International Monetary Fund Executive Board Completes Seventh PSI Review for Tanzania

Macroeconomic performance under the program has been satisfactory.

Most quantitative targets were met, though implementation of structural measures lagged.

Authorities should step up budget implementation, particularly in development spending, and macroeconomic policies will need to be closely coordinated.

On January 10, 2018, the Executive Board of the International Monetary Fund completed the seventh and last review of Tanzania's economic performance under a program supported by the Policy Support Instrument (PSI).[1] The decision was made without a Board meeting[2] and included the granting of waivers for the non-observance of the end-June 2017 assessment criteria on the floor of tax revenues and the ceiling of domestic expenditure arrears on the grounds that the slippage was minor and in light of the articulation of corrective measures, respectively.

The PSI for Tanzania was approved by the Board on July 16, 2014. The program was subsequently extended to January 15, 2018. Tanzania's program under the PSI aims at maintaining macroeconomic stability and promoting a more inclusive growth. It supports the authorities' objectives on reforms to strengthen public finance management, improve efficiency and transparency of public spending, and move to an interest rate-based monetary policy framework.

Tanzania's recent economic performance has been mixed and the outlook is subject to emerging risks. Although GDP data point to continued strong growth, other high frequency data suggest a weakening of economic activity. Tax revenue collections are lower than expected and credit growth has stagnated reflecting in part banks' rising nonperforming loans (NPLs). Inflation remains moderate, and international reserves have increased substantially. 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.

Program performance under the PSI has been broadly satisfactory. Most quantitative targets for Juneand September 2017 were met. While progress in structural reforms has been mostly slow, efforts have been boosted to advance them.

Macroeconomic policies will need to be closely coordinated. After recording a small fiscal surplus in July-September against a programmed deficit, the government is planning to step up budget implementation, particularly in development spending. The monetary policy stance and liquidity forecasting and management will need to be closely coordinated with fiscal developments.

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. Sustained reforms will be needed to achieve the strong private sector-led growth envisioned by the government's development plan. Budget implementation needs to be improved and arrears prevented. Additional domestic revenue needs to be mobilized through tax policy and administration reforms, while improving the functioning of the VAT refunds system. Addressing the high stock of NPLs is a priority to reduce financial sector vulnerabilities and revive credit growth.

[1]The PSI is an instrument of the IMF designed for countries that do not need balance of payments financial support. The PSI helps countries design effective economic programs that, once approved by the IMF#39;s Executive Board, signal to donors, multilateral development banks, and markets the Fund#39;s endorsement of a member#39;s policies (seehttp://www.imf.org/external/np/exr/facts/psi.htm). Details on Tanzania's PSI are available atwww.imf.org/tanzania.

[2]The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.

Source: International Monetary Fund (IMF).