchange reserves and liquidity given Tanzania’s relatively high level of financial dollarization. - Potential government responses if risks materialize: - Exchange rate flexibility to partly absorb external shocks like higher commodity prices or lower tourism demand. - Careful use of reserve buffers to prevent episodes of disorderly market conditions. - Fiscal reprioritization, including on infrastructure investments, to protect the most vulnerable while safeguarding fiscal and debt sustainability. - Additional fiscal support through targeted and transparent expenditure measures to support the economy and affected sectors. - Monetary policy to remain data dependent to ensure price stability is maintained. - Ensure higher fuel and food prices do not risk the financial stability of SOEs and that social protection needs are met without endangering fiscal objectives. - Seek additional budget support, with keeping the IMF supported program on track being critical. ### Structural reforms agenda - Focus areas: - (i) Implement fiscal policies to promote growth. - (ii) Unlock growth potential through improvements to the business environment and investment in human capital and supportive infrastructure. - (iii) Strengthen monetary policy and financial stability. ### Fiscal policies to promote growth - Three key fiscal policy areas: - (i) Increasing domestic revenue mobilization to create fiscal space. - (ii) Rebalancing spending towards priority social spending. - (iii) Improving the quality of spending, including reducing fiscal risks and improving public investment management to close the infrastructure gap. - Near-term fiscal support: used to accommodate the health and economic response to the pandemic and the war in Ukraine. - Projections and targets: - Revenues are projected to improve by about 1.2 pp of GDP by the end of the program. - This allows for an increase in spending of about 0.6 pp of GDP. - Overall deficit reducing below 3 percent of GDP over the medium-term. - Fiscal anchor and constraints: - The domestic primary balance will be the fiscal policy tool to anchor public debt at a sustainable level (this fiscal policy measure excludes foreign assistance aid and net interest payments). - Combined with a ceiling on contracting new external debt by the central government or the BoT (in PV terms) to maintain the risk of debt distress at a moderate level, while allowing room for critical investments in human and physical capital. ### Fiscal structural reforms and measures - Commitment to fiscal measures and fiscal structural reforms aligned with program priorities: - Increase domestic revenue mobilization to open fiscal space. - Rebalance spending towards priority social spending. - Improve the quality of spending, reduce fiscal risks, and improve public investment management to close the infrastructure gap. ### Mobilizing tax revenue (FY2022/23 and program period) - Tax policy and revenue administration efforts based on: - (i) Broadening the tax base by reducing the informal sector through incentivizing more electronic declarations and electronic payments. - (ii) Bringing the digital economy into the tax net. - (iii) Controlling and reducing tax exemptions granted in the tax laws. - (iv) Enhancing tax administration systems. - (v) Enhancing human resource capacity including recruitment and training. - (vi) Enhancing enforcement on the issuance of electronic fiscal devices (EFD) receipts. - (vii) Enhancing risk-based programming and strengthening recovery action. *UNITED REPUBLIC OF TANZANIA — INTERNATIONAL MONETARY FUND* ### 24. Over the short- and medium term, the government also intends to continue to devote ### 1tzaea2022001 - 24. Over the short- and medium term, the government also intends to continue to devote ### Tax revenue mobilization and administration - Continue efforts to recover tax arrears and expand the registration of taxpayers. - Expedite verification of VAT refunds through leveraging technology aiming to clear the backlog of VAT refunds by June 2023. - Mobilize all recoverable overdue tax debts over the duration of the program. - Enhance risk-based tax audit mechanisms by December 2022. - Update the taxpayer registry and streamline process for new taxpayers, e.g., using a single point of entry for registration, regulation, and issuance of tax ID numbers by June 2023. ### Rationalization of tax and customs exemptions; revenue analysis - Commit to greater rationalization of tax and customs exemptions and better supervise the introduction of new exemptions. - Update a study to estimate the size of tax expenditures in Tanzania and propose a strategy to rationalize tax exemptions. - Strengthen analysis and forecasting capacities in terms of revenue as an important tool to mobilize revenues. ### Medium-term tax and customs reforms (analytical work) - Conduct analyses with assistance of technical and financial partners to pave the way for additional structural reforms of the tax and customs system and administrations. - Identified themes include: - (i) a country tax and revenue administration diagnosis; - (ii) an update of the Tax Administration Diagnosis Assessment Tool (TADAT); - (iii) the preparation and implementation of a Medium-Term Revenue Strategy (MTRS). ### Rebalancing and improving the quality of spending - Commit to improve the quality of expenditures by rebalancing and improving spending towards current expenditure, notably the wage bill and social spending. - On the wage bill, gradually increase the wage bill on education and health sectors by appointing 10,000 additional health workers and 15,000 primary and secondary teachers to improve quality of education and reduce the student/teacher ratio, notably in rural areas, by June 2023 (structural benchmark). - Continue investing in social sectors to significantly reduce the gaps in teachers and healthcare workers and equip schools and local health facilities over the duration of the program. - For FY2022/23, commit to raising spending on health and education, both in levels, and as a share of GDP, with total social priority spending reaching 6.6 percent of GDP. - For the medium-term, continue increasing social priority spending in levels, with the goal of stabilizing that as ratio to GDP. - Further disclose quarterly the amounts spent on each social sector (health, education, social transfers, among others) aiming at least reaching the floor on social spending agreed on the program. - Performance in raising and maintaining social spending will be monitored by an indicative target. ### Education policy measures - Increase budgetary allocations for education to expand coverage, improve quality, and reduce gender and rural-urban disparities. - Increase and improve teacher training to accompany the expansion in hiring to improve the quality of education. - Efficiency gains to expand access and reduce the student teacher ratio could be achieved by: - (i) revising the construction parameters of schools to use multipurpose laboratories and in-class libraries; - (ii) leveraging technology for online learning; - (iii) reallocating teachers to use them more effectively. - Help reduce the gender gap in educational attendance and outcomes by: - building and improving sanitary facilities in schools to increase girls’ attendance; - providing a larger share of female teachers; - supporting more gender-friendly teaching practices to promote girls’ active participation in class. - Balance resources between primary, secondary, and tertiary education to increase the efficiency of spending. - Seek to improve the public program of Higher Education Students Loans Board (HESLB) by refining the targeting mechanism for eligible students (e.g., means-testing) and further strengthening loan recovery efforts. - Modernize the equipment and technologies used for vocational and technical education over the medium-term. - Ensure continuous consultations with the private sector on training and vocational programs and follow up on recommendations from the National Skills Council. ### Health, social assistance, and safety nets - Near-term priority: complete work on the COVID-19 response through a successful vaccination campaign and adequate availability of testing. - Continue to support affected low-income households with cash transfers, through TASAF, to help the economic recovery while protecting the most vulnerable. - Medium-term focus: increase resources for the health sector to keep up with increasing demand for health services, and reduce gaps in coverage. - Expand TASAF to more eligible families, while properly targeting the aid provided, to help reduce poverty and inequality and protect human capital accumulation of poor households. ### Public investment management and reducing fiscal risks - Intensify efforts to modernize and strengthen the quality of development spending and public investment management through the preparation of an IMF Public Investment Management Assessment (PIMA). - With assistance of development partners, provide technical assistance to perform the assessment and implement the PIMA, including a climate module (C-PIMA) recommendations. - Prepare an inventory of large projects and a statement of multi-year budgetary commitments on the project inventory by June 2023. *Source: 1tzaea2022001 - 24. Over the short- and medium term, the government also intends to continue to devote* ### 31. The government is engaged in taking all necessary measures to clear existing arrears ### 1tzaea2022001 - 31. The government is engaged in taking all necessary measures to clear existing arrears ### Arrears clearance and prevention - The government will draft, publish, and begin implementing a plan to clear all existing verified arrears by December 2022 (structural benchmark). - The government will ensure adequate budget allocations for arrears clearance. - To prevent resurgence of expenditure arrears, the government will: - develop properly costed budget baselines and realistic revenue projections; - amend the definition of arrears as unpaid claims over 30 and 90 days for goods and services and construction work, respectively. - The government’s performance in reducing the stock of expenditure arrears will be monitored by an indicative target. ### Improvements to financial management systems - Improving financial information systems is a government priority to strengthen budget execution and transparency and reduce fiscal risks. - The government will configure a new functionality of the Integrated Financial Management Information System (IFMIS) to enable all commitments with approved budget allocations to be entered into the system by June 2023. ### Public finance statistics and public sector reporting - The government commits to strengthening public finance statistics and completing and expanding coverage of budgetary and financial reports to give a more complete picture of public sector financial operations. - Steps to be taken: - gradually include all public entities in addition to the central government to establish (and periodically update) a public sector balance sheet covering all assets and liabilities; - harmonize and integrate fiscal statistics from Zanzibar into the General Government reporting; - implement the provisions of the public finance statistics manual (GFSM 2014); - seek IMF technical assistance to conduct these actions. ### Transparency of public entities, PPPs, and SOEs - The government will increase transparency by publishing data related to investments made by other public entities (e.g., public enterprises and local governments) or