This paper examines the United Republic of Tanzania’s Fifth Review Under the Poverty Reduction and Growth Facility. Economic growth, inflation, and the external position have been evolving in a manner broadly consistent with program assumptions. For the medium term, challenges center on mobilization and efficient use of public resources, managing liquidity pressures from high aid inflows, and facilitation of private sector-led growth, while maintaining a sound macroeconomic framework. The government is actively considering measures to address the crisis situation in the energy sector.

Abstract

This paper examines the United Republic of Tanzania’s Fifth Review Under the Poverty Reduction and Growth Facility. Economic growth, inflation, and the external position have been evolving in a manner broadly consistent with program assumptions. For the medium term, challenges center on mobilization and efficient use of public resources, managing liquidity pressures from high aid inflows, and facilitation of private sector-led growth, while maintaining a sound macroeconomic framework. The government is actively considering measures to address the crisis situation in the energy sector.

April 7, 2006

This statement provides information that has become available since the staff report was issued. The thrust of the staff appraisal remains unchanged.

1. Preliminary indications are that the authorities met the end-March 2006 quantitative performance criteria for reserve money, net international reserves, and net domestic financing of the government, and also met the quantitative indicative target for net domestic assets of the Bank of Tanzania. Staff have not yet received information regarding other quantitative targets.

2. Interest rates have continued to fall, and inflation has increased. The weighted average yield on T-bills fell to 12.4 percent at end-March, down from 15.3 percent at end-December. The 12-month headline inflation rate increased in February–to 5.8 percent from 5.0 percent at end-December—driven mainly by food prices. Nevertheless, core inflation (excluding food and fuel) has remained below 2 percent.

3. Regarding food security, reports from Tanzania indicate that the onset of the long rains season (March-May) has been normal. The World Food Programme is coordinating information on food availability and is working closely with the authorities to monitor the situation.

4. Regarding energy, the water levels in TANESCO’s dams have risen slightly but are still critically low. The bidding process for the leasing of additional thermal generation capacity needed to resolve the problem of power shortages have started and the government has received and is currently evaluating a draft financial recovery plan for TANESCO, including the magnitude and timing of proposed tariff adjustments.

United Republic of Tanzania: Fifth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility: Staff Report; Staff Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for the United Republic of Tanzania
Author: International Monetary Fund