A team from the International Monetary Fund (IMF), led by Mauricio
Villafuerte, visited Tanzania from April 3-13, 2017 and held
discussions with the authorities on the sixth review under the Policy
Support Instrument (PSI) program that was approved on July 16, 2014.
At the end of the visit, Mr. Villafuerte issued the following statement:
“Economic growth, estimated at about 7 percent, remained strong in 2016.
More recently though, the economy has hit a soft patch in the context of
slow budget implementation, a 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.
“Rising food prices have pushed headline 12-month inflation to 6.4 percent
in March 2017. However, core inflation remains well anchored at 2.2
percent. Good rains in Tanzania’s southern region and easing of drought
conditions in its neighbors should relieve pressures on food prices. The
external current account deficit is estimated to have narrowed and the Bank
of Tanzania’s stock of external reserves remains at a comfortable level.
“Implementation of the PSI-supported program has been broadly satisfactory.
Preliminary data indicate that most targets for end-December 2016 were met
except the one on tax revenue that was missed by a small margin. The pace
of structural reforms remains slow, but some progress has been made
recently towards the implementation of key measures.
“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. Thus, there was a small surplus of about a
0.3 percent of GDP during the first half of the fiscal year, and even with
financing constraints easing in the 2nd half of the 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.
“Liquidity conditions remain tight, but are expected to ease in coming
weeks, including through a decision to lower the statutory minimum reserve
requirement. Furthermore, as the pace of economic activity has slowed down,
non-performing loans of the banking system have risen. The mission welcomed
the steps the Bank of Tanzania was taking to modernize the monetary policy
framework.
“The IMF staff team held discussions on how to address these macroeconomic
challenges. It welcomed the progress in finalizing non-concessional
borrowing agreements, which would help budget implementation. It advised
the authorities to resolve the outstanding issues that would allow it to
secure a sovereign credit rating. The team commended the authorities’
efforts to reorient toward development spending, but urged them to avoid
accumulating new domestic arrears. The team also discussed the broad
parameters of the 2017/18 budget, noted that spending levels must be
underpinned by realistic revenue and financing assumptions, and urged the
authorities to address concerns about the payment of VAT refunds negatively
affecting exporting companies.
“The team noted that for Tanzania to meet its medium-term growth objectives
would require a vibrant private sector and that ample scope remained to
improve the business environment. The team 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.”