through Public-Private Partnerships (PPPs). - Monitoring of PPPs will be strengthened through their full consideration in budget documents and public debt sustainability documents because of their potential as contingent liabilities. - The government commits to: - continue to transparently publish general performance annual reports and audited annual financial statements of all SOEs; - publish quarterly management reports of financial performance of SOEs, including their liabilities, starting in FY2022/23. ### Preserving and enhancing fiscal resilience — specific measures - The government is committed to implementing measures to resolve outstanding issues and reduce fiscal risks, including: - Preparing and implementing a plan for the repayment of arrears on VAT refunds and continuing to implement a risk-based approach. - Containing risks emanating from the national energy company (TANESCO) and the national airline (Air Tanzania), particularly in the current context of pandemic recovery and high oil prices. - For TANESCO specifically: - implement a plan to clear its arrears to suppliers and the government arrears to TANESCO; - build generation capacity based on cost-benefit analysis and diversified energy sources; - discussions are ongoing between the MoFP and TANESCO to establish the modality for improving the company’s financial position; - initiatives include converting Government on lent loan to TANESCO into equity to help improve the company’s balance sheet. - Accelerating the verification of claims from the social security funds and proposing a plan for clearing those arrears. - Proposing parametric reforms to the public pension system by end-July 2022 to safeguard the sustainability of the public pension fund. ### Structural reforms to unlock growth potential — business environment - Enhancing the business environment is essential to promote private sector development and unleash growth potential. - Ongoing and planned actions: - Continue implementing the Blueprint for Regulatory Reforms emphasizing streamlining of permits and licenses and rationalizing the number of institutions issuing them and conducting oversight. - Adopt and publish a timetable to implement key de-regulations envisaged in the Blueprint for Regulatory Reforms with clear delineation of responsibilities across government entities. - Complete the review of the National Investment Promotion Policy of 1996 and the Tanzania Investment Act of 1997 and submit to Parliament by June 2023 to propose legislative changes to improve the business climate and promote private sector investment. - Implement 18 amendments to various laws (e.g., TCRA, EWURA, the Copyright Society of Tanzania, Tourism, and the Local Government Acts) by June 2023 as outlined in the Blueprint Action Plan to improve the business environment and attract private investment. - Example: amend the Local Government Act to allow one-stop centers, reducing red-tape bureaucracies and facilitating business creation. - Recognize that fiscal reforms (e.g., addressing VAT refunds and spending arrears) will provide liquidity, predictability, and confidence to the private sector and help close the investment gap. - Commit to consult and engage with relevant stakeholders in planning and implementing reforms. ### Additional measures to promote private sector development - The government will examine additional measures including: - streamlining non-tariff trade barriers (e.g., requirements on the type, volume, or quality of imported goods) and continue to implement a risk-based approach for all inspections; - enhancing engagement with the private sector and other stakeholders in the formulation of new legislation to improve the business environment; - improving predictability in government policies. *Source: 1tzaea2022001 — https://www.imf.org/-/media/files/publications/cr/2022/english/1tzaea2022001.pdf* ### 38. The government is committed to improving the quality of National Accounts statistics ### 38. The government is committed to improving the quality of National Accounts statistics ### National accounts: objectives and commitments - The government recognizes the importance of improving the overall consistency and transparency of the national accounts statistics. - The government will regularly improve the quality of national account source data. - The government will reconcile external sector data between the national accounts and the balance of payment statistics and publish revised national accounts data by June 2023 (structural benchmark). - The government is committed to continuously update and revise national accounts statistics as source data is updated to maintain the consistency of statistics across the country. ### Transparency, governance, and public reporting - The government will strengthen implementation and enforcement of a comprehensive anti-corruption strategy and legislation as part of the National Anti-Corruption Strategy and Action Plan 2023-28 (NACSAP). - NACSAP efforts will include: (i) enhancing investigative and intelligence capabilities, (ii) building technological and big data capabilities, (iii) focusing on prevention strategies including promotion of society participation in anti-corruption campaigns and increasing public awareness, and (iv) enhancing adherence to asset declaration of public officials and the codes of conduct. - The government will work to improve the effectiveness of the AML/CFT framework: - Seek to amend the AML/CFT Law to enhance provisions on preventive measures, supervision of designated non-financial sectors, targeted financial sanctions, and beneficial ownership. - Adopt policy and procedures for AML/CFT risk-based supervision of banks. - Governance commitments under the RCF Letter of Intent: - Continue publication of the remaining quarterly reports of RCF spending one month after the quarter ends, following publication of the first two reports (December 2021 and April 2022). - Complete posting of the list of financial transfers, all pandemic related public procurement contracts and related documents (including the names of the awarded companies and their beneficial owners). - The audit of pandemic-related spending financed with the debt relief received under the Catastrophe Containment and Relief Trust (CCRT) was published in April 2022; preparatory work for the audit of all pandemic-related spending is progressing and expected to be published by December 2022 (structural benchmark). - The government will seek IMF technical assistance to support efforts to continue to improve governance. - The government commits to resolving governance issues. ### Monetary policy framework and Bank of Tanzania (BoT) reforms - The BoT will continue progress towards transitioning to an interest rate-based monetary policy framework to deepen financial markets. - The BoT intends to implement an interest rate-based monetary policy framework by June 2024, in line with EAC monetary policy harmonization. - Intended actions include: (i) further improve monetary policy communication with market participants, (ii) introduce the policy rate by the time the operational guidelines are introduced, publish the operational guidelines of the interest rate-based monetary policy framework, including documentation and regulation on the use of standing facilities, and the policy rate by June 2023 (structural benchmark), and (iii) implement measures to enhance collateral recovery and broaden the pool of acceptable collateral to movable collateral. ### Financial sector stability, FSAP recommendations, and prudential reforms - The BoT is committed to continue implementing FSAP recommendations to enhance financial sector stability and mitigate near-term banking sector vulnerabilities. - Key priorities: - Enhancing risk-based supervision and solvency stress testing capabilities. - Reducing NPLs and increasing provisioning (including for restructured loans). - Enhancing buffers to manage near-term liquidity, credit, and concentration risks. - IMF technical assistance will support these priorities. - The BoT will re-run its solvency stress test scenario and step up monitoring and enforcement of prudential guidelines, particularly regarding undercapitalization, NPLs, and restructured loans. - Continue efforts to operationalize the ELA framework. - Enhance the risk-based supervision (RBS) framework by implementing the Basel II/III risk-based supervision standards and creating a single RBS rating system and improve AML/CFT risk-based supervision. - As a first step, the BoT will submit an amendment to the Banking and Financial Institutions Act (BAFIA) to the government to allow compliance with the requirements of capital adequacy as a step to the migration to Basel II/III risk-based supervision standards (structural benchmark). ### IMF engagement, technical assistance, and safeguards - The government will strengthen collaboration and engagement with the IMF and other development partners on the implementation of technical assistance. - The government will strive to remove barriers to implementation by increasing ownership of TA recommendations at technical and managerial levels. - TA provision will be instrumental for progress under the ECF arrangement. - The government is committed to implementing recommendations from the recently completed safeguards assessment. - Strengthening the legal framework to ensure independent oversight of the BoT will be pursued. - The BoT will prepare draft amendments to the BoT Act in consultation with IMF staff to strengthen governance arrangements as well as personal and financial autonomy, including addressing the issue of the composition of the Board to be comprised of a clear majority of non-executive (independent) members in line with leading practices. - Technical assistance will be requested as needed to address governance concerns and improve autonomy provisions. - Given that IMF financing will be for budget support, the existing MoU between the BoT and the Ministry of Finance and Planning on respective responsibilities for servicing financial obligations to the IMF will be revisited. *Source: 1tzaea2022001 - 38. The government is committed to improving the quality of National Accounts statistics* ### 45. The government will continue a close policy dialogue with the IMF to maintain ### 1tzaea2022001 - 45. The government will continue a close policy dialogue with the IMF to maintain ### Macroeconomic policy and IMF relationship - The government will continue a close policy dialogue with the IMF to maintain macroeconomic stability and strengthen Tanzania’s balance of payments position. - The government will refrain from measures or policies that would compound balance of payments difficulties. - The government does not intend to: - impose new, or intensify existing, restrictions on the making of payments and transfers for current international transactions; - introduce new, or intensify existing, trade restrictions for balance of payments purposes; or - enter into bilateral payments agreements which are inconsistent with Article VIII of the Fund’s Articles of Agreement. ### Data provision and statistical capacity - Data provision is described as "broadly adequate for surveillance and program monitoring." - The government remains committed to allocate sufficient human, financial, and material resources to the production of statistics. - The government will continue to support the National Bureau of Statistics (NBS) in fulfilling its missions and counts on continued technical and financial assistance from development partners. - The government