An International Monetary Fund (IMF) mission, led by Mr. Paolo Mauro, visited Dar es Salaam during September 19–October 2, 2012 to conduct discussions for the fifth review under the Policy Support Instrument (PSI) and the first review under the Standby Credit Facility (SCF).1 The mission met with Hon. Dr. William A. Mgimwa, Minister for Finance, and Professor Benno Ndulu, Governor of the Bank of Tanzania, other senior government officials, representatives of the private sector, and development partners.
At the conclusion of the visit, Mr. Mauro issued the following statement:
“The Tanzanian economy has continued to perform strongly. Economic activity has remained robust, with gross domestic product (GDP) growth projected at 6½−7 percent in 2012. Inflation has been retreating gradually from its peak in late 2011. However, headline inflation at about 15 percent and core inflation (which excludes food and energy prices) at 9 percent in August 2012 (year-on-year) still remain above desirable levels. The current account deficit is large at 16 percent of GDP, reflecting strong aggregate demand, foreign direct investment related to natural gas exploration and development, and large oil imports for power generation to substitute for hydroelectric sources, owing to the severe drought. External vulnerabilities are made more manageable by the adequate level of foreign reserves.
“PSI/SCF program performance during the first half of 2012 was favorable. The budget deficit for 2011/12 at 5 percent of GDP was lower than programmed. Revenue collection was strong and government spending was well-contained, though not all domestic expenditure arrears were cleared by the end of the fiscal year. The 2012/13 budget appropriately balances the need for sustained fiscal consolidation, preserving social spending, and creating room for critical infrastructure investment. External non-concessional borrowing has been in line with maintaining a sustainable debt outlook. To reduce inflationary pressures, reserve money and broad money growth were kept below program targets. Progress has been made toward the implementation of structural benchmarks under the program, notwithstanding some delays.
“Economic growth is projected to remain buoyant in 2013, though risks remain. In particular, near-term challenges relate to the need to preserve ample and reliable electricity supply while ensuring the financial viability of national power utility TANESCO, where sizable outstanding payment arrears have built up vis-a-vis suppliers following the emergency power plan introduced in late 2011.
“The outlook for the medium- to long-term is promising, with recent large offshore natural gas discoveries. The current priority is to design and implement a regulatory and fiscal framework, integrated with the government budget, for the natural resource sector, ensuring that Tanzania’s population benefits fully from its natural resources.
“The authorities have reaffirmed their commitment to implementing the objectives of their program supported by the PSI/SCF. The Bank of Tanzania aims its tight monetary policy at bringing inflation down to single-digits in the next few months, complementing other efforts in this area by fiscal and structural policies. The government budget aims at containing the deficit to 5.5 percent of GDP in 2012/13. The mission welcomes the measures that the authorities are taking to improve public financial management and urges the government to prepare rapidly an action plan to address challenges in the electricity sector.
“The mission reached understandings with the authorities on the majority of issues. Discussions will continue in the coming weeks to finalize understandings relating to the resolution of the financial problems facing the energy sector, with the aim of consideration by the IMF Executive Board of the fifth program review under the PSI and the first review under the SCF in December 2012.
“The IMF team wishes to thank the authorities for their warm hospitality and for the constructive and open dialogue on policy issues.”
1 The PSI is an instrument of the IMF designed for countries that do not need balance of payments financial support. The PSI helps countries design effective economic programs that, once approved by the IMF’s Executive Board, signal to donors, multilateral development banks, and markets the Fund’s endorsement of a member’s policies (see http://www.imf.org/external/np/exr/facts/psi.htm.). The SCF supports LICs that have reached broadly sustainable macroeconomic positions, but may experience episodic, short-term financing and adjustment needs, including those caused by shocks. The SCF supports countries’ economic programs aimed at restoring a stable and sustainable macroeconomic position consistent with strong and durable growth and poverty reduction. It also provides policy support and can help catalyze foreign aid. (See http://www.imf.org/external/np/exr/facts/scf.htm.) Details on Tanzania’s current PSI and SCF are available at www.imf.org/tanzania.