IMF upbeat on Tanzania economic growth prospects

Dar es Salaam. The International Monetary Fund (IMF) has exuded optimism over Tanzania’s economic growth prospects, saying a number of sectors have shown some recovery signs in 2022.

A statement released yesterday - after the completion of a series of meetings held between the Fund’s staff and government officials to conduct the first review of the country’s 40-month programme under the Extended Credit Facility (ECF) – said the IMF also exuded confidence in efforts by President Samia Suluhu Hassan’s administration to strengthen economic recovery after the global Covid-19 pandemic.

The meetings conducted from February 8-23, 2023 in Dodoma and Dar es Salaam discussed progress on reforms and the authorities’ policy priorities in the context of the first review of Tanzania’s ECF-supported programme.

The statement, issued by team leader Charalambos Tsangarides, urges the government to continue to safeguard the economy from spillovers of the war in Ukraine.

“In the near-term, temporary fiscal support should continue to safeguard the economy from spillovers of the war in Ukraine. Monetary policy will continue to be tuned to developments in actual and expected inflation, while allowing exchange rate flexibility to cushion the economy against external shocks,” the statement reads.

Tanzania’s ECF-supported programme was approved for a total amount of $1.046 billion on July 18, 2022.

And, according to Mr Tsangarides, his team and Tanzanian authorities have reached a staff-level agreement which, upon completion of a review by the IMF’s Executive Board, would allow Tanzania to have access to about $151 million more.

This will bring the total IMF financial support under the arrangement to about $302.7 million.

During its mission, Mr Tsangarides says, the team met with the Minister of Finance and Planning, Dr Mwigulu Nchemba, Bank of Tanzania Governor Emmanuel Tutuba, other senior officials, development partners, and private sector representatives.

According to the statement Tanzania’s economic recovery from the impact of the pandemic was continuing despite headwinds from the global economic environment.

“While some sectors, including mining, tourism, and other services, showed signs of recovery in 2022, growth for the year is estimated to have reached 4.7 percent, reflecting the impact of global economic conditions, and the effects of a shortfall in rainfall on electricity production and agriculture,” the statement reads.

According to the statement, the ongoing improvement in the business environment was benefitting the economy, adding however that it [the economy] continues to face the spillover effects of the war in Ukraine.

With the ongoing efforts to improve the business environment, the IMF staff see Tanzania’s economic growth as rebounding to seven percent in the medium term.

“Contingent on the implementation of the authorities’ structural reform agenda, including the business environment and governance, real GDP growth is projected to rebound to about 7 percent over the medium term,” the statement reads.

Inflation – which reached 4.9 percent in January from 4.0 percent a year earlier – is expected to reach the upper band target of BoT of five percent over the medium term.

“Enhanced revenue mobilisation efforts and fiscal efforts are expected to improve the fiscal outlook,” the IMF staff’s statement says.

Modernising the monetary policy framework through the transition to an interest-rate based monetary policy will improve the effectiveness of monetary policy, according to the IMF statement, while upgrading the financial supervision framework could promote financial sector stability and deepening.

“Advancing structural reforms will create enabling environment for sustainable and inclusive private sector-led growth,” the IMF statement further says.

It adds that with modest revenue growth, increased priority social spending was being achieved through reallocation of resources from capital to social spending.

This has helped to keep the fiscal stance unchanged, in line with the ECF programme objectives.

With limited external financing, the budget deficit was financed mainly from domestic sources.

The verification of domestic government arrears has slowed and fallen behind the government’s targets.