The Executive Board of the International Monetary Fund (IMF) today completed the second review of Tanzania’s economic performance under the Policy Support Instrument (PSI). The Executive Board also concluded Tanzania’s annual Article IV consultation, which will be covered in a subsequent Public Information Notice.
The Executive Board approved a three-year PSI for Tanzania on June 4, 2010 (see Press Release No. 10/227). The IMF’s framework for PSIs is designed for low-income countries that may not need IMF financial assistance, but still seek close cooperation with the IMF in preparation and endorsement of their policy frameworks. PSI-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners. A country’s performance under a PSI is reviewed bi-annually.
Following the Executive Board’s discussion of Tanzania, Mr. John Lipsky, IMF First Deputy Managing Director and Acting Chair, said:
“Tanzania has shown continued strong macroeconomic performance as accommodating fiscal and monetary policies helped mitigate the impact of the global financial crisis. The authorities now rightly intend to rein in these expansionary policies, restore policy buffers, and prepare for a possible deceleration in foreign aid. The threat of a protracted weather-related supply shock and rising international fuel prices will also weigh on near-term fiscal and monetary management.
“Building on the tradition of solid budgetary policies, a prudent 2011/12 budget would be an important first step toward realigning spending with available resources. Such a positive signal of the commitment to fiscal consolidation would be critical for investment and donor confidence. Bolstering revenue mobilization through tax policy measures as well as spending rationalization are needed to respond to the growing demand for public services. More realistic revenue forecasts and better spending commitment controls would help contain arrears.
“Cautious macroeconomic policies have enabled Tanzania to mobilize non-concessional resources to finance infrastructure investment. It will be important to strengthen public investment and debt management processes in order to ensure value for money from these resources. Non-concessional borrowing should be allocated to well-designed growth-enhancing infrastructure projects that are the subject of a rigorous project evaluation process.
“The gradual shift to a less accommodative monetary policy has been an appropriate response to the recovery in economic activity. The authorities will need to be vigilant to rising inflationary pressures and the impact of further increases in food and energy prices.
“The authorities’ structural reform agenda needs to be reinvigorated to improve governance and the business environment, which will help bolster private sector confidence, increase economic diversification, and preserve the competitiveness of non-commodity sectors.”