A team from the International Monetary Fund (IMF), led by Hervé Joly, visited Tanzania during October 16−29, 2014. The mission conducted the first review under the Policy Support Instrument (PSI) program that was approved on July 16, 20141. The mission met with Hon. Mohammed Gharib Bilal, Vice President, Hon. Saada Mkuya Salum, Minister of Finance, Professor Benno Ndulu, Governor of the Bank of Tanzania, and other senior government officials.
Mr. Joly released the following statement at the end of the mission:
“Macroeconomic performance has been broadly in line with the program, although new challenges have emerged during the last three months. Economic growth was strong during the first half of 2014 and is expected to remain close to 7 percent this year. Inflation increased moderately in recent months, to 6.6 percent in September, reflecting higher food and fuel prices, while core inflation reached a historical low level of about 3 percent.
“Almost all program targets for end-June 2014 were met, with the exception of the one for tax revenue. Despite significant revenue shortfalls in the 2013/14 fiscal year compared to the original budget assumption, the fiscal deficit was contained to 4.4 percent of Gross Domestic Product (GDP), well below the program target. However, reflecting continued weaknesses in the ability to control expenditure commitments, this performance coincided with further accumulation of expenditure arrears. The Bank of Tanzania continued to build up foreign reserves, meeting the program target for end-June 2014 by a comfortable margin.
“Program targets for the remainder of the year, including for the fiscal deficit, remain within reach but will require cautious expenditure implementation. Revenue collection has been lagging behind the budget target. Front-loading of domestically-financed capital expenditure in July and August was facilitated by the central bank through conversion of liquidity paper into financing paper but this complicated significantly monetary policy implementation. Combined with delays in the disbursement of budget financing from development partners, related to the Independent Power Tanzania Limited (IPTL) case, this has been a challenging backdrop for program implementation. In this regard, the upcoming mid-year budget review should be used to align expenditure allocations with available resources. The expected implementation of VAT reforms in early 2015 should help bolster the revenue base. The mission welcomes the government’s intention to address comprehensively arrears to suppliers and pension funds.
“The mission took note that an important first step to address alleged governance concerns related to the IPTL case is underway through the special audit by the Controller and Auditor General.
“Discussions on the first review are well advanced and will be concluded in the next few weeks, with the IMF Executive Board’s consideration of the review expected to take place in early January 2015.
“The IMF team is appreciative of the constructive and open policy dialogue and thanks the authorities for their warm hospitality during the visit.”
1 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). Details on Tanzania’s PSI program are available at http://www.imf.org/tanzania.
International Monetary Fund (IMF)