IMF Executive Board Completes Seventh PSI Review for Tanzania

IMF News, January 11, 2018

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On January 10, 2018, the Executive Board of the International Monetary Fund completed the seventh and last review of Tanzania’s economic performance under a program supported by the Policy Support Instrument (PSI).
The decision was made without a Board meeting and included the granting of waivers for the non-observance of the end-June 2017 assessment criteria on:
- the floor of tax revenues (waiver granted on the grounds that the slippage was minor), and
- the ceiling of domestic expenditure arrears (waiver granted in light of the articulation of corrective measures).
The PSI for Tanzania was approved by the Board on July 16, 2014 (see Press Release No. 14/350) and was subsequently extended to January 15, 2018.
Footnote context provided in the release:
- The PSI is an instrument of the IMF designed for countries that do not need balance of payments financial support; it signals the Fund's endorsement of a member's policies.[1]
- The Executive Board may take decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.[2]

The PSI for Tanzania aims at:
- maintaining macroeconomic stability, and
- promoting a more inclusive growth.
The program supports the authorities’ objectives on reforms to:
- strengthen public finance management,
- improve efficiency and transparency of public spending, and
- move to an interest rate-based monetary policy framework.

Macroeconomic performance under the program has been satisfactory.
Key recent indicators and developments:
- GDP data point to continued strong growth, though other high frequency data suggest a weakening of economic activity.
- Tax revenue collections are lower than expected.
- Credit growth has stagnated, reflecting in part banks’ rising nonperforming loans (NPLs).
- Inflation remains moderate.
- International reserves have increased substantially.
Downside risks to short-term economic growth identified:
- slow budget implementation,
- a challenging business environment, and
- private sector concerns about authorities’ enforcement of rules.

Program performance under the PSI has been broadly satisfactory.
Most quantitative targets for June and September 2017 were met.
Progress in structural reforms has been mostly slow, though efforts have been boosted to advance them.

Macroeconomic coordination:
- Macroeconomic policies will need to be closely coordinated, particularly between fiscal and monetary authorities.
- The monetary policy stance and liquidity forecasting and management will need to be closely coordinated with fiscal developments.
Fiscal policy and budget implementation:
- Authorities should step up budget implementation, particularly in development spending.
- After recording a small fiscal surplus in July-September against a programmed deficit, the government is planning to step up budget implementation.
- Budget credibility and implementation need to be improved and arrears prevented.
Revenue and public finance management:
- Additional domestic revenue needs to be mobilized through tax policy and administration reforms.
- Improve the functioning of the VAT refunds system.
Financial sector and credit growth:
- Addressing the high stock of NPLs is a priority to reduce financial sector vulnerabilities and revive credit growth.
Growth, jobs, and structural reforms:
- Strong growth and job creation are needed to address high poverty and a large underemployed youth population.
- Infrastructure gaps and the business climate have become increasingly challenging and require response.
- Sustained reforms will be needed to achieve the strong private sector-led growth envisioned by the government’s development plan.

IMF Executive Board Completes Seventh PSI Review for Tanzania — Press Release No. 18/01, January 11, 2018