Press Release No. 16/128

Press Release: IMF Staff Holds 2016 Article IV Consultation and PSI Review Mission to Tanzania

March 23, 2016

A team from the International Monetary Fund (IMF), led by Hervé Joly, visited Tanzania from March 10–23, 2016. The mission initiated the fourth review under the Policy Support Instrument (PSI) program that was approved on July 16, 2014.¹ It also held discussions with the authorities on the 2016 Article IV Consultation.

Mr. Joly released the following statement at the end of the mission:

“Economic performance has remained strong. Preliminary estimates suggest that GDP grew by 7 percent in 2015, with activity particularly buoyant in the construction, communication, finance, and transportation sectors. Economic growth is expected to remain close to 7 percent in 2016.

“Inflation remained in single digits throughout 2015, averaging 5.6 percent, despite the significant exchange rate depreciation in the first half of the year. The tightening of monetary policy in May 2015 and the decline in global commodity prices, especially oil prices, helped keep inflation at moderate levels. Inflation is expected to decrease further in the coming months, remaining close to the authorities’ medium-term target of 5 percent.

“The Article IV discussions focused on how to sustain high growth and implement the new government’s priorities while preserving fiscal sustainability. Vigorous reforms will be needed to foster further structural transformation of the economy and sustain high productivity gains and investment.

“There was a broad convergence of views on the priority reform areas and on the key role of the government in facilitating private sector-led growth. Modernizing agriculture, which employs a large share of the population, would raise rural incomes and contribute to poverty reduction. It would also free labor resources for other sectors of the economy and could foster the development of certain industries, such as food processing. Improving the business environment is also a priority; this includes, among others, better energy and transportation infrastructure and improving access to land and finance. Further improving the financial sustainability of the public electricity utility, TANESCO, and settling outstanding arrears on gas and electricity supplies are critical to facilitating continued private sector investment in energy. Tanzania could significantly benefit from the completion of the East African Community (EAC) common market, which would help attract capital and foster competition and efficiency. The mission welcomed the efforts being made by the authorities in their strong drive against corruption, noting that it would help address the perception that governance had deteriorated in recent years, as suggested by a number of surveys.

“Program discussions focused on budget implementation in 2015/16 and budget plans for 2016/17. While all quantitative program targets for end-December 2015 were met, budget implementation has been challenging. Further budgetary expenditure arrears were accumulated in the first half of the fiscal year. Adjustment to the 2015/16 budget still needs to be finalized in order to accommodate additional expenditures, such as new priority spending for education and the clearance of expenditure arrears accumulated in 2014/15, while retaining the overall budget deficit target of 4.2 percent of GDP. Challenges in raising the full amount of budgeted external financing could further complicate fiscal management in the next few months. The mission supported the broad objectives set in the published budget guidelines for 2016/17, which are based on realistic revenue projections. The guidelines envisage a significant reduction of the overall deficit and streamlining of current expenditure to make room for public investment. The key challenge to finalize the budget will be to remain within the identified fiscal resource envelope.

“Discussions will continue in the coming weeks to reach understandings on an economic policy framework that can underpin the completion of the fourth review under the PSI. The discussion by the IMF Executive Board of the program review and Article IV Consultation report is expected to take place by mid-2016.

“The mission met with Hon. Dr. Philip Mpango, Minister of Finance and Planning, Hon. Prof. Sospeter Muhongo, Minister of Energy and Minerals, Professor Benno Ndulu, Governor of the Bank of Tanzania, other senior government officials, and representatives of the business community, civil society, and donor community.

“The IMF team is appreciative of the constructive and open policy dialogue and thanks the authorities for their hospitality during the visit.”

¹ The PSI is an instrument of the IMF designed for countries that do not need balance of payments financial support. The PSI helps countries design effective economic programs that, once approved by the IMF's Executive Board, signal to donors, multilateral development banks, and markets the Fund's endorsement of a member's policies (see http://www.imf.org/external/np/exr/facts/psi.htm). Details on Tanzania’s PSI program are available at www.imf.org/tanzania.