Front Matter Page
© 2003 International Monetary Fund
August 2003
IMF Country Report No. 03/238
Tanzania: Sixth Review Under the Poverty Reduction and Growth Facility and Requests for Waiver of a Performance Criterion and for a New Three-Year Arrangement Under the Poverty Reduction and Growth Facility—Staff Report; Press Release on the Executive Board Discussion for Tanzania; and Statement by the Executive Director for Tanzania
In the context of the sixth review under the Poverty Reduction and Growth Facility and requests for a waiver of performance criterion and for a new three-year arrangement under the Poverty Reduction and Growth Facility, the following documents have been released and are included in this package:
the staff report for the sixth review under the Poverty Reduction and Growth Facility and requests for a waiver of performance criterion and for a new three-year arrangement under the Poverty Reduction and Growth Facility, prepared by a staff team of the IMF, following discussions that ended on June 6, 2003, with the officials of Tanzania on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on July 14, 2003. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
a press release summarizing the views of the Executive Board as expressed during its July 28, 2003 discussion of the staff report that completed the review.
a statement by the Executive Director for Tanzania
The documents listed below have been or will be separately released.
Letter of Intent sent to the IMF by the authorities of Tanzania*
Technical Memorandum of Understanding of by the authorities of Tanzania*
Financial System Stability Assessment
*May also be included in Staff Report
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by e-mail to publicationpolicy@imf.org.
Copies of this report are available to the public from
International Monetary Fund • Publication Services
700 19th Street, N.W. • Washington, D.C. 20431
Telephone: (202) 623-7430 • Telefax: (202) 623-7201
E-mail: publications@imf.org • Internet: http://www.imf.org
Price: $15.00 a copy
International Monetary Fund
Washington, D.C.
Front Matter Page
INTERNATIONAL MONETARY FUND
TANZANIA
Sixth Review Under the Poverty Reduction and Growth Facility and Requests for Waiver of a Performance Criterion and for a New Three-Year Arrangement Under the Poverty Reduction and Growth Facility
Prepared by the African Department
(In consultation with the Finance, Fiscal Affairs, Legal, Monetary and Financial Systems, Policy Development and Review, and Statistics Departments)
Approved by Anupam Basu and Michael T. Hadjimichael
July 14, 2003
In the last three years, Tanzania has made further substantial progress in establishing macroeconomic stability and deepening structural reform. Although considerable progress has been achieved, growth performance has been inadequate to significantly reduce poverty, which remains pervasive, especially in the rural areas. Because much of the outstanding reform agenda, including revenue mobilization and financial sector reform, falls within the Fund’s core area of expertise, and as the Fund’s assessment of macroeconomic performance is an important signaling element for disbursements of assistance by other donors, the authorities are seeking a new PRGF arrangement in support of the objectives outlined in the PRSP. However, reflecting Tanzania’s improved external position, and to highlight the authorities’ progress toward an exit from the PRGF, access under the proposed arrangement would be only 10 percent of quota (Table 1).
Discussions for the sixth review and a proposed new PRGF arrangement were held in Dar es Salaam during April 22-May 6 and May 28-June 6, 2003 by a staff team comprising Mr. Sharer (head), Mr. Treichel, Mr. Tjirongo (all AFR), Mr. Pivovarsky (FAD), and Mr. Tiffin (PDR). Mr. Abdi (Senior Resident Representative) assisted the mission. The mission was received by President Mkapa and met with the Minister for Finance (Mr. Mramba), the Governor of the Bank of Tanzania (Mr. Ballali), and senior officials from these and other government departments. The mission also met with representatives of the business, the diplomatic and donor communities, and of nongovernmental organizations.
Completion of the sixth and final review under the current PRGF arrangement will entitle Tanzania to a disbursement of SDR 15 million. The government’s letter of intent (LOI) relating to this review, and the request for a new PRGF arrangement, is presented in Appendix I; it contains a request for the waiver of a performance criterion. Section I of the staff report discusses performance under the current PRGF arrangement. Section II presents the medium-term program to be supported by the proposed PRGF arrangement, and the contribution of the PRGF to both the objectives of the PRSP and the sources of growth underlying the strategy. Appendices contain summaries of Tanzania’s relations with the Fund (including safeguards assessments) and the World Bank Group, as well as a discussion of statistical issues and social indicators.
President Mkapa was re-elected in October 2000; the next presidential elections are scheduled for 2005. In January 2003, the British government issued a warning of a terrorist threat to Zanzibar.
