The Executive Board of the International Monetary Fund (IMF) completed the third review of Tanzania’s economic performance under the program supported by the Policy Support Instrument.
The IMF Board approved modifications to the December 2015 assessment criteria on net international reserves and tax revenue, a waiver for the missed June 2015 assessment criterion on tax revenue, as well as the modification of programme design to fit the new debt limits policy.
Though the budget deficit for 2014-15 exceeded the programme target, Mitsuhiro Furusawa, IMF Deputy Managing Director and Acting Chair, said that incoming authorities have taken action to strengthen controls and sanctions against accounting officers that breach rules, in order to contain the accumulation of new arrears. The authorities also plan to complete the settlement of existing verified arrears, including those to pension funds, he added.
The PSI for Tanzania was first approved by the Executive Board on 16 July 2014, with Tanzanian authorities’ stated goals of maintaining macroeconomic stability, preserving debt sustainability and promoting more inclusive growth and job creation.
“Macroeconomic performance in Tanzania remains strong and medium-term prospects are favourable. Performance under the Policy Support Instrument, however, has been mixed. While most assessment criteria for June 2015 were met, program implementation slowed ahead of the October 2015 elections,” Furusawa said.
He warned that budget implementation in 2015/16 faces challenges arising from possible shortfalls in financing and revenue, unbudgeted expenditures carried forward from 2014/15, and the need to make space for the new government’s priorities.
“Against this backdrop, early action to adjust the budget is welcome and will help prevent further arrears accumulation. Changes to programme design will provide more flexibility in debt management and should be accompanied by continued efforts to enhance debt and public investment management capacity,” Furusawa said.
“The current monetary policy stance should bring inflation down to the authorities’ five per cent target by the end of 2016. The use of foreign exchange intervention should be limited to liquidity management and smoothing volatility in the foreign exchange market, with higher reliance on domestic-currency instruments to address excess liquidity. Better coordination of fiscal and monetary policy would make it easier for the Bank of Tanzania to focus on its main inflation objective… Putting TANESCO, the power utility, on a sound financial footing is critical for the development of the energy sector, making the completion of the authorities’ strategy to address TANESCO’s arrears a priority,” he concluded.
Source: CPI Financial