January 9, 2017
- Most program assessment criteria and indicative targets were met, though implementation of structural measures lagged
- Recent economic performance has been strong with high growth, moderate inflation, and a narrowing of the external current account deficit
- Authorities should ease the current tight stance of macroeconomic policies and redouble reform efforts to achieve targets in the medium-term development plan
On
January 9, 2017, the Executive Board of the International Monetary Fund
(IMF) completed the fifth review of Tanzania’s economic performance
under the program supported by a three-year Policy Support Instrument
(PSI). The Board’s decision was taken on a lapse of time basis.
In
completing the review, the Board also granted waivers for the
non-observance of the end-June 2016 assessment criteria on the overall
fiscal deficit and the non-accumulation of domestic expenditure arrears
on the grounds that the slippages were minor. The PSI for Tanzania was
approved by the Board on July 16, 2014.
Tanzania’s
macroeconomic performance remains strong. Economic growth was robust
during the first half of 2016 and is projected to remain at about 7
percent this fiscal year. Inflation came down below the authorities’
target of 5 percent and is expected to remain close to the target, while
the external current account deficit was revised down on account of
lower imports of capital goods. Nevertheless, there are risks that could
adversely affect economic growth going forward, arising from the
currently tight stance of macroeconomic policies, the slow pace of
credit growth that may become protracted, slow implementation of public
investment, and private sector uncertainty about the government’s new
economic strategies.
Program
performance was broadly satisfactory and most assessment criteria for
June 2016 and all indicative targets for September 2016 were met. While
progress in structural reforms identified under the program has been
generally slow, the authorities have recently stepped up efforts to
advance them. These include measures taken to strengthen public
financial and debt management, modernize the monetary policy framework,
and improve monitoring of parastatal enterprises. The authorities have
committed to further reforms in these areas.
The
current tight macroeconomic conditions should be addressed by loosening
the short-term policy stance, in line with program targets. After
recording a small fiscal surplus in July-September, the government is
committed to stepping up budget implementation, particularly in public
investment, including by mobilizing external financing. Monetary policy
should be eased to address the tight liquidity situation and support
credit to the private sector. The Bank of Tanzania’s steps in this
regard are appropriate, but will need to be fine-tuned when the planned
fiscal spending materializes. The increase in international reserves
recorded since the beginning of the fiscal year is a welcome step to
gradually rebuild buffers.
The
authorities are implementing an ambitious development and reform agenda
over the medium term, as described in their recently-released second
Five-Year Development Plan. The strong drive against corruption and tax
evasion has led to higher fiscal revenues, which, if sustained, will
provide a good foundation for the envisaged scaling up of infrastructure
investment, starting with the 2016/17 budget. The Plan also envisages a
significant structural transformation of the economy by nurturing human
development. Full involvement of all stakeholders in policy design and
implementation—including importantly the private sector—will be crucial.
Source: http://www.imf.org/tanzania
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