Abstract
This paper examines Tanzania’s 2004 Article IV Consultation and Second Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility. Tanzania has continued to maintain macroeconomic stability and to make substantial progress in structural reform. Real GDP growth has been strong, averaging almost 6 percent during the past three years, and is increasingly driven by improvements in total factor productivity. High growth reflected both the continued strong performance in the manufacturing, mining, and construction sectors, as well as the solid growth in the agricultural sector.
This statement describes developments since the staff report was issued on July 23, 2004. These developments do not change the thrust of the staff appraisal.
Recent data indicate that economic and financial developments remained broadly in line with the program. Year-on-year inflation at end-June 2004 stood at 6.3 percent, with food price inflation at 8 percent. Reserve and broad money growth in June 2004 remained below earlier projections, 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 for FY 2003/04 was broadly in line with the program. Revenue exceeded projections by about 0.1 percent of GDP, largely due to higher income tax receipts, and, as a result, net domestic financing is expected to have remained below staff projections.
The nominal exchange rate of the shilling to the U.S. dollar appreciated to about TSh 1095 at the beginning of August, from TSh 1107 at end-June 2004. This reflected mainly the impact of foreign exchange sales by the Bank of Tanzania to mop up excess liquidity.
At the request of the Tanzanian authorities, a Bank/Fund technical assistance mission visited Tanzania in July to provide advice on the authorities’ proposed expansion of their credit guarantee scheme. The mission stressed the importance that any such scheme operate based on market principles, include transparent regulations and procedures, consider fiscal implications, and provide for appropriate risk-sharing. The authorities welcomed the mission’s contributions, and looked forward to further dialogue on this issue before finalizing their plans.