IMF Staff Completes Visit to Tanzania

IMF News, April 14, 2017

Source details

Mission led by Mauricio Villafuerte, visited Tanzania from April 3-13, 2017.
Discussions covered the sixth review under the Policy Support Instrument (PSI) program that was approved on July 16, 2014.
End-of-mission press release conveying preliminary staff findings; views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.

Economic growth
- "Economic growth, estimated at about 7 percent, remained strong in 2016."
- More recently the economy "has hit a soft patch" due to slow budget implementation, slowdown in monetary aggregates and credit to the private sector, and the impact of a drought.
- These factors are expected to ease in the second half of the year and "the growth momentum to strengthen."
Inflation and prices
- Headline 12-month inflation was "6.4 percent in March 2017" driven by rising food prices.
- Core inflation "remains well anchored at 2.2 percent."
- Good rains in Tanzania’s southern region and easing of drought conditions in neighbors are expected to relieve pressures on food prices.
External sector
- "The external current account deficit is estimated to have narrowed."
- "The Bank of Tanzania’s stock of external reserves remains at a comfortable level."

Program implementation
- "Implementation of the PSI-supported program has been broadly satisfactory."
- Preliminary data indicate most targets for end-December 2016 were met except the one on tax revenue "that was missed by a small margin."
Revenue and spending
- "Revenue collections during the 2016/17 fiscal year have picked up over the previous year, although they are likely to fall short of the ambitious target."
- "The level of government spending is likely to fall well short of budgeted levels because of tightly controlled recurrent spending and delays in securing external financing."
- Fiscal balances:
- "There was a small surplus of about a 0.3 percent of GDP during the first half of the fiscal year."
- The overall fiscal deficit in 2016/17 is projected to be "2.5 percent of GDP, compared to 4.5 percent in the budget."
Financing and arrears
- Mission welcomed progress in finalizing non-concessional borrowing agreements, which would help budget implementation.
- Advised authorities to resolve outstanding issues that would allow securing a sovereign credit rating.
- Commended efforts to reorient toward development spending, but "urged them to avoid accumulating new domestic arrears."
- Urged authorities to address concerns about the payment of VAT refunds "negatively affecting exporting companies."

Liquidity and reserves
- "Liquidity conditions remain tight, but are expected to ease in coming weeks, including through a decision to lower the statutory minimum reserve requirement."
Banking sector soundness
- As the pace of economic activity slowed, "non-performing loans of the banking system have risen."
- The mission welcomed steps the Bank of Tanzania was taking "to modernize the monetary policy framework."

Structural reform pace
- "The pace of structural reforms remains slow, but some progress has been made recently towards the implementation of key measures."
Private sector role and dialogue
- For Tanzania to meet medium-term growth objectives, "would require a vibrant private sector and that ample scope remained to improve the business environment."
- The mission "welcomed the initiation of the national dialogue with the business community, and encouraged the authorities to ensure that regular exchange of views become the norm."

The team met with Minister Philip I. Mpango, Governor Benno Ndulu, Permanent Secretary Doto M. James and other senior officials of the government and the Bank of Tanzania.
"The IMF team thanks the authorities for their hospitality and constructive dialogue during the visit."

Press Release No. 17/134 — April 14, 2017.