IMF`s Resident Representative in Tanzania, Thomas Baunsgaard
The International Monetary Fund (IMF) has completed the fifth review of Tanzania’s economic performance under the Policy Support Instrument (PSI) and the first review under the precautionary Standby Credit Facility (SCF) arrangement of which the move will assist the country to stabilise the inflation rate.
The structural reforms under the programme aim to secure fiscal sustainability and support a strong economic expansion in the medium term.
Speaking recently in Dar es Salaam, IMF’s Resident Representative in Tanzania, Thomas Baunsgaard said priorities include modernising the VAT regime, strengthening public financial management and improving debt management.
In completing the SCF review, the fund’s board made available for disbursement an additional SDR 37.3 million (about USD57m), bringing total resources available for potential disbursement under the arrangement to SDR 74.6 million (about USD114m).
Baunsgaard said the board has also approved the Tanzanian authorities’ request for a waiver of non-observance of the continuous performance/assessment criterion on the ceiling on external non-concessional debt contracted or guaranteed by the government.
The staff judged that the nonobservance would not materially affect the country’s debt sustainability, he said.
Baunsgaard also said that the board approved the precautionary 18-month SCF arrangement for Tanzania in July 2012 in an amount equivalent to SDR 149.175 million (about USD228m).
Following the board’s discussion on Tanzania, Naoyuki Shinohara, IMF Deputy Managing Director and Acting Chair, said:
“The Tanzanian authorities are to be commended for their prudent policy management and progress in stabilising the economy. The overall macroeconomic outlook remains favourable, with buoyant growth and declining inflation. Continued tight fiscal and monetary policies are crucial for securing sustainability”.
He said that the planned tightening of monetary policy is appropriate in view of the remaining inflationary pressures of which the authorities are committed to taking additional measures if needed to attain the targeted decline in inflation.
He noted that the budget for 2012/13 appropriately balances the country’s development and social spending needs with the debt-stabilising objective.
“…..to preserve the fiscal consolidation path and avoid a build-up of arrears, any revenue shortfalls would be offset by cutbacks in recurrent and non-priority capital expenditures while safeguarding critical social spending…,” he said.
He added: “Any financial support to the energy sector would be accommodated within the existing fiscal framework. An action plan is being finalised to address the financial challenges facing the power utility, preventing costly power outages and large quasi-fiscal losses,” he commended.
“It also said that Tanzania’s large current account deficit and related vulnerabilities call for readiness to adjust policies in the event of external shocks, with a view to preserving macroeconomic stability and keeping the programme on track. The floating exchange regime would continue to provide helpful flexibility in this regard,” he said.