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Statement by the IMF Staff Representative on Tanzania

Author(s):
International Monetary Fund
Published Date:
March 2004
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February 25, 2004

This statement describes developments since the staff report was issued on February 11, 2004. These developments do not change the thrust of the staff appraisal.

The Tanzanian authorities submitted in early February 2004 the new income tax act to Parliament for a first reading, which was a prior action for this review. They confirmed that the act will be considered for approval by parliament in April 2004. In February 2004, parliament also approved amendments to the Land Act that had been agreed with stakeholders, including financial institutions.

Preliminary data made available since the staff report was issued indicate that economic and financial developments remained in line with the program. Year-on-year inflation at end-January 2004 stood at 4.7 percent. Reserve and broad money growth remained below the end-December 2003 projections by about 5 percent, largely on account of tight liquidity management by the Bank of Tanzania, while credit to the private sector continued its strong growth. The estimated budget outturn through the first half of FY 2003/04 was in line with the program, as revenue and expenditures have evolved broadly as anticipated.

The nominal exchange rate of the shilling to the US Dollar depreciated to about TSh 1109 (from TSh 1063 at end-December 2003), reflecting higher imports, notably food imports to address growing shortages.

Heavy reliance on expensive thermo-power as a result of drought-related water shortages in the hydro-electric system could increase the demand for transfers from the budget by the electricity utility TANESCO. The authorities are in close consultation with the World Bank with a view to developing an emergency action plan for managing the financial implications of the drought for the energy sector, as well as designing a medium-term reform strategy. It is the authorities’ intention to address these issues and the regularization of past indebtedness in the context of the 2004/05 budget.

The signing of a trade protocol establishing a customs union in the East African Community (EAC) planned for mid-February has been postponed to early March.

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