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IMF Executive Board Completes the Fifth Review Under the Policy Support Instrument for Tanzania

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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.


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