Press Release: IMF Executive Board Completes Fourth Review Under Tanzania's PRGF Arrangement and Approves US$4.1 Million Disbursement

July 29, 2005

The Executive Board of the International Monetary Fund (IMF) today completed the fourth review of Tanzania's economic performance under a three-year Poverty Reduction and Growth Facility (PRGF) arrangement (see Press Release No. 03/127.) The completion of the review enables a further release of an amount equivalent to SDR 2.8 million (about US$4.1 million) under the arrangement, and will bring the total disbursements under the program to the equivalent of SDR 14.0 million (about US$20.2 million.)

Following the Executive Board's discussion on Tanzania's economic performance, Mr. Agustín Carstens, Deputy Managing Director and Acting Chair, stated:

"The Tanzanian authorities are to be commended for sustaining strong economic performance through market-oriented policies within an appropriate macroeconomic framework. The authorities will need to build on the recent success by maintaining sound policies and steadily pursuing key structural reforms and capacity building to remove key impediments to growth and make meaningful progress on poverty reduction. Sustained reform efforts to stimulate private-sector led growth will be needed, particularly in such areas as infrastructure, access to the financial sector, improving the business environment, trade facilitation, and governance.

"The authorities' decision to scale back the planned rapid expansion of government spending under the 2005/06 budget is commendable in view of the need to limit net domestic budget financing and reduce the risk of crowding out productive private sector activity. It will be important to protect priority and poverty-related spending while avoiding divergences between the program and budget expenditure levels, as they undermine the budget process and transparency. The authorities are committed to strengthening public expenditure management and addressing weaknesses in the budget preparation and execution process.

"Mobilizing domestic resources and raising the revenue-to-GDP ratio through better tax administration will provide resources for key expenditures for development and poverty alleviation, and reduce the dependence on foreign aid. In this regard, it will be essential to further enhance the operation of the VAT and income tax departments, further strengthen the Large Taxpayers Department, and continue efforts to streamline customs administration.

"The Bank of Tanzania's monetary program is consistent with the growth and inflation objectives. The authorities deserve credit for their management of liquidity pressures that arise from high aid inflows and continue to present challenges to monetary policy. The Bank of Tanzania should continue to exercise vigilance and to use a full range of tools available for liquidity management and sterilization operations.

"The authorities' efforts to develop the financial sector will benefit from the new financial sector reform plan. It is important that the government maintain its cautious and prudent approach to several new initiatives to facilitate medium-term lending and investment in the context of improving the availability of medium-term credit to key sectors of the economy. Specifically, maintaining strong governance and strict limits on government exposure under the Development Finance Guarantee Facility and the planned Development Finance Institution will be critical.

"Efforts should continue to reach debt relief agreements with non-Paris Club creditors under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative," Mr. Carstens said.

The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½-year grace period on principal payments.


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