Tanzania’s economic performance under the program supported by the Policy Support Instrument has remained strong and medium-term prospects were favorable, Zhu deputy managing director and acting chair, of the executive board of the International Monetary Fund said in a report.
“Macroeconomic performance in Tanzania remains strong and medium-term prospects are favorable,” he said.
The remarks follow the completion of the second review of Tanzania’s economic performance under the program supported by the Policy Support Instrument by the Executive Board of the IMF.
According to press statement by IMF Communications Department, performance under the policy support instrument was satisfactory through December 2014, but weakened in early 2015 due to a range of factors, including delays in mobilizing external financing and donor support.
Budget Deficit Good
The statement said, against this backdrop, the authorities’ corrective measures aimed at achieving the 2014/15 budget deficit target were commendable, though earlier expenditure ceiling adjustments could have helped preserve development spending.
“The draft 2015/16 budget, which targets an underlying deficit of 3.5% of the GDP (excluding arrears clearance), is built on more prudent revenue and foreign financing assumptions, the statement said.
It said the fiscal target also puts Tanzania on a path to a 3% deficit over the medium term, which was consistent with maintaining a low risk of debt distress.
“The authorities’ plans to address verified domestic supplier arrears transparently through the budget are welcome.
Commitment controls on expenditures and related sanctions for breaching rules need to be strengthened to ensure new arrears do not accumulate.
The strategy to address arrears to pension funds needs to be finalized quickly to allow for clearance of these arrears in 2015/16, added the statement.
“The current monetary policy stance is appropriate, delivering high growth and low and stable inflation.
The PSI for Tanzania was approved by the executive board on July 16, 2014.
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 inclusive growth and job creation.
The use of foreign exchange intervention should be restricted to smoothing volatility in the foreign exchange market, with higher reliance on domestic-currency instruments to address excess liquidity situations.”
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’s executive board, signal to donors, multilateral development banks, and markets the Fund’s endorsement of a member’s policies.
