IMF Executive Board Completes the First Review Under the Extended Credit Facility Arrangement and Concludes the 2023 Article IV Consultation with Tanzania
IMF News, April 25, 2023
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- IMF Executive Board Completes the First Review Under the Extended Credit Facility Arrangement and Concludes the 2023 Article IV Consultation with Tanzania
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- Published: April 25, 2023
Program status and disbursement
- The Executive Board completed the first review of the Extended Credit Facility (ECF) Arrangement and the 2023 Article IV Consultation with Tanzania on April 24, 2023.
- The completion of the first review allows the immediate disbursement of SDR 113.37 million (about US$ 153 million).
- Tanzania’s total access under the arrangement following this disbursement is about US$ 304.7 million.
- Tanzania’s three-year ECF Arrangement for a total access of SDR 795.58 million (200 percent of quota—about US$ 1,046.4 million at the time of program approval) was approved on July 18, 2022.
- The arrangement aims to support economic recovery, preserve macro-financial stability, and promote sustainable and inclusive growth.
Program performance and reforms
- All quantitative performance criteria and indicative targets for December 2022 were met.
- Structural benchmarks:
- The benchmark to prepare and begin implementing a plan to clear all expenditure arrears was completed ahead of time.
- The benchmark to submit the amendments to the Banking and Financial Institutions Act to Parliament was completed ahead of time.
- The benchmark to complete and publish the post-crisis audit of pandemic-related spending and to submit the FY2023/24 preliminary Budget to the Parliament were completed with delay.
- Reform focus areas:
- Strengthening fiscal space to allow for social spending and high-yield public investment.
- Enhancing the monetary policy framework and improving financial sector supervision.
- Advancing structural reforms to promote sustainable and inclusive growth.
Economic outlook and recent developments
- Growth and output:
- After a modest recovery to 4.9 percent in 2021, real GDP growth is estimated to have slowed to 4.7 percent in 2022.
- Growth is expected to recover to 5.2 percent in 2023 as global commodity price shocks subside and the business environment improves.
- Inflation and policy response:
- Tanzania’s inflation is relatively low, partly reflecting low passthrough.
- Authorities responded to recent increases in inflationary pressures with temporary fuel and fertilizer price subsidies and tightening of liquidity in the financial system.
- Fiscal policy:
- The authorities’ draft budget for FY2023/24 is based on conservative revenue and expenditure projections and aims to achieve fiscal consolidation while safeguarding priority social spending.
IMF policy recommendations and Executive Board assessment
- From Ms. Antoinette Sayeh, Deputy Managing Director and acting Chair:
- Continue completing the pandemic health and economic response and preserve macroeconomic stability.
- Enhance domestic revenue mobilization and improve efficiency of expenditures to create fiscal space for priority investment and social spending.
- Strengthen public finance management and oversight of state-owned enterprises to contain fiscal risks.
- Clear verified domestic arrears and prevent accumulation of new ones by strengthening cash management and commitment controls.
- Prioritize concessional financing and ensure fiscal risks from contingent liabilities are well-contained, noting Tanzania's risk of debt distress remains moderate.
- Bank of Tanzania (BoT) should stand ready to tighten monetary policy as needed while allowing more exchange rate flexibility against external shocks.
- Complete the transition to an interest rate-based monetary policy to enhance effectiveness.
- Upgrade the financial supervision framework, including implementing FSAP recommendations, to buttress financial sector stability and promote financial deepening.
- Streamline bureaucratic procedures, simplify the business regulatory regime, and enhance regulatory transparency to support private sector development.
- Implement and enforce the authorities’ anti-corruption strategy and establish a risk-based AML/CFT supervisory approach to improve governance and address deficiencies.
- Increase resilience to climate change through mitigation and adaptation policies.
- Executive Directors:
- Welcomed policy response to spillovers from the war in Ukraine and commended strong performance under the ECF arrangement.
- Emphasized continued commitment to reforms to strengthen recovery, preserve macroeconomic stability, and support sustainable and inclusive growth.
- Supported the authorities’ plan for fiscal consolidation starting in FY2023/24 while protecting the vulnerable.
- Encouraged enhancing domestic revenue mobilization; improving expenditure efficiency, particularly public investments; strengthening public finance management and transparency (including management of future gas revenues); and containing fiscal risks from SOEs.
- Urged strengthening cash management and commitment controls to prevent new arrears and looked forward to implementation of audit recommendations for pandemic-related spending.
- Supported a data-dependent monetary policy, encouraged the BoT to stand ready to tighten further should second-round inflation effects emerge, and emphasized limiting budget financing by the BoT.
- Called for strengthening financial supervision, allowing more exchange rate flexibility, enhancing transparency in FX operations, and maintaining adequate reserve buffers.
- Noted Tanzania’s interest in the Resilience and Sustainability Facility.
Selected economic indicators (FY2020/21–2023/24)
- Output
- Real GDP growth (%): 4.9; 4.8; 5.0; 5.7
- Calendar year real GDP growth (%) 1: 4.7; 5.2; 6.1
- Prices
- Inflation - average (%): 3.3; 4.0; 4.4
- Central government finances
- Revenue (% GDP): 13.6; 14.8; 15.0; 15.5
- Expenditure (% GDP): 17.0; 18.2; 18.1
- Fiscal balance (% GDP): -3.8; -3.5; -3.1; -2.7
- Public debt (% GDP): 41.3; 42.0; 40.9; 39.2
- Money and credit
- Broad money (% change): 11.7; 6.5; 10.7; 11.0
- Credit to private sector (% change): 3.6; 19.4; 19.8; 12.0
- Balance of payments
- Current account (% GDP): -2.1; -4.6; -4.4; -3.2
- Reserves (in months of imports): 4.6; 3.8
- External public debt (% GDP): 29.2; 27.9; 26.9; 25.8
- Exchange rate
- REER (% change): 2.6; 2.3; ...
Sources: Tanzanian authorities and Fund staff calculations.
IMF press release, April 24, 2023.
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