will prepare and publish a plan to improve GDP statistics by enhancing key data sources (e.g. surveys on investment, employment, and production by activity) and using relevant data from the TRA by June 2024. - The government will continue to collaborate with the IMF and other stakeholders to address shortcomings and strengthen data provisioning, including on technical assistance, and full transparency and access to data and methods. ### Program monitoring, reviews, and evaluation - The program will be evaluated based on quantitative performance criteria and structural benchmarks and semi-annual reviews. - Definitions of key concepts and indicators, as well as reporting requirements, are set out in the accompanying Technical Memorandum of Understanding (TMU). - The first and second reviews are scheduled to be completed on or after March 29, 2023, and September 29, 2023, respectively, based on test dates for periodic performance criteria of end-December 2022 and end-June 2023, respectively. ### Quantitative Performance Criteria and Indicative Targets (Tsh billions, unless otherwise indicated) — September 2022 – June 2023 - Note: The quarterly figures represent cumulative values from the start (July) till the end (June) of each fiscal year FY2022/23 and FY2023/24, respectively. - Sources: Tanzanian authorities; and IMF staff projections. - 2/ Cumulative change from June 2022. A positive change denotes an accumulation of net international reserves. - 1/ Precise definitions of the aggregates shown and details will be included in the Technical Memorandum of Understanding (TMU). - Continuous Performance Criteria - Ceiling on accumulation of new external payment arrears incurred by the central government or the BoT: - Sep. 2022: 0 - Dec. 2022: 0 - Mar. 2023: 0 - Jun. 2023: 0 - Ceiling on the PV of new external debt contracted by the central government or the BoT (millions of U.S. dollars) 1/: - Sep. 2022: 5,053 - Dec. 2022: 5,737 - Mar. 2023: 6,436 - Jun. 2023: 7,057 - Performance Criteria - Floor on domestic primary balance 1/: - Sep. 2022: 131 - Dec. 2022: -2,248 - Mar. 2023: -398 - Jun. 2023: -4,376 - Ceiling on net domestic assets (NDA) of the BoT: - Sep. 2022: -598 - Dec. 2022: -304 - Mar. 2023: -420 - Jun. 2023: -98 - Change in net international reserves of the Bank of Tanzania (floor, millions of U.S. dollars) 2/: - Sep. 2022: -73 - Dec. 2022: -146 - Mar. 2023: -219 - Jun. 2023: -292 - Indicative Targets - Floor on priority social spending 1/: - Sep. 2022: 1,557 - Dec. 2022: 3,893 - Mar. 2023: 7,008 - Jun. 2023: 12,653 - Ceiling on the stock of expenditure arrears 1/: - Sep. 2022: 3,800 - Dec. 2022: 3,552 - Mar. 2023: 3,343 - Jun. 2023: 3,187 - Ceiling on the newly disbursed external non-concessional borrowing by the central government or the BoT (millions of U.S. dollars) 1/: - Sep. 2022: 1,533 - Dec. 2022: 1,631 - Mar. 2023: 1,631 - Jun. 2023: 1,631 - Memorandum Items - Foreign assistance grants and loans (net) 1/: - Sep. 2022: 196 - Dec. 2022: 1,507 - Mar. 2023: 2,328 - Jun. 2023: 3,551 - VAT refunds in arrears: - Sep. 2022: 710 - Dec. 2022: 582 - Mar. 2023: 539 - Jun. 2023: 432 - Expenditure arrears: - Sep. 2022: 3,090 - Dec. 2022: 2,970 - Mar. 2023: 2,803 - Jun. 2023: 2,755 - Wage bill on education and health workers 1/: - Sep. 2022: 476 - Dec. 2022: 1,141 - Mar. 2023: 2,189 - Jun. 2023: 3,358 ### Prior Actions and Structural Benchmarks Through June 2023 - Prior Action - 1. Submit the FY2022/23 budget to Parliament fully aligned with the program targets and the macroeconomic framework - Target Date: June 14, 2022 - Macro Criticality: High - Structural Benchmarks - 1. Prepare and begin implementing a plan to clear all expenditure arrears - Macroeconomic Rationale: Improve fiscal management, the business environment and reduce potential for corruption - Target Date: Dec. 2022 - Macro Criticality: High - 2. Publish the operational guidelines of the interest rate-based monetary policy framework, including documentation and regulations on the use of standing facilities - Macroeconomic Rationale: Enhance financial stability and transparency - Target Date: Jun. 2023 - Macro Criticality: Medium - 3. Appoint additional 15,000 teachers for primary education to improve quality of education and reduce the student/teacher ratio, particularly in rural areas. And hire 10,000 additional health workers to address gaps. - Macroeconomic Rationale: Build human capital - Target Date: Jun. 2023 - Macro Criticality: High - 4. Complete and publish the post-crisis audit of pandemic-related spending - Macroeconomic Rationale: Improve fiscal management and enhancing economic governance - Target Date: Dec. 2022 - Macro Criticality: Medium *Source: Excerpt from the IMF staff report for the United Republic of Tanzania (content unit 1tzaea2022001).* ### 5. Reconcile national accounts (NA) and BOP ### 5. Reconcile national accounts (NA) and BOP ### Key actions, objectives, and timelines - Reconcile national accounts (NA) and balance of payments (BOP) external sector data and publish revised NA historical data. - Objective: Improve GDP quality and transparency. - Timeline: Jun. 2023 - Priority: High - The BoT will submit an amendment to the Banking and Financial Institutions Act (BAFIA) to the government to allow compliance with the requirements of capital adequacy as a step to the migration to Basel II/III risk-based supervision standards. - Objective: Enhance financial stability and strengthen bank oversight. - Timeline: Dec. 2022 - Priority: High - Submit the FY2023/24 Preliminary Budget draft to the Parliament with the statistical reclassification of Transfers to HESLB and the fee-free basic education program. - Objective: Improve fiscal management and official statistics, and enhance economic governance and transparency. - Timeline: Feb. 2023 - Priority: High ### Technical Memorandum of Understanding (TMU) — scope and data sources - Coverage period of the program: July 2022—September 2025. - Principal data sources: - standardized reporting forms, 1SR, 2SR, NDF table provided by the Bank of Tanzania (BoT) to the IMF; - government provisional budget execution tables provided by the Ministry of Finance and Planning (MoFP); - government debt tables provided by the Accountant General’s office; - national accounts, inflation and high frequency indicators provided by the National Bureau of Statistics (NBS). - Residual definition for external/domestic: residency basis. - Stocks of all foreign assets and liabilities: converted into U.S. dollars at each test date using the cross-exchange rate in Text Table 1, then converted into Tanzanian Shillings (TSh) using the program U.S. dollar-Tanzanian Shillings exchange rate for end-June 2022, unless otherwise indicated. ### Text Table 1 — Program exchange rates and prices (end-June 2022) - US$ per currency unit: - British pound 1.2235 - Euro 1.0568 - Japanese yen 0.0073 - Australian dollar 0.6999 - Canadian dollar 0.7752 - Chinese yuan 0.1507 - SDR 1.3474 - Swedish Krona 0.0969 - Kenyan Shilling 0.0085 - South African Rand 0.0609 - Gold price 1822.85 ### Performance criteria, monitoring, and reporting - Performance criteria referenced in the program (as defined in the TMU) include: - new external payments arrears, - new external debt contracted by the central government or the BoT, - domestic primary balance, - net domestic assets (NDA), - net international reserves. - Timing of targets: - Performance criteria set for end-December 2022 and end-June 2023. - Indicative targets set for end-September 2022 and end-March 2023. - Continuous performance criteria (non-quantitative) include: - non-imposition or intensification of restrictions on the making of payments and transfers for current international transactions; - non-introduction or modification of multiple currency practices; - non-conclusion of bilateral payments agreements inconsistent with Article VIII; - non-imposition or intensification of import restrictions for balance of payments reasons. - These continuous PCs are monitored continuously and not listed in the PC table annexed to the MEFP. ### Provision of data to the IMF staff - Data reporting obligations: - Data with respect to all variables subject to quantitative periodic performance criteria and indicative targets will be provided to Fund staff monthly or quarterly with a lag of no more than the period specified in Table 1. - Authorities will promptly transmit any data revisions to the Fund. - For continuous performance criteria, the authorities will provide relevant data to IMF staff immediately. - For variables assessing performance against program objectives but not specifically defined in the memorandum, authorities will consult with Fund staff on appropriate measurement and reporting. ### Quantitative external-debt-related policies - Ceiling on accumulation of new external payments arrears incurred by the central government or the Bank of Tanzania: - The ceiling on the accumulation of new external payments arrears is zero. - This limit is to be observed on a continuous basis and applies to the change in the stock of overdue payments on debt contracted by the central government or the BoT from their level at end-June 2022. - Definition of external payment arrears: total amount of external debt service obligations (interest and principal) of the central government and the BoT that have not been paid at the time they are due, excluding arrears on external debt service obligations pending the conclusion of debt-rescheduling arrangements and arrears previously accumulated and reported to the Executive Board. - Reporting requirement: government will immediately report to the IMF staff any new external arrears it accumulates. - Ceiling on the present value of new external public and publicly guaranteed debt contracted by the central government or the Bank of Tanzania: - Definition and coverage (section heading present; full definitions and numerical ceilings not included in the supplied excerpt). *Source: Technical Memorandum of Understanding (excerpt).