IMF Board completes first PSI review for Tanzania

The Executive Board of the International Monetary Fund completed today the first review of Tanzania's economic performance under the program supported by the Policy Support Instrument (PSI) and granted a waiver for the nonobservance of the continuous assessment criterion on the non-accumulation of external arrears.

The PSI for Tanzania was approved by the Executive Board on July 16, 2014 (see Press Release No. 14/350). Tanzania's program under the PSI supports the authorities' medium-term objectives. These include: the maintenance of macroeconomic stability, the preservation of debt sustainability, and the promotion of more equitable growth and job creation.

Following the Board discussion, Min Zhu, Deputy Managing Director and Acting Chair, said macroeconomic developments in Tanzania remain favorable. Economic growth was strong during the first half of 2014 and is expected to remain close to 7 percent. Inflation remains in midsingle digits, consistent with the authorities' target of 5 percent by June 2015.

Performance under the Policy Support Instrument was satisfactory through June, but has deteriorated since and risks have risen, stemming from delays in disbursements of donor assistance and external non-concessional borrowing, and shortfalls in domestic revenues. Against this backdrop, the authorities' commitment to keep the program on track is welcome, and they have reaffirmed their intention to meet the budget deficit target and will review revenues and adjust expenditures accordingly in the context of the mid-year budget review. It will be critical to the business environment to address the governance issues raised by the IPTL case, which would also unlock donor assistance.

"It will be important to strengthen the coordination between fiscal and monetary policies. The conversion of monetary policy instruments to financing papers facilitated the front-loading of capital expenditures but complicated monetary policy implementation. It will be more effective and less disruptive to accommodate the planned expenditure through better planning to align spending and financing.

"The issue of domestic arrears, which continued to accumulate, needs to be addressed comprehensively and forceful- ly. Work to verify and eventually clear arrears to suppliers already incurred is ongoing. The authorities' plan to prevent future arrears accumulation is appropriately ambitious and will require sustained implementation. Addressing arrears to pension funds and making government relations with them more transparent is also critical to their sustainability."