IMF Staff Concludes Visit to Tanzania

IMF News, December 12, 2017

Source details

Mission dates: November 30 to December 12, 2017.
Team leader: Mauricio Villafuerte.
Purpose: Discussions on the seventh review under the Policy Support Instrument (PSI) program (approved July 16, 2014) and on macroeconomic policies and structural reforms to underpin a successor arrangement.
Meetings: Met with Minister Philip I. Mpango, Governor Benno Ndulu, and other senior officials of the government and the Bank of Tanzania.
Press release date: December 12, 2017.

Preliminary data for the first half of 2017 indicate the economy grew at a still strong 6.8 percent.
The National Bureau of Statistics (NBS) is engaged in rebasing the GDP statistics; NBS will revisit its source data and compilation methodology and the team looks forward to the revised data to provide a clearer picture of economic growth.
A good harvest should help support growth, but other indicators suggest downward pressures on growth.

Headline inflation rate: 4.4 percent in November, below the monetary authorities’ medium-term target of 5 percent.
Drivers: Improved availability of food from the good harvest has lowered food price inflation.
Outlook: Broadly stable commodity prices and a prudent monetary policy stance are expected to keep inflation within the authorities’ target range.
Policy stance: The Bank of Tanzania has lowered minimum reserve requirements, its discount rate and stepped up liquidity injection operations.
Transition: Progress welcomed towards a transition to an interest-rate based monetary framework.

Overall fiscal deficit on a cash basis: 1.5 percent of GDP, lower than programmed due to delays in securing financing for projects that held back development spending.
Tax revenue collections in the 2016/17 budget year: slightly below the program target.
VAT refunds: Substantially lower-than-expected VAT refunds which were delayed by the comprehensive audit of refund claims.
Domestic payment arrears: Continued to increase; eliminating domestic arrears highlighted as urgent.
Reserves and external sector: International reserves have strengthened beyond the program target to over 5 months of import cover in the context of a sharp fall in Tanzania’s external current account deficit.

Nonperforming loans ratio: increased markedly to 12½ percent in September.
Banking system capitalization: System as a whole remains well-capitalized, mitigating systemic risks, but there has been a sizable reduction in capitalization ratios in some small and mid-sized banks.
Credit conditions: High nonperforming loans have prompted banks to curtail lending; private sector credit growth has continued to be very low despite the Bank of Tanzania’s easing measures.
Authorities’ actions: Team welcomed the Bank of Tanzania’s efforts to resolve some unviable banks.

Macroeconomic performance under the program has been broadly satisfactory.
Downward pressures on growth stem from lower-than-anticipated government spending, tax revenue collections, weak private sector credit growth and rising non-performing loans.
Tanzania faces significant challenges to meet its medium-term development objectives; with its population set to nearly double in the next 20 years, accelerating private sector job creation is a priority.

Enhance budget credibility.
Use realistic revenue projections to underpin implementable budget spending estimates.
Address financial sector vulnerabilities that have emerged; prioritize resolution of unviable banks and strengthening capitalization where needed.
Continue progress toward an interest-rate based monetary framework.
Improve the business environment to accelerate private sector job creation, including:
- Policy predictability based on a strong dialogue with the private sector.
- Regulatory reforms.
- Timely payment of VAT and other tax refunds.
- Eliminating domestic arrears.
Continue the ongoing dialogue with the private sector initiated by the ministry of finance.

Discussions on key elements that could underpin a successor arrangement made progress.
The team had productive discussions on the elements of a successor arrangement and will continue the dialogue on them in the coming months.

IMF Communications Department