* ### 9. For program purposes, the definition of debt is set out in paragraph 8(a) of the ### 1tzaea2022001 - 9. For program purposes, the definition of debt is set out in paragraph 8(a) of the ### Definition of debt (program purposes) - A debt is considered contracted when all conditions for its entrance into effect have been met, including approval by the government. - Contracting of credit lines with no predetermined disbursement schedules or with multiple disbursements will be also considered as contracting of debt. - The term “debt” has the meaning set forth in paragraph 9 above for the purposes of measuring government external debt and program targets. ### External debt (scope and exclusions) - External debt: any debt contracted by the central government or the BoT on both concessional and non-concessional terms with non-residents. - For purposes of the program target, the measure of external debt will exclude IMF disbursements. - The quantitative ceiling on the present value of external debt applies to debt newly contracted by the central government or the BoT; it applies to debt contracted for which value has not yet been received. - The quantitative target does not apply to normal import-related commercial debt having a maturity of less than one year, and rescheduling agreements. - For this continuous PC (monitored continuously), the government will immediately report to IMF staff any new external loans it contracts, stating the conditions of these loans. ### Concessionality and present value (PV) calculation - A debt is concessional if it includes a grant element of at least 35 percent. - Grant element definition: difference between the present value (PV) of debt and its nominal value, expressed as a percentage of the nominal value of the debt. - PV at contracting: calculated by discounting the future stream of payments of debt service due on the debt. - For debts with a grant element equal or below zero, the PV will be set equal to the nominal value of the debt. - Discount rate used: the unified discount rate of 5 percent set forth in Executive Board Decision No. 15248-(13/97). ### PV calculation for variable-rate debts and program reference rates/spreads - For debts carrying a variable interest rate in the form of a benchmark interest rate plus a fixed spread, the PV is calculated using a program reference rate plus the fixed spread (in basis points) specified in the debt contract. - Program reference rate for the six-month USD Secured Overnight Financing Rate (SOFR) is 2.7 percent and will remain fixed for the duration of the program. - Spreads relative to six-month USD SOFR: - The spread of six-month Euro EURIBOR over six-month USD SOFR is -140 basis points. - The spread of six-month JPY LIBOR over six-month USD SOFR is -270 basis points. - The spread of six-month GBP Sterling Overnight Interbank Average Rate (SONIR) over six-month USD SOFR is -60 basis point. - For interest rates on currencies other than Euro, JPY, and GBP, the spread over six-month USD SOFR is 15 basis points. - Where the variable rate is linked to a benchmark interest rate other than the six-month USD SOFR, a spread reflecting the difference between the benchmark rate and the six-month USD SOFR (rounded to the nearest 50 bps) will be added. - Footnote: The program reference rate and spreads are based on the average projected rate for the six-month USD SOFR over the following 5 years from the July 2022 World Economic Outlook (WEO) Update. ### Fiscal aggregates — Floor on Domestic Primary Balance - A floor on domestic primary balance will apply. - Domestic primary balance definition: overall fiscal balance of the government (central and local governments) excluding foreign assistance grants and net interest payments on public debt. ### Fiscal balance and measurement - Fiscal balance definition: the fiscal deficit of the government measured on a cash basis from the financing side and defined as the sum of: - (i) net domestic financing (NDF) of the government; - (ii) net external financing; and - (iii) privatization receipts. - Any amounts in foreign currency will be converted into TSh at the exchange rates prevalent on the dates of the transactions. ### Net Domestic Financing (NDF) — calculation components (cumulative change since June 30, 2022) - NDF is calculated as the cumulative change since June 30, 2022, in the sum of: - a. Loans and advances to the government by the BoT and holdings of government securities and promissory notes (including liquidity paper issued for monetary policy purposes), minus all government deposits with the BoT, which comprise government deposits as reported in the BoT balance sheet, 1SR (including counterpart deposits in the BoT of liquidity paper issued for monetary policy purposes) and foreign currency-denominated government deposits at the BoT (including the PRBS accounts and the foreign currency deposit account). - b. All BoT accounts receivable due from the government of Tanzania that are not included under item (a) above. - c. Loans and advances to the government by other domestic depository corporations and holdings of government securities and promissory notes, minus all government deposits held with other domestic depository corporations. - d. Loans and advances to the government, and holdings of government securities and promissory notes by other public entities (e.g., pension funds) not covered by the central government accounts. - e. The outstanding stock of domestic debt held outside domestic depository corporations and other public entities excluding: government debt issued for the recapitalization of the NMB and TIB; debt swaps with COBELMO (Russia) and the government of Bulgaria; mortgage on acquired sisal estates; compensation claims; and debt of parastatal companies assumed by the government. ### Net external financing (measurement) - Net external financing is measured on a cumulative basis from June 30, 2022, and is defined as the sum of disbursements minus amortization of: - budget support loans, - project loans, - external non-concessional borrowing (ENCB) including project ENCB directly disbursed to project implementers; - and any other forms of Government external debt. - Government external debt is understood to mean a direct, i.e., not contingent, liability to non-residents of the government of Tanzania. ### Privatization receipts (scope) - Privatization receipts consist of net proceeds to the government of Tanzania in connection with the sale/purchase of financial assets that are not included in NDF and the sale of intangible nonfinancial assets, such as leases and the sale of licenses with duration of 10 years or longer. ### Monetary aggregates - A ceiling on Net Domestic Assets (NDA) of the Bank of Tanzania is indicated (heading present; details not included in the supplied text). *Source: 1tzaea2022001 - 9.* ### 16. The target ceiling on NDA of the BoT is evaluated using the end of period stock. The ### 16. The target ceiling on NDA of the BoT is evaluated using the end of period stock. ### Net Domestic Assets (NDA) of the BoT — definition and calculation - NDA of the BoT are defined as the difference between reserve money and the NFA of the BoT valued in TZS using the program exchange rates as described in text Table 1. - The calculation includes: - net credit to the government, - claims on other sectors, - claims on banks, - other liabilities to banks, - deposits and securities other than shares excluded from the monetary base, - shares and other equity, - other items (net). - As an illustration, at end-April 2022, using the Tanzanian shillings per US dollar exchange rate of 2,299 as of April 30, 2022: - Net Foreign Assets: USD millions 4,934 - Net Foreign Assets: TZSh billions (A) 11,343 - Reserve Money: TZSh billions (B) 8,684 - Net Domestic Assets: TZSh billions = (B) - (A) -2,658 ### D. International Reserves — definition and measurement - Net international reserves (NIR) of the BoT are defined as reserve assets of the BoT minus reserve liabilities of the BoT. - The change in NIR is calculated as the cumulative change since June 30, 2022. - Reserve assets (as defined in the IMF BOP Manual (6th edition) and the SDDS reserve template) include: - (i) monetary gold; - (ii) holdings of SDRs; - (iii) the reserve position at the IMF; - (iv) all holdings of foreign exchange; - (v) other liquid and marketable assets readily available to the monetary authorities. - Reserve assets exclude assets pledged or otherwise encumbered, including assets acquired through short-term currency swaps maturing in less than one year and other assets used as collateral or as guarantee for a third-party external liability (assets not readily available). - Reserve liabilities of the BoT include: - (i) all short-term foreign exchange liabilities to nonresidents, except government’s foreign currency deposits of residual maturities of more than one year; - (ii) outstanding purchases and loans from the IMF, as recorded in the financial position of Tanzania with the IMF by the Finance Department of the Fund. - NIR are monitored in U.S. dollars, and for program monitoring purposes, assets and liabilities in currencies other than U.S. dollars will be converted into dollar equivalent values using the program exchange rates as displayed in text Table 1. - Monetary gold will be valued in USD at the exchange rates and gold prices that prevailed on (see Table 1). ### Indicative targets — summary of defined targets and coverage A. Floor on priority social spending - A floor on priority social spending will be set. - Priority social spending is defined as central government spending (recurrent and development) for: - education, - health, - water, - social safety nets (including cash transfers through Tanzania’s Social Action Fund -TASAF), - rural electrification, - agricultural inputs, - upgrading and maintenance of rural roads, - transfers to local governments for health, education, and rural water supply. - The indicative target for the floor on priority social spending by the central government will be calculated cumulatively from the beginning of the fiscal year. B. Ceiling on the stock of domestic arrears - Domestic arrears are defined as the sum of expenditure arrears and VAT refunds in arrears. - A ceiling applies to the stock of domestic arrears by the government measured cumulatively from the beginning of the fiscal year in July. - An unpaid bill is defined as any verified outstanding payment: - for more than 30 days owed by any entity that forms part of the central government votes for utilities, rent, employee costs, other recurrent, court awards, compensation, contributions to international organizations, development, taxes, and other deductions; - for construction work, any verified outstanding payment for more than 90 days owed by any entity that forms part of the central government. - Expenditure arrears are the total stock of unpaid bills at the end of each quarter as verified by the Internal Auditor General. - The ceiling on the stock of domestic arrears also includes verified and unpaid VAT refunds outstanding for more than 90 days from the time the taxpayer submitted the refund claim. C. Ceiling on the new external non-concessional borrowing disbursed by the central government or the Bank of Tanzania - For program purposes, the definition of debt is set out in paragraph 9 above. - Coverage of the indicative target comprises the central government and the central bank. - The ceiling is applied to disbursed rather than contracted new external non-concessional borrowing. *Source: IMF staff text (Text Table 2 and associated paragraphs).