Contents
Executive Summary
I. Recent Economic Developments and Performance Under the Program
A. Recent Economic Developments
B. Objectives and Achievements Under the PRGF-Supported Programs
C. Key Areas for Further Reform
II. The Program for 2003/04–2005/0
A. PRSP Priorities
B. Medium-Term Macroeconomic Framework and Strategy
C. Fiscal Policies for 2003/04 and Beyond
D. Monetary Policy and Financial Sector Reforms
E. Other Structural Reforms, Governance Issues, and Capacity Building
F. External Outlook and Capacity to Repay the Fund
G. Statistical Issues
III. Program Monitoring
IV. Staff Appraisal
Boxes
1. Sources of Growth
2. The PRGF-Supported Program and Poverty Reduction
3. Improving Access to Foreign Private Capital
4. Economic Effects of HIV/AIDS in Tanzania
5. Key Findings of Tanzania’s Financial System Assessment Program (FSAP)
6. Structural Conditionally
Figures
1. GDP, Savings and Investment, 1995-2006
2. Prices and Interest Rates, January 1997–April 2003
3. Central Government Finances, 1999/00–2006/07
4. Exchange Rates, January 1997–March 20034. Exchange Rates, January 1997–March 2003
Tables
1. Phasing of Performance Criteria, Reviews, and Disbursements Under the Poverty Reduction and Growth Facility (PRGF) Arrangement, 2003-06
2. Selected Economic and Financial Indicators, 2000–04
3. National Accounts, 2000–06
4. Central Government Operations, 2001/02–2006/07
5. Central Government Expenditure on Priority Sectors, 2001/02–2003/04
6. Summary Accounts of the Bank of Tanzania, December 2001-June 2004
7. Monetary Survey, December 2001-June 2004
8. Balance of Payments, 2000/1-2007/8
9. Disbursements of Program Assistance, 2002/03–2003/04
10. External Debt Indicators, 2001/02-2011/12
11. Status of HIPC Agreements by Creditor
Appendices
I Letter of Intent
Table 1. Quantitative Performance Criteria and Benchmarks Under the Poverty Reduction and Growth Facility Arrangement, December 2002–June 2003
Table 2. Structural Performance Criteria and Benchmarks Under the Poverty Reduction and Growth Facility Arrangement, November 2002-March 2003
Table 3. Quantitative Performance Criteria and Benchmarks Under the Poverty Reduction and Growth Facility Arrangement, June 2003–June 2004
Table 4. Prior Action, Structural Performance Criteria, and Benchmarks Under the Poverty Reduction and Growth Facility Arrangement, July 2003–June 2004
Attachment: Technical Memorandum of Understanding on Selected Concepts and Definitions Used in the Monitoring of the PRGF-Supported Program
II. Relations with the Fund
III. Relations with the World Bank Group
IV. Statistical Issues
V. Social Indicators
Executive Summary
Under IMF-supported programs, Tanzania has achieved considerable macroeconomic and structural adjustment since the mid-1990s. Real GDP growth averaged 4.6 percent during 1996–2002 against 2.7 percent during 1990–95; at the same time, inflation fell to below 5 percent from about 30 percent. Fiscal imbalances have been reduced, expenditures reoriented to the social sectors and the external position substantially strengthened. Moreover, Tanzania reached the completion point under the HIPC Initiative in 2001. Nevertheless, poverty remains pervasive, particularly in the rural areas.
Performance under the current PRGF arrangement has been favorable. All quantitative performance criteria and benchmarks through end-March 2003 were observed, and substantial progress was made in implementing structural reforms, albeit some with delay. Real GDP growth rose 6.2 percent, slightly above target, and inflation remains at about 4 percent.
The new PRGF-supported program for 2003–06 aims to contain inflation at about 4 percent and raise real GDP growth further, to above 6 percent. Growth will be underpinned by substantial investments in physical infrastructure as outlined in the PRSP. The current account deficit is projected to decline steadily, given robust growth in exports and a modest increase in imports.
To facilitate these objectives Tanzania will pursue a three-pronged strategy, aimed at mobilizing revenue, further liberalizing the trade regime, and improving the economy’s supply response by removing key impediments to growth and generally improving the investment environment. Thus, the reform agenda focuses on key areas within the core mandate of the Fund, notably steadily increasing the revenue to GDP ratio in order to bolster macroeconomic performance and reduce reliance on foreign aid, and improving the effectiveness of the financial system to improve economic efficiency and attract investment.
In support of the program’s medium-term revenue target, the authorities are taking a range of measures to bolster tax administration substantially, including adoption of a new medium-term corporate plan for the Tanzania Revenue Authority, and of a new income tax law that closes loopholes and moves to self-assessment; a refocusing of management and administrative resources that will facilitate a broadening of coverage of large taxpayers; a revamp of the administration of VAT and presumptive taxation, and actions to broaden the tax base through curtailing exemptions.
The reform of the financial sector will build on the work of the recent joint Fund-Bank FSAP mission and the earlier report prepared by a joint ICM-AFR mission.
Front Matter Page
Press Release No. 03/128
FOR IMMEDIATE RELEASE
July 28, 2003
International Monetary Fund
Washington, D.C. 20431 USA
Telephone 202-623-7100
Fax 202-623-6772
Front Matter Page
July 28, 2003
Key points:
Tanzania has made considerable progress in establishing macroeconomic stability and in deepening structural reform. The steady performance in continuing with the reforms reflects commitment and determination of the authorities, including at the highest political level to moving the country onto a higher growth path in order to accelerate poverty reduction.
Macroeconomic performance under the program has been strong. In 2002, real GDP growth rose to 6.2 percent, therefore above program expectation. Inflation rate was contained at 4.3 percent in June 2003; international reserves remained at a comfortable level equivalent to about seven months of imports cover during this period.
With the exception of one, all quantitative performance criteria and benchmarks through end-March 2003 were observed, some by wide margins.
To improve effectiveness in utilization of donor aid, absorptive capacity in social sectors and public investment is being strengthened. Monetary policy instruments are being strengthened to mop up excess liquidity. To encourage deeper financial intermediation, a number of measures are being taken in line with the findings of the FSAP.
Implementation of the Poverty Reduction Strategy Paper (PRSP) is on target as reflected in budgetary allocations and other policy interventions.
The request for a new PRGF arrangement, with reduced access is intended to help the authorities to address the outstanding challenges of mobilizing domestic resources to reduce dependency on donor aid in the longer-term and to improve the investment climate through deepening structural reforms.
