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© 2004 International Monetary Fund
September 2004
IMF Country Report No. 04/285
Tanzania: 2004 Article IV Consultation and Second Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility—Staff Report; Staff Statement; and Public Information Notice and Press Release on the Executive Board Discussion
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of a combined discussion of the 2004 Article IV consultation with Tanzania and second review under the 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 combined 2004 Article IV consultation and second review under the three-year arrangement under the Poverty Reduction and Growth Facility, prepared by a staff team of the IMF, following discussions that ended on July 3, 2004, 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 7, 2004. 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 staff statement of August 6, 2004 updating information on recent economic developments.
a Public Information Notice (PIN) and Press Release, summarizing the views of the Executive Board as expressed during its August 6, 2004 discussion of the staff report on issues related to the Article IV consultation and the IMF arrangement, respectively.
The documents listed below have been or will be separately released.
Joint Staff Assessment of the Poverty Reduction Strategy Paper Progress Report
Letter of Intent sent to the IMF by the authorities of Tanzania*
Memorandum of Economic and Financial Policies by the authorities of Tanzania*
Poverty Reduction Strategy Paper Progress Report
Selected Issues Paper and Statistical Appendix
Technical Memorandum of Understanding*
*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
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International Monetary Fund
Washington, D.C.
Front Matter Page
INTERNATIONAL MONETARY FUND
TANZANIA
Staff Report for the 2004 Article IV Consultation and Second Review Under the 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 Siddharth Tiwari and Mark Plant
July 22, 2004
Tanzania’s sustained efforts at economic reform over the past decade have resulted in macroeconomic stability and growing resilience of the economy against adverse shocks. In spite of a drought, growth in 2003 remained above 5 percent, with year-on-year inflation below 5 percent. Program performance remains on track, as all quantitative and structural performance criteria and benchmarks through April 2004 have been observed. Presidential and parliamentary elections are scheduled for October 2005. President Mkapa is not eligible to run for a third term.
Discussions for the 2004 Article IV Consultation and the second review under the new PRGF arrangement were held in Dar es Salaam during May 19-June 3 by a staff team comprising Messrs. Sharer (head), Treichel, Dohlman, Zhan (all AFR), Pivovarsky (FAD), Ms. Reif (PDR), and Mr. Abdi (Senior Resident Representative). The mission met with the Minister for Finance, (Mr. Mramba), the Permanent Secretaries at the Ministry of Finance (Mr. Mgonja and Mr. Lyimo), the Governor of the Bank of Tanzania (Mr. Ballali), senior officials from these and other government departments, representatives of the business, banking, and donor communities, and civil society. The mission collaborated closely with World Bank staff.
Completion of this second review will entitle Tanzania to a disbursement of SDR 2.8 million (Table 1). The government’s letter of intent (LOI) relating to this review is presented in Appendix I. Other appendices summarize Tanzania’s relations with the Fund and the World Bank Group, and statistical issues. Tanzania’s core economic data are generally made available on a timely basis for program monitoring purposes, but the coverage and quality of published statistics need to be improved.
At the conclusion of the 2002 Article IV consultations on November 18, 2002, Executive Directors commended the Tanzanian authorities for their steady pursuit of sound macroeconomic and structural policies, which despite serious capacity constraints and an often adverse external environment had resulted in high growth and low inflation. They noted that the main challenge for Tanzania was to sustain high growth and reduce poverty, while lessening the dependence on external aid.