* ### 22. For program purposes, a debt is concessional if it includes a grant element of at least ### 22. For program purposes, a debt is concessional if it includes a grant element of at least ### Definition of concessional debt - A debt is concessional if it includes a grant element of at least 35 percent. - The grant element of a debt is the difference between the present value (PV) of debt and its nominal value, expressed as a percentage of the nominal value of the debt. - IMF disbursements are excluded from the indicative target. ### Ceiling on new external non-concessional borrowing - A ceiling applies to new external non-concessional borrowing disbursed by the central government or the Bank of Tanzania. - The indicative target will be assessed on a cumulative basis for each test date with disbursements based on the schedule announced in the authorities’ borrowing plan for debt disbursements. - Any change in the disbursement schedule should be immediately reported to the IMF staff, stating the conditions of the changes in the disbursement schedule. ### Memorandum items - Foreign assistance grants and loans: - Defined as the sum of external budget support (including IMF financing); program, project and basket grants; and concessional loans received by the Ministry of Finance and Planning (MoFP) through BoT accounts and accounts at other depository corporations. - Calculated as the cumulative sum of the receipts from program loans and program grants since the beginning of the fiscal year. - VAT refunds in arrears and expenditure arrears: - Defined in Paragraph 20 (not reproduced here). - Monitored separately as two different memorandum items to indicate transparently their respective clearance scheduling plans. - Wage bill on education and health workers: - Defined as the sum of budget spending on wages and salaries of public sector employees in education and health sectors—according to economic budgetary classification, including but not limited to employer pension contributions and other social security contributions, and other remunerations (such as bonus payments). ### Use of adjusters - Performance criterion on the present value of newly contracted external public and publicly guaranteed debt: - Will be adjusted in line with deviations from amounts projected. - A downward adjustor is applied to cover World Bank lending projects that feature in the authorities’ borrowing plan and are expected to be contracted within the program period. - The size of this adjustor is limited to the value of the identified projects and should be revisited at each program review to incorporate updated information. - Performance criterion on the change in net international reserves: - Will be adjusted downward by the amount (in U.S. dollars) of any shortfalls, up to a limit of US$500 million, in: - (a) foreign program assistance, defined as the sum of budget support grants and loans; and - (b) external non-concessional borrowing (ENCB) financing of the government budget, excluding non-concessional foreign program assistance, if any, included in (a), - Calculated relative to the projections shown in Schedule B. - Performance criterion on the domestic primary fiscal balance: - Will be adjusted in line with deviations, downward (upward) by any excess (shortfall) in the amount of government spending arrears settled, compared to those displayed in Schedule C which are based on the figures allocated in the Annual Budget Plan for FY 2022/23 and on the Indicative Target on the decline of the stock of domestic arrears presented in Table 1 of the MEFP. ### Schedule A — PV of Lending Projects with the World Bank (US$ million) - End-Sep. End-Dec. End-Mar. End-Jun - World Bank lending projects 494 560 629 689 - Note: 1/ cumulative flows from July,1, 2022 to September 30, 2022, 31st December 2022, 31st March 2023 and 30th June 2023 ### Schedule B — Budget Support and External Non-Concessional Borrowing FOR THE Budget (US$ million) - (Schedule B referenced; detailed figures not reproduced in source excerpt.) ### Schedule C — Payment of Domestic Arrears (TSh$ billion) - (Schedule C referenced; detailed figures not reproduced in source excerpt.) *UNITED REPUBLIC OF TANZANIA — INTERNATIONAL MONETARY FUND* ### 30. The ceiling on NDA of the Bank of Tanzania will be adjusted upward (downward) by the ### 30. The ceiling on NDA of the Bank of Tanzania will be adjusted upward (downward) by the ### Adjustment mechanism for NDA ceiling - The ceiling on NDA of the Bank of Tanzania will be adjusted upward (downward) by the cumulative deviation of actual from projected budget support (official external program support, shown above in Schedule B). - This adjustment will be capped at the equivalent of US$500 million, evaluated at program exchange rates as described in text Table 1. ### Schedule B — Budget Support and External Non-Concessional Borrowing (summary figures) - Schedule B. Budget Support and External Non-Concessional Borrowing for the Budget (1/ cumulative flows from July,1, 2022 to September 30, 2022, 31st December 2022, 31st March 2023 and 30th June 2023) - 2022 / 2023 (US$ million) - End-Sep. — Budget support grants: 0 - End-Dec. — Budget support grants: 0 - End-Mar. — Budget support grants: 0 - End-Jun — Budget support grants: 0 - End-Sep. — Budget support loans: 0 - End-Dec. — Budget support loans: 350 - End-Mar. — Budget support loans: 350 - End-Jun — Budget support loans: 350 - End-Sep. — External non-concessional borrowing: 1,252 - End-Dec. — External non-concessional borrowing: 1,331 - End-Mar. — External non-concessional borrowing: 1,331 - End-Jun. — External non-concessional borrowing: 1,331 ### Schedule C — Payment of Domestic Arrears (summary figures) - Schedule C. Payment of Domestic Arrears (1/ cumulative flows from July,1, 2022 to September 30, 2022, 31st December 2022, 31st March 2023 and 30th June 2023) - (TSh$ billion) - End-Sep. 2022: Payment of domestic arrears: 118 - End-Dec. 2022: Payment of domestic arrears: 365 - End-Mar. 2023: Payment of domestic arrears: 575 - End-Jun. 2023: Payment of domestic arrears: 730 ### Summary of reporting requirements (Table 1) - Consumer price index: NBS, Monthly, Submission Lag: 2 weeks - The annual national account statistics in current and constant prices: NBS, Annually, Submission Lag: 3 months - The quarterly national account statistics in constant prices: NBS, Quarterly, Submission Lag: 3 months - Daily data on reserve money and its components: BoT, Weekly, Submission Lag: 3 days - Balance sheet of the BoT (1SRF) and the currency composition of official foreign assets and official foreign liabilities: BoT, Monthly, Submission Lag: 2 weeks - Consolidated accounts of other depository corporations and the depository corporations survey (2SRF and the DCS): BoT, Monthly, Submission Lag: 4 weeks - Information on foreign exchange cashflow, with detailed inflows and outflows (cashflow table): BoT, Monthly, Submission Lag: 4 weeks - Information on gross reserves assets and liabilities (NIR table): BoT, Monthly, Submission Lag: 4 weeks - Summary of stock and projections of external debt, external arrears, and committed undisbursed loan balances by creditor: MoFP, Quarterly, Submission Lag: 4 weeks - Yields on government securities: BoT, Monthly, Submission Lag: 1 week - Daily data on transactions through IFEM by exchange rate and volume, separating BoT and commercial bank transactions: BoT, Monthly, Submission Lag: 1 week - External trade: BoT, Monthly, Submission Lag: 4 weeks - Balance of payments: BoT, Quarterly, Submission Lag: 1 quarter - Standard off-site bank supervision indicators for other depository corporations, including sectoral breakdown of credit and NPLs: BoT, Quarterly, Submission Lag: 4 weeks - Financial Soundness Indicators for other depository corporations: BoT, Quarterly, Submission Lag: 4 weeks - Commercial banks interest rate structure: BoT, Monthly, Submission Lag: 4 weeks - The flash report on revenues and expenditures: MoFP/ACGEN, Monthly, Submission Lag: 4 weeks - The TRA monthly revenue report: TRA, Monthly, Submission Lag: 4 weeks - Report on priority social spending with the breakdown by each spending category, with quarterly budget allocation and execution: MoFP, Monthly, Submission Lag: 4 weeks - Monthly report on central government operations: MoFP, Monthly, Submission Lag: 6 weeks - The monthly domestic debt report1: MoFP, Monthly, Submission Lag: 4 weeks - Data on external and domestic debt by creditor; amortizations, and interest payments: MoFP, Monthly, Submission Lag: 6 weeks - Detailed central government account of disbursed budget support grants and loans, and ENCB, and external debt service due and paid: MoFP, Monthly, Submission Lag: 4 weeks - Statement on new external loans contracted and guarantees provided by the entities listed in paragraph 2 of the TMU during the period including terms and conditions according to loan agreements as well as quarterly borrowing plans during the program years: MoFP, Monthly, Submission Lag: 4 weeks - Report on loans and advances to government by pension funds and other public entities not covered by the central government accounts: MoFP, Monthly, Submission Lag: 4 weeks - Number of public sector teachers and health workers employed: MoFP, Monthly, Submission Lag: 4 weeks - Quarterly expenditure arrears verified by the Auditor General: MoFP, Quarterly, Submission Lag: 4 weeks - Quarterly verified unpaid VAT refunds: TRA, Quarterly, Submission Lag: 4 weeks - Monthly tourist arrivals: NBS, Monthly, Submission Lag: 4 weeks - Cement production and consumption (imports, exports, and production): NBS, Quarterly, Submission Lag: 4 weeks - Monthly construction inputs from index of construction material sourced from the national construction council: NBS, Monthly, Submission Lag: 4 weeks - Monthly electricity generation and consumption by sources of production/imports: NBS, Quarterly, Submission Lag: 4 weeks - Quarterly crop production of maize, cashew nuts, coffee, rice, wheat, cotton: NBS, Quarterly, Submission Lag: 4 weeks - Monthly mobile phone airtime use in minutes: NBS, Monthly, Submission Lag: 4 weeks - Monthly gas consumption (volumes and values) for industry, tourism, and prisons: NBS, Monthly, Submission Lag: 4 weeks - Note: The MoFP and BoT will reconcile data on BoT claims on the government, to ensure that such claims recorded in the BoT balance sheet are the same as those reported by the Accountant General of the MoFP. ### Debt Sustainability Analysis (selected findings) - Risk of external debt distress: Moderate - Overall risk of debt distress: Moderate - Granularity in the risk rating: Limited space to absorb shocks - Application of judgment: No - Key analytical points: - The Debt Sustainability Analysis (DSA) indicates that Tanzania’s risk of external debt distress remains moderate, mainly due to the continued effects of the pandemic on exports, which has marginally weakened Tanzania’s ability to service its external debt.2 - Except for a one-off breach in the debt service to exports ratio caused by the collapse in tourism receipts due to the pandemic, all other external debt burden indicators continue to remain below the policy-determined thresholds under the baseline. - The public DSA analysis shows that the present value of the public debt-to-GDP ratio remains contained at around 31 percent, well below the 55 percent threshold for the present value of the public debt-to-GDP ratio. - The results of the DSA underscore the importance of accessing, to the extent possible, external financing on concessional terms. - Policy recommendations include improving revenue mobilization and public investment management, proceeding only with investment projects with clear socioeconomic payoffs. - Footnotes: - 1 Prepared by the IMF and the World Bank. This DSA follows the Guidance Note of the Join Bank-Fund Debt Sustainability Framework for Low Income Countries, February 2018. - 2 Tanzania’s debt carrying capacity classification remains medium as in the September 2021 DSA. The composite index (CI), estimated at 2.94 is based on the April 2022 World Economic Outlook (WEO) and the 2020 World Bank Country Policy and Institutional Assessment (CPIA) data. *Prepared by the staffs of the International Monetary Fund and the International Development Association* ### 1. The public sector debt covers central government debt, central government-guaranteed ### 1. The public sector debt covers central government debt, central government-guaranteed ### Public debt coverage - Public sector debt coverage includes central government debt, central government-guaranteed debt (i.e., excluding guaranteed debt of SOEs and local governments), and central bank debt (Text Table 1). - Coverage is limited owing to data constraints: debt data from all local governments and public corporations are not available. - The BoT has currently no outstanding debt. - Ministry of Financing and Planning has a wide mandate over debt management: any domestic debt issuance by local governments and parastatals with weak financials is