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Tanzania: ‘Despite slight increase in inflation, Tanzania’s growth remains strong’

Tanzania’s economic growth was strong during the first half of 2014 and is expected to remain close to 7 percent this year, a mission of the International Monetary Fund (IMF) said late Wednesday at the conclusion of a two-week visit to the country.

“Macroeconomic performance has been broadly in line with the programme, although new challenges have emerged during the last three months,” IMF team leader Mr. Hervé Joly, said, noting that Tanzania’s 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.

During the visit, the mission conducted the first review under the Policy Support Instrument (PSI) programme that was approved on 16 July 2014.

PSI is an instrument of the IMF designed for countries that do not need balance of payments financial support. It helps countries design effective economic programmes 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.

“Almost all programme targets for end-June 2014 were met, with the exception of the one for tax revenue,” Joly said in the end-of-mission statement, noting that 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 programme target.

However, reflecting continued weaknesses in the ability to control expenditure commitments, this performance coincided with further accumulation of expenditure arrears, the IMF official said, pointing out that the Bank of Tanzania continued to build up foreign reserves, meeting the programme target for end-June 2014 by a comfortable margin.

“Programme 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,” he said.

He added: “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 programme 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,” Joly stated, noting that the mission welcomed the government’s intention to address comprehensively arrears to suppliers and pension funds.

Also, the mission took note that an important first step to address alleged governance concerns related to the IPTL case was 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,” Joly said.

The IMF mission met with Tanzanian Vice President Mohammed Gharib Bilal, Finance Minister Saada Mkuya Salum, Governor of the Bank of Tanzania, Prof. Benno Ndulu, and other senior government officials.


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