IMF Executive Board Completes the Fifth Review Under the Policy Support Instrument for Tanzania

IMF News, January 9, 2017

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On January 9, 2017, the Executive Board of the International Monetary Fund completed the fifth review of Tanzania’s economic performance under the program supported by a three-year Policy Support Instrument (PSI).
The Board’s decision was taken on a lapse of time basis.
The Board granted waivers for the non-observance of the end-June 2016 assessment criteria on:
- the overall fiscal deficit, and
- the non-accumulation of domestic expenditure arrears,

on the grounds that the slippages were minor.

Recent economic performance described as strong with:
- economic growth robust during the first half of 2016 and projected to remain at about 7 percent this fiscal year;
- inflation came down below the authorities’ target of 5 percent and is expected to remain close to the target;
- the external current account deficit was revised down on account of lower imports of capital goods.
Identified risks that could adversely affect economic growth:
- the currently tight stance of macroeconomic policies;
- the slow pace of credit growth that may become protracted;
- slow implementation of public investment;
- private sector uncertainty about the government’s new economic strategies.

Program performance was broadly satisfactory:
- most assessment criteria for June 2016 were met;
- all indicative targets for September 2016 were met.
Progress in structural reforms identified under the program has been generally slow, though authorities have recently stepped up efforts.
Recent reform measures include steps to:
- strengthen public financial and debt management;
- modernize the monetary policy framework;
- improve monitoring of parastatal enterprises.
The authorities have committed to further reforms in these areas.

Fiscal policy:
- Ease the current tight macroeconomic conditions by loosening the short-term policy stance, in line with program targets.
- After recording a small fiscal surplus in July-September, the government is committed to stepping up budget implementation, particularly in public investment, including by mobilizing external financing.
Monetary policy:
- Monetary policy should be eased to address the tight liquidity situation and support credit to the private sector.
- The Bank of Tanzania’s steps to ease policy are appropriate but will need to be fine-tuned when the planned fiscal spending materializes.
External buffers:
- The increase in international reserves recorded since the beginning of the fiscal year is a welcome step to gradually rebuild buffers.

Authorities are implementing an ambitious development and reform agenda as described in their recently-released second Five-Year Development Plan.
Fiscal revenues have risen due to a strong drive against corruption and tax evasion; if sustained, higher revenues will provide a foundation for scaling up infrastructure investment starting with the 2016/17 budget.
The Plan envisages significant structural transformation by nurturing human development.
Full involvement of all stakeholders in policy design and implementation—including importantly the private sector—will be crucial.

Press Release No. 17/03, January 9, 2017 — IMF Press Center.