IMF Executive Board Completes the Third Review Under the Policy Support Instrument (PSI) for TanzaniaPress Release No. 08/129
May 30, 2008
The Executive Board of the International Monetary Fund (IMF) today completed the third review under a three-year Policy Support Instrument (PSI) for Tanzania.
The PSI was approved on February 16, 2007 (see Press Release no. 07/26) and is aimed at sustaining broad-based high growth and accelerating progress in poverty reduction. To that end, the PSI supports enhancing public resource mobilization and efficiency of spending; bolstering financial sector reforms and the effectiveness of monetary policy; and improving the business climate to stimulate private sector-led growth.
Following the Board's discussion on Tanzania, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, made the following statement:
"Tanzania's continued implementation of sound macroeconomic policies has contributed to sustained robust economic growth. High global fuel and food prices pose challenges, but Tanzania's flexible exchange rate policy, ample stock of international reserves, and a favorable near-term agricultural outlook should help to cushion the adverse effects of these shocks. Persistent high petroleum prices and slow world economic growth could, however, dampen Tanzania's economic growth prospects.
"Implementation of the government's budget in 2007/08 has been strong—again led by an impressive revenue performance. For the year ahead uncertainty about donor assistance has complicated budget preparations. While there is some scope for domestic financing to ensure continuity of critical public expenditures, greater spending restraint may also be necessary if aid flows fall significantly short of projections.
"The marked improvement in monetary and foreign exchange operations over the past several months has enhanced the predictability of the Bank of Tanzania's monetary policy and contributed to a welcome decline in yields on government securities. Looking ahead, monetary policy will need to remain vigilant to ensure that pressures from high global fuel and food prices do not spread to other sectors, while providing sufficient room for continued expansion of credit to the private sector.
"The government's focus on improving infrastructure as well as health and education services, while ensuring long-term debt sustainability, is appropriate to raise Tanzania's growth potential. To that end, there is scope for increased reliance on public-private partnerships, provided that high standards of transparency and accountability are in place to guard against fiscal risks associated with contingent liabilities.
"Recent cases of alleged fraud and corruption have raised concerns, and continued progress in strengthening governance and public accountability is paramount to restore confidence. Steps taken so far, including the action plan to implement recommendations from the special audit of the Bank of Tanzania, are encouraging. In addition, the authorities have requested a voluntary safeguards assessment of the central bank from the Fund.
"With respect to Tanzania's breach of its obligation under Article VIII, Section 5 of the Fund's Articles of Agreement to provide accurate information to the Fund, the authorities have taken appropriate remedial measures and no further action is required," Mr. Portugal said.
The IMF's framework for PSIs is designed for low-income countries that may not need IMF financial assistance, but still seek close cooperation with the IMF in preparation and endorsement of their policy frameworks. PSI-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners. This is intended to ensure that PSI-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. Members' performance under a PSI is reviewed semi-annually, irrespective of the status of the program (see Public Information Notice No. 05/145).