In its latest statement on the state of Tanzania's economy, the IMF said although the country's gross domestic product (GDP) growth remains strong, other economic indicators paint a gloomy picture.
"Although GDP data point to continued strong growth, other high frequency data suggest a weakening of economic activity," it said yesterday after the conclusion of its Policy Support Instrument (PSI) review for Tanzania.
"Tax revenue collections are lower than expected and credit growth has stagnated reflecting in part banks’ rising non-performing loans (NPLs). There are downside risks to economic growth in the short term stemming from slow budget implementation, a challenging business environment, and private sector concerns about authorities’ enforcement of rules."
On the upside, inflation remains moderate and international reserves have increased substantially.
"Strong growth and job creation are needed to address high poverty and a large underemployed youth population. Infrastructure gaps and the business climate have also become increasingly challenging and require response," the IMF noted.
"Budget implementation needs to be improved and arrears prevented. Additional domestic revenue needs to be mobilised through tax policy and administration reforms, while improving the functioning of the value added tax (VAT) refunds system. Addressing the high stock of NPLs is a priority to reduce financial sector vulnerabilities and revive credit growth."
The Bretton Woods institution said sustained reforms were crucial for a strong private sector-led growth envisioned by the government’s development plan.
Just last month, the IMF called on the Tanzanian government to speed up reforms and spend more to prevent a slowdown in one of the world’s fastest growing economies.
President John Magufuli pledged to reform the country's economy, which is hobbled by red tape and corruption and begin a programme to develop public infrastructure after he was elected in 2015.
But the IMF warned that progress has been slow, while a lack of public spending - coupled with private sector concerns over policy uncertainty - was curtailing economic growth in Tanzania.
Tanzania’s GDP growth slowed to 6.8 per cent in the first half of 2017 from a 7.7 per cent expansion in the same period in 2016.
The economy has been growing at around 7 per cent annually for the past decade, but the World Bank said in November that growth will likely slow to about 6.6 per cent in 2017.
The IMF said while Tanzania’s first half GDP growth in 2017 was “still strong”, a sharp fall in lending to the private sector - prompted by high non-performing loans - pointed to a continued slowdown in growth.
In June, the IMF said Tanzania may have to delay implementing some of its infrastructure projects because its revenue expectations for 2017/18 may not be achieved.
The Minister for Finance and Planning, Dr Philip Mpango, last month dismissed fears on the Tanzanian economy, saying it remained the fastest-growing country in East Africa.
He said the government will likely attain its 7 per cent GDP growth target for 2017 due to massive public investments in flagship infrastructure projects, including construction of the standard gauge railway (SGR) network.
Concerns about a lack of govenment spending prompted Magufuli to order the Treasury to pump 200 billion shillings into the national economy next month through payment of domestic arrears.
Some analysts said the government would need to considerably step up its spending and restore investor confidence to stimulate faster economic growth.