subject to its approval, and all external financing requires government guarantees. - Definition of external debt is based on residency. ### Contingent liabilities and stress test - Contingent liability stress test is calibrated to 6.4 percent of GDP. - The size of the shock is in line with the authorities’ estimates of the size of contingent liabilities at 5 percent. - Contingent liabilities included in the analysis: - external arrears claims under dispute to Libya (discussions to settle are progressing); - potential domestic arrears to social security funds and TANESCO’s arrears to suppliers; - other contingent liabilities from local governments and public non-financial corporations (still under verification). - Government domestic arrears added to domestic debt stock: about 2.3 percent of GDP (i.e., 1.9 percent of GDP in expenditure arrears to suppliers and 0.4 percent of GDP of VAT refunds in arrears) at the end of the fiscal year FY2021/22. - Note on Libya claim: the arrears stem from a US$101 million loan contracted in 1983; outstanding amount reflects a 50 percent debt cancellation and US$40 million debt swap signed in 2005 and a 2009 addendum. Tanzania ceased payments in 2015 during the Libyan civil war. Authorities met with a Libyan delegation in mid-March and agreed on the amount of the outstanding debt (US$61 million), which is already included as part of the debt stock for this DSA. Payment of interest rate penalties is still under dispute and is included in contingency liabilities given its small size as share of external debt. - Authorities have accelerated payment of those arrears; the ECF arrangement presents an indicative target (IT) with a schedule of their clearance. At this stage, those arrears do not impact Tanzania’s DSA rating. ### Public debt coverage specifics (Text Table 1 summary values) - Public debt subsectors used for analysis: central government; guarantees (to other entities in the public and private sector, including to SOEs); central bank (borrowed on behalf of the government). - Other elements of general government not captured in 1.: 0 percent of GDP. - SoE's debt (guaranteed and not guaranteed by the government): 2 percent of GDP (default shock will be triggered if government-guaranteed debt not fully captured). - Contingent liability components in the tailored stress test: - Contingent liability shock: 6.4 percent of GDP (5 percent from authorities' estimation from a recent (unpublished) report on contingent liabilities and 1.4 percent from an outstanding claim of arrears of the Public Service Social Security Fund (PSSSF)). - PPP: 35 percent of PPP stock; impact used: 0.00. - Financial market default value used: 5 percent of GDP (default). - Total (2+3+4+5) (in percent of GDP): 11.4. ### Debt levels, composition, and creditor shares (Text Table 2 and Table 1 highlights) - At end-FY2020/21: - Total public debt: 39.7 percent of GDP (26,760 US$ millions; Debt Service: 3,367). - External debt: 73.8 percent of total debt; 29.3 percent of GDP (19,757 US$ millions; Debt Service: 1,343). - Domestic debt: 26.2 percent of total debt; 10.4 percent of GDP (7,003 US$ millions; Debt Service: 2,023). - External creditors composition (debt stock percent of total debt; percent of GDP; debt stock US$ millions): - Multilateral creditors: 45.5 percent of total debt; 18.1 percent of GDP; 12,173 US$ millions. - IMF: 2.1 percent of total debt; 0.8 percent of GDP; 557 US$ millions. - World Bank: 31.0 percent of total debt; 11.8 percent of GDP; 8,294 US$ millions. - AfDB: 1.2 percent of total debt; 0.5 percent of GDP; 317 US$ millions. - Other Multilaterals: 11.2 percent of total debt; 4.3 percent of GDP; 3,005 US$ millions. - African Development Fund: 9.0 percent of total debt; 3.4 percent of GDP; 2,415 US$ millions. - International Fund for Agricultural Dev.: 0.9 percent of total debt; 0.3 percent of GDP; 239 US$ millions. - Bilateral creditors: 4.9 percent of total debt; 1.8 percent of GDP; 1,300 US$ millions. - Paris Club: 2.8 percent of total debt; 1.1 percent of GDP; 743 US$ millions. - France: 0.6 percent of total debt; 0.2 percent of GDP; 168 US$ millions. - Japan: 1.8 percent of total debt; 0.7 percent of GDP; 488 US$ millions. - Non-Paris Club: 2.1 percent of total debt; 0.8 percent of GDP; 557 US$ millions. - China: 0.4 percent of total debt; 0.2 percent of GDP; 115 US$ millions. - Iran: 0.3 percent of total debt; 0.1 percent of GDP; 78 US$ millions. - Commercial creditors: 23.5 percent of total debt; 8.9 percent of GDP; 6,285 US$ millions. - Credit Suisse AG: 6.4 percent of total debt; 2.4 percent of GDP; 1,704 US$ millions. - Exim Bank China: 6.1 percent of total debt; 2.3 percent of GDP; 1,625 US$ millions. - Domestic debt instruments: - T-Bills: 2.9 percent of total debt; 1.1 percent of GDP; 774 US$ millions. - Bonds: 23.3 percent of total debt; 8.9 percent of GDP; 6,229 US$ millions. - Contingent liabilities (Memo Items): - Contingent liabilities total: 4,311 US$ millions; 16.1 percent of GDP (noted as 16.40 in table). - Public guarantees (external): 0.000. - Other contingent liabilities: 4,311 US$ millions; 16.1 percent of GDP. ### Recent debt dynamics and borrowing patterns - Public and publicly guaranteed (PPG) debt remains relatively low: 39.7 percent of GDP at end-FY2020/21, marginally up from 38.0 percent in 2019/20. - Over the past decade the debt to GDP ratio increased by more than 13 percent of GDP. - External debt accounts for 74 percent of total debt. - Non-concessional borrowing increased in recent years to finance the public infrastructure agenda. - Multilateral and official bilateral creditors account for about 68 percent of the stock of external PPG debt as of end-FY2020/21. - Commercial borrowing as share of new disbursement reached 61 percent in FY2020/21 (US$1.3 billion through commercial loans to finance the Standard Gauge Railway project). - In FY2021/22, commercial borrowing as share of new disbursements fell to around 38 percent, while the IMF RCF corresponded to 21 percent. - There are currently zero public guarantees in the data for the central government; some one-off guarantees treated as “other contingent liabilities”. - Domestic public debt at end-FY2020/21: 10.4 percent of GDP, with about 30 percent of that stemming from short-term instruments. - Commercial banks hold the largest share of government debt domestically, followed by social security funds. ### Macroeconomic and policy assumptions (program/ECF scenario) - Purpose of ECF: support protracted balance of payments needs associated with COVID-19 pandemic and the war in Ukraine; support reform agenda summarized in the Five-Year Development Plan; safeguard fiscal and debt sustainability with public debt sustainability as a key program anchor. - COVID-19 vaccination: - Tanzania has vaccinated about 8 percent of the total population or 15.5 of the adult population (above 18 years). - The country aims to vaccinate 70 percent of the adult population by June 2023. - Impact of war in Ukraine and ECF scenario: - War impacts: deterioration in terms of trade (oil, food, fertilizer prices), disrupted tourist flows from Russia and Ukraine. - Projected to widen the current account deficit by more than 1 percent of GDP in the next few years. - Reserves expected to decline by about US$800 million over the next few years. - External shock expected to reduce growth in 2022 and 2023 by about 0.3 pp relative to the pre-war scenario. - Expected to cause NPLs to increase in the financial sector, particularly affecting institutions with exposures to sectors like energy. - Real GDP growth (program scenario): - 2022: 4.7 (relative constant in 2022). - 2023: 5.3 percent. - Medium term: stabilizing at around 7 percent in the outer years. - Inflation (CPI): - Inflation increased to 4.0 percent in May 2022 (from 3.2 in April 2021). - Program expects hump-shaped path, moderating and stabilizing at 4 percent over the medium term. - Average inflation expected to peak by FY2022/23 at 5.3 percent, then fall back and stabilize at 4 percent. - Investment: - Investment will increase to 40 percent of GDP, driven notably by the private sector, in line with objectives of Tanzania’s Third Five Year Development Plan (FYDPIII). - Private investment expected to increase over the medium term by almost 6 pp. of GDP due to the Investment Act and the Blueprint for Regulatory Reforms. - Total investment expected to increase despite relative decline in public investment. - Fiscal balance: - Overall fiscal deficit projected to increase temporarily to 3.3 percent of GDP in FY2022/23 to accommodate higher social spending and development projects. - Deficit projected to gradually decay to around 2.2 percent of GDP over the medium- and long-term. - Projected long-term fiscal deficit (2.2 percent of GDP) remains below the 3 percent of GDP ceiling required by the East African Community convergence criterion. - Fiscal structural reforms and new tax measures planned to mobilize revenue, including: (i) broadening the tax base through incentivizing more electronic declarations and electronic payments; (ii) bringing the digital economy into the tax net; (iii) controlling and reducing tax exemptions granted in the tax laws; (iv) enhancing tax administration systems and human resource capacity; and (v) improving risk-based programming and recovery action. ECF also envisages efforts to recover tax arrears, expand taxpayer registration, and improve rationalization of tax and customs exemptions. ### Key numeric datapoints and projections (selected) - Public debt: 39.7 percent of GDP at end-FY2020/21 (26,760 US$ millions). - External debt: 29.3 percent of GDP; 19,757 US$ millions. - Domestic debt: 10.4 percent of GDP; 7,003 US$ millions. - Contingent liabilities: 4,311 US$ millions; 16.1 percent of GDP. - Government domestic arrears added: about 2.3 percent of GDP (1.9 percent of GDP expenditure arrears to suppliers; 0.4 percent of GDP VAT refunds in arrears) at end-FY2021/22. - Commercial loans in FY2020/21 for Standard Gauge Railway: US$1.3 billion; commercial borrowing as share of new disbursement: 61 percent in FY2020/21. - In FY2021/22 commercial borrowing as share of new disbursements: around 38 percent; IMF RCF corresponded to 21 percent. - Nominal GDP (US$, millions): 67,356 (base year in table); subsequent values shown: 73,800; 81,638; 90,051. - Reserves decline projection related to war in Ukraine: about US$800 million. - Vaccination rates: about 8 percent of total population vaccinated; 15.5 of adult population vaccinated. - Real GDP growth projections: 2022: 4.7; 2023: 5.3; medium-term outer years: ~7 percent. - Inflation: May 2022: 4.0 percent; peak FY2022/23: 5.3 percent; medium-term stabilization: 4 percent. - Fiscal deficit projections: FY2022/23: 3.3 percent of GDP; medium/long-term: 2.2 percent of GDP. *Source: Tanzanian Authorities & IMF Staff estimates (excerpt from DSA and related background on debt).