## IMF Staff Concludes Visit to Tanzania

_IMF News, December 12, 2017_

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## Bibliographic details
- Published: December 12, 2017

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### Mission overview and timeline
- 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.

### Growth and GDP statistics
- 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.

### Inflation, food supply, and monetary policy
- 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.

### Fiscal performance and public finances
- 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.

### Banking sector and financial vulnerabilities
- 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.

### Key findings and risks
- 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.

### Policy recommendations and priorities
- 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 a successor arrangement
- 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*

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## References

- [United Republic of Tanzania and the IMF](http://www.imf.org/external/country/TZA/index.htm)
- [Policy Support Instrument (PSI)](https://www.imf.org/en/about/factsheets/sheets/2023/policy-support-instrument-psi)
- [Press Releases](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2017/12/12/pr17487-imf-staff-concludes-visit-to-tanzania_