DAR ES SALAAM, Tanzania, March 20, 2015/African Press Organization (APO)/ — A team from the International Monetary Fund (IMF), led by Hervé Joly, visited Tanzania from March 5 – 19, 2015. The mission initiated the second review under the Policy Support Instrument (PSI) 1 program that was approved on July 16, 2014. The mission met with 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:
“Recent macroeconomic developments have continued to be favorable. Growth is estimated to have been slightly over 7 percent in 2014, while inflation has dropped below the authorities’ target of 5 percent. The recent international oil price decline will provide a boost to the economy in 2015 and help contain inflation. The revised national accounts, which incorporate recent surveys and methodological improvements, suggest that the size of Tanzania’s economy is about 30 percent bigger than earlier thought.
“The nominal exchange rate against the U.S. dollar has depreciated, mainly reflecting the U.S. dollar strengthening relative to most other currencies. The gradual depreciation contributes to maintaining the competitiveness of Tanzania’s exports and benefits farmers and other exporters. Meanwhile the recent decline in international oil prices has contained the impact of the exchange rate depreciation on import costs.
“The IMF-supported PSI program was broadly on track through the end of 2014. Most quantitative program targets for end-December were met; the indicative target on domestic revenue, however, was missed. There has been good progress on the structural reforms supported under the PSI, although a number of measures were implemented with some delay.
“Budget implementation for 2014/15 remains challenging because of a substantial tax and nontax revenue shortfall and some delays in budget financing. These pressures were already highlighted during the first program review and require urgent alignment of expenditure with available resources. To avoid further accumulation of expenditure arrears, it will be important to strengthen the expenditure commitment controls.
“The mission welcomes the steps taken to address the governance concerns raised by the IPTL case. Continued progress will be critical both to sustain the resumption of donor financing and to limit any repercussions on the business environment.
“The accumulation of payment arrears in the public sector needs to be tackled forcefully. This problem has become pervasive with large and growing government arrears to domestic suppliers and pension funds, and persistent arrears of TANESCO, the national electricity company, to its suppliers. It is important that the government now implements measures to settle existing arrears and prevent the recurrence of new ones by tackling their root causes.
“It is essential for preserving fiscal policy credibility that the budget for 2015/16 be based on realistic revenue and financing assumptions. A realistic budget with a moderate deficit is a key prerequisite to avoid the accumulation of new arrears and large mid-year expenditure adjustments, and also to preserve debt sustainability.
“Discussions will continue in the coming weeks to reach final understandings on an economic policy framework that can underpin the completion of the second review under the PSI. The discussion of the second program review by the IMF Executive Board is expected to take place by mid-2015.
“The IMF team is appreciative of the constructive and open policy dialogue and thanks the authorities for their hospitality during the visit.”
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). Details on Tanzania’s PSI program are available at http://www.imf.org/tanzania
International Monetary Fund (IMF)