Journal Issue

IMF Completes First Review Under Tanzania’s PRGF Arrangement and Approves US$4.2 Million Disbursement

International Monetary Fund
Published Date:
March 2004
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The Executive Board of the International Monetary Fund (IMF) today completed the first review of Tanzania’s performance under a SDR 19.6 million (about US$29.3 million) Poverty Reduction and Growth Facility (PRGF) arrangement (see Press Release No. 03/127). The completion of this review enables the release of a further SDR 2.8 (about US$4.2 million), which will bring the total amount drawn under the arrangement to SDR 5.6 million (about US$8.3 million).

In completing the review, the Board waived the nonobservance of the performance criterion related to the submission to parliament of the new income tax law, which was delayed to February 2004.

The PRGF is the IMF’s concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 V6-year period on principal payments.

Following the Executive Board’s discussion on Tanzania’s economic performance, Agustin Carstens, Deputy Managing Director and Acting Chair, made the following statement:

“The Tanzanian authorities deserve credit for maintaining macroeconomic stability and making substantial progress with structural reforms, which have paved the way for a steady but modest increase in real per capita income combined with low inflation. Reflecting its good track record in the implementation of its reform program, Tanzania has received steady financial support and technical assistance from the donor community. In particular, debt relief under the enhanced HIPC Initiative has helped Tanzania to undertake higher social sector spending and maintain debt sustainability.

“Despite these achievements, poverty remains widespread, especially in rural areas, and economic development has been uneven across the country. Thus, the authorities are committed to sustained economic reform efforts in order to make further progress toward the growth and poverty reduction objectives articulated in the PRSP. The strengthening of the business environment and of agricultural performance, as well as measures to manage the macroeconomic impact of high aid flows, will be key elements of these reforms.

“Enhancing revenue mobilization and containing aid dependence will be critical to enhance the robustness of macroeconomic stability. To this end, the authorities plan to achieve a comprehensive reform of tax policy and tax administration. The forthcoming adoption of a new Income Tax Bill and the Tanzania Revenue Authority (TRA)’s implementation of a new three-year corporate plan will be crucial measures in this direction. Furthermore, rationalizing the tax regime for mining companies, while imposing strict controls on tax exemptions, will be important steps to contain revenue leakages. Maintaining a sound fiscal position and debt sustainability will also require firm control over nonpriority expenditure and prudent debt management policies.

“Continued reform in the financial sector, consistent with the recommendations of the recent Financial Sector Assessment Program (FSAP), will be crucial to improve access to bank lending and strengthen the financial sector’s contribution to higher economic growth. The newly passed amendments to the Land Act are expected to facilitate bank lending by permitting the use of land as collateral. The privatization of the National Microfinance Bank will also help to broaden access to financial services.

“The authorities recognize the seriousness of the rising fiscal pressures emanating from growing subsidies for the energy sector. They intend to take swift action by formulating and implementing a short-term action plan and a medium-term reform strategy, which will aim at providing reliable power supply, while reducing the electricity utility’s dependence on fiscal subsidies. In this context, the authorities intend to hold high level consultations with the World Bank in the near future.

“The authorities are committed to pursuing closer regional integration and further trade liberalization, mainly in the framework of the East African Community (EAC). As part of these efforts, the authorities are encouraged to work with EAC partner states to further reduce tariffs and remove non-tariff barriers.

“Finally, the authorities have underlined their commitment to the full implementation of their updated national anti-corruption strategy and action plan for 2003-2005, which will be a crucial step for strengthening governance and boosting business confidence,” Mr. Carstens said.

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