* ### 10.7 percent of GDP and remain around 8.8 percent of GDP over the medium term. Beyond the ### 1tzaea2022001 - 10.7 percent of GDP and remain around 8.8 percent of GDP over the medium term. Beyond the ### Financing assumptions and composition - External donors assumed to cover 0.4 percent of GDP of the financing needs in both FY2022/23 and FY2023/24 and 0.3 percent of GDP in FY2024/25. - In FY2022/23 and FY2023/24 this financing is expected from a World Bank Development Policy Operation; external donors for FY2024/25 remain to be identified. - External non-concessional borrowing (ENCB) is projected to remain below 50 percent of annual foreign financing over the next five years. - Access to grants is assumed to taper. - Domestic borrowing assumptions are realistic and in line with authorities’ debt management strategy. - Given external donors for FY2024/25 are not identified, the DSA includes the exceptional financing for FY2024/25 as non-concessional borrowing. ### Current account and external position - Current account deficit expected to remain high at 4.3 percent of GDP in 2022/23. - Near-term external position projected to deteriorate due to: - Pandemic-related uncertainty keeping tourism below pre-crisis levels. - Expanding capital goods imports for development projects. - Rising oil and food prices. - Over the medium-term, the current account is expected to improve by almost 2 pp. of GDP and stabilize around 2.5 percent of GDP, supported by a recovery in tourism and lower imports as the commodity price surge and public investment drive ease. ### Debt Service Suspension Initiative (DSSI) - Tanzania benefited from debt service suspension estimated at around US$252 million over May 2020 to December 2021. - The DSA includes a corresponding reduction in debt service payments in the debt stock of 2021 and reflects higher debt service over 2022-27 to repay the rescheduled debt. ### Special Drawing Rights (SDR) - Authorities indicated intention to withdraw their entire August 2021 SDR allocation of SDR 381.3 million (USD 534 million) to boost reserves and bought US treasury bonds to optimize foreign reserves management at the Bank of Tanzania (BoT). - Since the SDR withdrawal will remain in the balance sheet of the BoT, based on the 2021 Guidance Note on the SDRs’ usage, the operation is not integrated in the DSA. ### IDA projections and terms - New DSA assumes an IDA disbursement profile with USD 500 million in the long-term, with initially higher disbursements in FY23 (USD 1.07 billion) and FY 24 (USD 720 million). - Projections use regular IDA terms and conditions for countries with moderate risk of debt distress and incorporate Shorter-Maturity Loans (SMLs) as an additional IDA instrument. - DSA rating of the risk of debt distress remains unaffected by using this new instrument. - Alternative scenarios considered for values of SMLs respect the 12-percent limit of its share in the total IDA portfolio; their contribution is a small fraction of new external disbursements and does not affect the DSA analysis and rating. ### Debt conditionality and SDFP process - ECF arrangement conditionality is set in line with the 2021 Guidance Note on Implementing the Debt Limits Policy in Fund Supported Programs, consistent with any applicable SDFP debt limits. - A quantitative performance criterion (QPC) placed on the PV of newly contracted external public debt (ceiling) and an indicative target on newly disbursed external non-concessional borrowing (ceiling). - QPC on PV of newly contracted external debt established in line with authorities’ borrowing plan presented in Text Table 4. - Tanzania proposed three performance and policy actions (PPAs) with the World Bank for FY2022/23 under the SDFP (currently under review): a debt transparency PPA to strengthen coverage of PPG debt by including SOEs, and two PPAs on fiscal sustainability to strengthen efficiency of PIM and efficiency of VAT refund system. ### Realism tools and growth contribution of public investment - Realism tools indicate projections are reasonable. - Using DSA assumption on output elasticity (0.15), government capital is expected to contribute 1.5 percentage points of the 5.9 percent growth in real GDP in the next five years. - Historical average contribution of government capital was around 2 percentage points to the 6.3 percent historical (last five years) growth of real GDP in Tanzania. - Contribution expected to be supported by improvement in business environment and public investment management, reforms supporting financial intermediation and development of domestic markets, allowing additional domestic financing. ### Country classification and stress tests - Debt-carrying capacity categorized as medium. - Calculated Composite Indicator (CI) Index is 2.94 (down from 3.02 in the September 2021 DSA) based on the April 2022 WEO and the 2020 CPIA data. - Corresponding indicative thresholds: - 40 percent for NPV of external debt-to-GDP ratio; - 180 percent for NPV of debt-to-exports ratio; - 15 percent for debt service-to-exports ratio; - 18 percent for debt service-to-revenue ratio. - Benchmark of the PV of total public debt for medium debt-carrying capacity is 55 percent. - Besides six standardized stress tests, one tailored stress test: a market financing shock applied to countries with market access, reflecting temporary increase in cost of new commercial external borrowing, shortening of maturities, and temporary depreciation. ### External DSA findings - Under baseline projections and borrowing assumptions, Tanzania’s risk of external debt distress assessed as moderate. - PV of PPG external debt-to-GDP ratio peaked at about 20.3 percent in FY2020/21; projected maximum value 19.8 percent in FY2022/23 and remain below the corresponding threshold. - Debt service-to-export ratio breaches the 15 percent threshold in FY2023/24 under the baseline but falls below that threshold for the remaining years, staying close to it. - Decline in exports is the most extreme scenario among bound tests for most ratios; debt service to exports ratio projected to remain elevated and in breach under this shock. - Historical scenario breaches three thresholds, highlighting risks of past behavior. ### Public DSA findings - Risk of overall public debt distress assessed as moderate, aligned with external rating. - PV of public debt expected to increase short-term and peak at 33.5 percent of GDP in FY2021/22, then decline gradually and remain below both the threshold associated with heightened public debt vulnerabilities and the EAC convergence criterion of 50 percent. - Overall debt service to revenue ratio remains relatively high but its present value declines over time; gross financing needs remain below 10 percent of GDP during the long-term horizon. - Bound tests: one-time materialization of contingent liabilities is the most extreme scenario for all ratios, underscoring importance of improving public investment management, prioritization of investment projects, and public financial management processes. - Need to continue reforms on domestic revenue mobilization to flatten the debt service to revenue ratio. - Importance of improving coverage and transparency of public sector debt statistics, including non-guaranteed debt. ### Risk rating and vulnerabilities - External and overall risk of debt distress are moderate. - Pandemic’s effect on tourism revealed vulnerability to export shocks; war in Ukraine compounds risks to external demand. - Reserves around 4.5 months of imports serve as a significant buffer. - All external debt burden indicators, except the debt-service-to-exports ratio, remain below policy-dependent thresholds under baseline but are breached under different shocks and stress tests. - Narrow export base and one-time currency depreciation pose risks. - Results highlight importance of: - Raising domestic revenue. - Improving public investment management. - Leveraging domestic and concessional financing when available. - Carefully selecting projects financed by commercial loans. - Tanzania has limited space to absorb shocks over the medium-term; over the long-term it may regain some space. - Most indicators show some space towards the end of the projection period, but in the next few years debt service to exports and debt service to revenue ratios suggest limited space to address shocks, reinforced by market financing stress test results. - Countervailing factors: - Healthy and projected reserves around 4.5 months of imports. - Ongoing scarring of the pandemic and war in Ukraine effects on tourism are highly uncertain and could worsen foreign exchange earning capacity. - Government needs to carefully balance COVID-19 response and public investment plans with broader development agenda to preserve debt sustainability. *UNITED REPUBLIC OF TANZANIA — INTERNATIONAL MONETARY FUND* ### 17. The authorities agreed about the economic outlook and risks and indicated economic ### 17. The authorities agreed about the economic outlook and risks and indicated economic ### Authorities' assessment and policy intentions - The authorities indicated growth will be supported by the implementation of their development plan (FYDPIII) and the ECF objectives. - They agreed with the characterization of Tanzania’s risks of debt distress and noted their intention to: - maintain prudent debt management policies; - continue to monitor developments by updating their debt sustainability analysis yearly; - continue prioritizing borrowing on concessional terms, including seeking financing from export credit agencies; - carefully venture to non-concessional sources for projects of significant importance to the economy. - The authorities indicated that the estimation of contingent liabilities may be too conservative (large) and are working on reducing some fiscal risks, including domestic arrears. - To anchor fiscal consolidation in the long-term, the authorities reiterated their commitment to the EAC guidelines. ### External debt sustainability — baseline indicators (selected) - External Debt (Nominal) series (historical to projections) includes values such as: 25.3 23.7 25.9 26.2 32.0 33.1 34.3 37.7 37.4 36.1 37.9 38.2 38.0 38.4 38.9 39.0 38.8 37.9 50.3 32.4 38.2 (table series). - of which: Public and Publicly Guaranteed (PPG) external debt series includes: 21.9 20.5 23.1 25.1 29.4 28.3 28.4 29.5 28.6 28.0 29.3 28.4 27.1 26.4 25.6 24.4 22.9 16.1 11.6 27.0 22.4 (table series). - Identified net debt-creating flows (selected): 5.7 2.9 3.8 5.5 2.8 -0.9 -1.4 -0.6 -2.1 -1.9 1.6 1.2 -0.1 -1.0 -1.4 -1.7 -1.4 -1.8 1.4 -0.9. - Non-Interest Current Account Deficit (selected): 7.5 12.3 10.4 10.6 8.7 5.0 2.1 1.9 2.9 1.1 1.4 4.1 3.6 2.8 2.3 2.4 2.3 2.1 1.9 5.6 2.5. - Exports and Imports (selected, percent of GDP): Exports series includes 21.6 21.8 19.3 18.0 18.4 19.2 16.8 15.9 14.8 14.9 13.1 13.5 13.5 13.9 14.1 14.2 14.4 14.6 14.6. Imports series includes 30.4 35.1 30.2 29.2 27.4 23.8 18.7 17.7 17.7 16.9 15.9 14.4 17.3 17.0 16.5 16.2 16.2 16.2 16.3. - Net FDI (negative = inflow) (selected): -4.6 -4.1 -4.6 -4.3 -3.4 -3.0 -1.7 -1.7 -1.7 -1.5 -1.2 -1.3 -1.4 -1.7 -1.8 -1.9 -2.0 -2.1 -2.1 -2.7 -1.8. - Key sustainability indicators (selected): - PV of PPG External Debt-to-GDP ratio (projections sample): 20.3 19.8 19.0 18.4 18.0 17.3 16.4 12.2 9.9 (series shown in table). - PV of PPG External Debt-To-Exports Ratio (projections sample): 154.1 146.8 140.9 133.1 127.9 121.7 114.2 83.5 67.8. - PPG Debt Service-To-Exports Ratio (selected): 1.0 1.3 2.1 3.0 4.1 5.4 8.5 11.6 11.5 13.4 15.2 12.8 15.1 11.7 11.4 12.1 20.0 13.6 13.9. - Gross external financing need (Billion of U.S. dollars) (selected): 3.2 1.8 1.1 1.3 2.0 1.4 1.8 3.7 4.1 3.1 2.8 2.8 2.8 4.4 10.2. ### Public sector debt — baseline indicators (selected) - Public Sector Debt (in percent of GDP) (historical and projections sample): 39.7 42.2 42.1 41.9 41.3 40.4 39.5 34.3 33.8 33.3 32.9 32.4 32.0 31.7 31.6 31.2 30.6 29.9 35.8 38.9. - of which: External Debt (percent of GDP) (selected): 29.3 28.4 27.1 26.4 25.6 24.4 22.9 16.1 15.6 15.2 14.7 14.3 13.9 13.5 13.1 12.7 12.2 11.6 27.0 22.4. - Change in public sector debt (selected): 1.7 2.4 0.0 -0.3 -0.6 -0.9 -1.0 -0.7 -0.5 -0.5 -0.4 -0.4 -0.4 -0.3 -0.2 -0.3 -0.6 -0.7. - Identified Debt-Creating Flows (selected): 0.5 -1.1 0.5 -0.1 -0.4 -0.7 -0.8 -0.4 -0.4 -0.3 -0.3 -0.3 -0.3 -0.2 -0.1 -0.1 -0.3 -0.4. - Primary Deficit (percent of GDP, selected): 1.8 1.3 1.8 1.2 0.8 0.5 0.6 0.2 0.2 0.2 0.2 0.2 0.1 0.1 0.2 0.2 0.1 0.2. - Revenue and grants (percent of GDP) (selected): 13.7 15.0 15.4 16.1 16.3 16.5 16.5 16.5 16.5 16.6 16.6 16.6 16.6 16.7 16.7 16.7 16.6 16.3. - Primary (noninterest) expenditure (percent of GDP) (selected): 15.5 16.3 17.2 17.4 17.2 17.0 17.0 16.7 16.7 16.8 16.8 16.8 16.8 16.8 16.9 16.9 16.7 16.5. - Automatic Debt Dynamics — contribution from interest rate/growth differential (selected): -1.6 -2.4 -1.3 -1.3 -1.2 -1.3 -1.4 -0.6 -0.6 -0.5 -0.5 -0.4 -0.4 -0.3 -0.2 -0.3 -0.4 -0.5. - Residual (selected): 1.2 3.5 -0.5 -0.2 -0.2 -0.1 -0.1 -0.3 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.2 -0.3 -0.3. - Sustainability indicators (selected): - PV of public debt-to-GDP ratio (selected): 30.7 33.6 34.1 34.0 33.8 33.5 33.2 30.5 30.3 30.1 29.9 29.7 29.6 29.5 29.4 29.3 28.8 28.3. - PV of public debt-to-revenue and grants ratio (selected): 224.0 223.7 220.6 211.0 207.4 203.8 201.5 184.6 183.3 181.5 180.3 179.0 177.9 176.7 175.8 174.9 173.8 173.1. - Debt service-to-revenue and grants ratio (selected): 39.3 31.6 55.2 47.2 46.8 48.0 50.5 58.4 58.1 57.0 57.4 57.9 58.1 58.2 58.4 58.9 59.2 59.4. - Gross financing need (selected): 7.1 6.0 10.3 8.8 8.5 8.4 8.9 9.8 9.8 9.6 9.7 9.8 9.8 9.8 9.9 10.0 10.0 9.9. ### Key macroeconomic and fiscal assumptions (selected) - Real GDP growth (percent, selected): 4.9 4.8 5.0 5.8 6.3 6.6 6.9 5.5 5.5 5.5 5.5 5.5 5.5 5.2 5.0 5.0 5.0 5.0. - Inflation rate (GDP deflator, percent, selected): 2.9 4.3 5.2 5.4 4.8 4.5 4.6 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.5 6.6 7.1. - Average nominal interest rate on external debt (percent, selected): 1.8 1.4 1.6 1.8 1.9 2.1 2.1 2.9 3.2 3.5 3.8 4.1 4.3 4.5 4.6 4.7 4.9 5.0. - Average real interest rate on domestic debt (percent, selected): 8.2 7.1 8.0 8.0 8.8 8.7 8.0 6.0 5.9 5.9 5.8 5.7 5.7 5.6 5.5 5.0 4.0 3.4. - Growth of real primary spending (deflated by GDP deflator, percent, selected): 7.1 10.3 11.3 6.5 5.0 5.4 7.2 5.4 5.4 6.0 5.4 5.5 5.5 5.5 5.6 4.9 4.0 3.6. ### Stress tests, sensitivity analysis and risks (selected) - The DSA presents a range of stress tests and sensitivity analyses including: - Alternative scenarios, bound tests (real GDP growth, primary balance, exports, other flows, depreciation, combination), and tailored tests (combined contingent liabilities, natural disaster, commodity price, market financing). - Table 4 and Table 5 summarize sensitivity outcomes across 2022–2032 for indicators such as Debt Service-to-Exports Ratio, Debt Service-to-Revenue Ratio, PV of Debt-to-Exports Ratio, PV of Debt-to-GDP Ratio, PV of Debt-to-Revenue Ratio, and PV of Debt-to-GDP Ratio under various shocks. - Tailored test results (selected): - Combined contingent liabilities scenario produces higher public debt outcomes, e.g., PV of Debt-to-GDP and Debt Service-to-Revenue show pronounced increases (see tables for year-by-year values). - C1. Combined contingent liabilities leads to PV of Debt-to-GDP and related ratios that breach benchmarks in some projected years (tables flag breaches with bold values). - Figure summaries show drivers of debt dynamics (contributions from real GDP growth, nominal interest rate, price and exchange rate changes, current account + FDI, and residuals) and realism tools comparing government and private investment contributions to growth. ### Notable memorandum and technical notes (selected) - Nominal GDP (Billion of US dollars) projections include values (table excerpt): 32.8 36.9 42.7 47.8 48.7 48.6 51.5 55.0 59 (and later projections up to 429). - Memorandum items include PV of external debt series (selected): 28.8 29.7 29.9 30.4 31.2 31.9 32.4 33.9 48.6. - Definitions and methodological notes provided: - 1/ Includes both public and private sector external debt. - 3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes. - 4/ Current-year interest payments divided by previous period debt stock. - 5/ Defined as grants, concessional loans, and debt relief. - 6/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt). - 7/ Assumes that PV of private sector debt is equivalent to its face value. - 2/ Endogenous debt dynamics derived formula specified in table footnote. - Sources cited in the tables: Country authorities; and staff estimates and projections. *Sources: Country authorities; and staff estimates and projections.* ### 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the ### 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the ### Overview and Program Request - Tanzanian authorities requested a 40-month Extended Credit Facility (ECF) arrangement to address urgent fiscal and balance of payments needs. - The program is aligned with the Third Five Year Development Plan (FY2021/22-FY2025/26, FYDP III). - Objectives include supporting COVID-19 response, developing a more resilient health sector, coping with spillovers from the war in Ukraine, and catalyzing additional financing from development partners. - Recent support and relief: - Debt service relief in 2020 under the Catastrophe Containment and Relief Trust (CCRT). - Rapid Credit Facility (RCF) disbursements in 2021 and the general SDR allocation. ### Recent Economic Developments and Outlook - Real GDP growth: - Projected to slow to 4.8 percent in 2021/22. - Historical: 7 percent in 2018/19; 5.9 percent in 2019/20; 4.9 percent in 2020/21. - GDP growth expected to pick up in 2022/23 and stabilize between 6 and 7 percent towards the end of the program, driven by exploitation of offshore natural gas. - World Bank estimate: GDP per capita growth of 1.3 percent in 2021. - Inflation: - Year-end inflation breached 4.0 percent in May 2022. - Projected to end the year above 5 percent. - Bank of Tanzania (BoT) inflation target: 5 percent. - External sector: - Current account deficit expected to widen from 1.9 percent in 2020/21 to 4.5 percent of GDP in 2021/22. - Gross international reserves in April 2022: 4.8 months of import cover (compared to 4.9 months in FY2020/21). - Tourism impact: almost a fifth of the country’s tourists come from Eastern Europe (mainly Ukraine and Russia). - Risks: worsening global economic and financial conditions from the war in Ukraine, commodity price volatility, financial tightening in advanced economies, and slower vaccine rollout. ### Fiscal Policy and Debt Management - Fiscal strategy aims to protect recovery while maintaining fiscal and debt sustainability. - Domestic revenue mobilization measures include: - Broadening the tax base; bringing the digital economy into the tax net. - Controlling and reducing tax exemptions. - Recovering tax arrears and enhancing tax administration systems. - Enhancing risk-based programming and strengthening recovery action. - Preparing a Medium-Term Revenue Strategy (MTRS) and updating TADAT. - Expenditure priorities and fiscal quality: - Rebalance spending toward priority social spending (hiring more health care workers and teachers). - Improve quality of spending and public investment management. - Clear existing verified domestic arrears and prevent future accumulation. - Contain contingent liabilities from SOEs and PPPs via close monitoring, transparency, and reporting. - Debt strategy: - Public debt assessed as sustainable despite downgrade from low to moderate risk of debt distress. - Authorities will seek primarily grants and highly concessional loans; may consider long-term non- and semi-concessional borrowing for high-yield investment projects as part of a prudent debt management strategy. - Technical support sought: Public Finance Management Assessment (PIMA) and Climate Assessment. ### Monetary, Exchange Rate, and Financial Sector Policies - BoT stance: - Had maintained accommodative policy while inflation was below 5 percent. - Stands ready to tighten monetary policy as needed; will maintain exchange rate flexibility and intervene only to smooth disorderly market conditions. - Transition to interest rate-based framework: - Authorities plan to enhance communication and introduce a policy rate when operational guidelines are published. - Guidelines to cover standing facilities, collateral recovery, and expansion of acceptable collateral to movable collateral. - Financial sector stability: - System characterized as sound with ample liquidity. - Continued implementation of 2018 FSAP recommendations to reduce NPLs, increase provisioning, enhance supervision, deepen markets, and strengthen stability. - BoT improving risk-based supervision, solvency stress testing, provisioning, and liquidity support for undercapitalized banks. - Monitoring of NPLs restructured due to COVID-19. ### Structural Reforms and Human Capital - Business environment reforms: - Advance the Tanzania Blueprint for Regulatory Reform to streamline permits and licenses and rationalize regulatory institutions. - Review the National Investment Promotion Policy of 1996 and the Tanzania Investment Act; amend 18 business-related laws. - Reduce non-tariff barriers and apply risk-based inspections. - Improve engagement with the private sector and predictability of government policies. - Human capital and labor market: - Female labor-force participation rose from 67 percent in 2000 to 80 percent in 2019. - Ratio of women to men in wage and salary jobs increased from 0.35 in 2000 to 0.64 in 2019. - Authorities plan measures to bridge pandemic-related setbacks for female businesses, including in agricultural productivity and education. ### Governance, AML/CFT, and Data - Governance and anti-corruption: - Strengthen implementation and enforcement under a comprehensive anti-corruption strategy. - Boost investigative and intelligence capabilities; build technological and big data capacities; emphasize prevention strategies. - AML/CFT: - Commit to resolving governance weaknesses in the AML/CFT framework. - Plan to amend AML/CFT law to improve preventive measures, supervision of designated non-financial sectors, targeted financial sanctions, beneficial ownership, and AML/CFT risk-based supervision of banks. - COVID-19 transparency: - Quarterly reports on COVID-19 funds published one month after quarter end. - Audit of pandemic-related spending financed with CCRT relief published in April 2022; audit of all pandemic-related spending due by end-2022 in preparation. - Authorities to post all pandemic-related public procurement contracts and related documents, including names of awarded companies and beneficial owners. - Data improvements: - Commitment to enhancing National Accounts Statistics quality for accurate reporting and improved budget forecasting. ### Key Implementation and Technical Assistance Priorities - Seek IMF technical assistance to support governance improvements. - Implement tax administration reforms, update TADAT, and prepare MTRS. - Advance PIMA and Climate Assessment and implement FSAP recommendations. - Publish operational guidelines for the interest rate-based monetary framework. ### Concluding Commitment - Authorities view program reforms as essential to maintain stability and achieve development goals amid a challenging environment. - They consider IMF support critical to complement their reform agenda and national economic objectives and seek the Board’s favorable consideration. *Statement by Ms. Mannathoko and Mr. Cham on United Republic of Tanzania July 18, 2022* --- _Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1tzaea2022001.pdf_