Contents
Executive Summary
I. Background
II. Recent Economic Developments and Performance Under the Program
III. Report on the Discussions
A. Macroeconomic Outlook and Poverty Reduction Strategy
B. Fiscal Policy for 2004/05
C. Monetary Policy and Financial Sector Reform
D. External Outlook
E. Structural Reforms
IV. Program Monitoring
V. Staff Appraisal
Text Box: Financial Sector Reform
Figures
1. Prices and Interest Rates, January 1997-May 2004
2. Exchange Rates, January 1997-May 2004
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, 2001/02-2006/07
3. Central Government Operations, 2002/03-2006/07
4. Central Government Expenditure on Priority Sectors, 2002/03-2004/05
5. Summary Accounts of the Bank of Tanzania, December 2003-June 2005
6. Monetary Survey, December 2003-June 2005
7. Balance of Payments, 2002/03-2007/08
8. Disbursements of Program Assistance, 2002/03-2004/05
9. Status of HIPC Initiative Agreements by Creditor
10. External Debt Indicators, 2001/02-2011/12
11. Millennium Development Goals
Appendices
I. Letter of Intent
Attachment I – Memorandum of Economic and Financial Policies for 2004/05 and the Medium Term
Table 1: Quantitative Performance Criteria and Benchmarks Under the Poverty Reduction and Growth Facility Arrangement, June 2003-June 2004
Table 2: Quantitative Performance Criteria and Benchmarks Under the Poverty Reduction and Growth Facility Arrangement, June 2004-June 2005
Table 3: Structural Performance Criteria and Benchmarks Under the Poverty Reduction and Growth Facility Arrangement, December 2003-June 2004
Table 4: Structural Performance Criteria and Benchmarks Under the Poverty Reduction and Growth Facility Arrangement, July 2004-June 2005
Attachment II – 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
Executive Summary
Tanzania’s sustained efforts at economic reform over the past decade have resulted in macroeconomic stability and growing resilience of the economy against adverse shocks. In spite of a drought, growth remained above 5 percent, with inflation below 5 percent. Program performance remains on track, as all quantitative and structural performance criteria and benchmarks through April 2004 have been observed. Presidential and parliamentary elections are scheduled for October 2005. President Mkapa is not eligible to run for a third term.
The macroeconomic framework targets real growth of 6.5-7.0 percent over the medium term. Recent evidence for Tanzania’s poverty elasticity of growth indicates that the targeted growth rate would be conducive to achieving the reduction in income poverty envisaged under the Millennium Development Goals (MDGs), particularly if accompanied by additional efforts to facilitate growth in rural areas. Key elements of the government’s efforts to facilitate agricultural growth are (i) a review of crop boards; (ii) the reform of local government taxation, and (iii) the improvement of rural infrastructure.
Key parameters of the 2004/05 budget are an increase of expenditure by some 3 percent of GDP, mostly on account of increases in priority sector expenditures, and a revenue increase of 0.6 percent of GDP, reflecting reform measures in tax policy and tax administration. The expenditure increase will be financed by an increase in donor assistance of about 2 percent of GDP, and net domestic financing of about 1 percent of GDP. The authorities argued that increases in priority expenditure, in particular in the area of health, related to importation of drugs to treat AIDS, were necessary to address emerging needs in these sectors.
To address possible risks to bank soundness from the rapid growth of credit, the authorities are undertaking a review of financial sector legislation and regulations, with a view to strengthening bank supervision and facilitating the planned adoption of a risk-based supervisory framework. Furthermore, to strengthen the independence of the BoT, they are reviewing—with Fund technical assistance—the Bank of Tanzania Act 1995, and the Banking and Financial Institutions Act 1991.
The authorities are mindful of the continued presence of structural impediments to private sector activities, and are pursuing far-reaching structural reforms. In addition to ongoing reforms in the areas of tax and the financial sector, the authorities continue to undertake a range of measures aimed at (i) improving public enterprise performance, particularly in the energy sector; (ii) fighting corruption and improving governance; and (iii) strengthening the legal and institutional environment for private sector activity.
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August 6, 2004
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Press Release No. 04/172
FOR IMMEDIATE RELEASE
August 6, 2004
International Monetary Fund
Washington, D. C. 20431 USA
Telephone 202-623-7100
Fax 202-623-6772
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Public Information Notice (PIN) No. 04/100
FOR IMMEDIATE RELEASE
September 7, 2004
International Monetary Fund
700 19th Street, NW
Washington, D. C. 20431 USA
Telephone 202-623-7100
Fax 202-623-6772
On August, 6, 2004, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Tanzania.1
