Abstract
IMF Country Report No. 21/213
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IMF Country Report No. 21/213
UNITED REPUBLIC OF TANZANIA
REQUESTS FOR DISBURSEMENT UNDER THE RAPID CREDIT FACILITY AND PURCHASE UNDER THE RAPID FINANCING INSTRUMENT—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR THE UNITED REPUBLIC OF TANZANIA
September 2021
In the context of the Requests for Disbursement Under the Rapid Credit Facility and Purchase Under the Rapid Financing Instrument, the following documents have been released and are included in this package:
A Press Release including a statement by the Chair of the Executive Board.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on September 7, 2021, following discussions that ended on July 16, 2021, with the officials of the United Republic of Tanzania on economic developments and policies underpinning the IMF arrangement under the Rapid Credit Facility. Based on information available at the time of these discussions, the staff report was completed on August 20, 2021.
A Debt Sustainability Analysis prepared by the staffs of the IMF and the International Development Association (IDA).
A Statement by the Executive Director for the United Republic of Tanzania.
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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© 2021 International Monetary Fund
Press Release
PR21/256
IMF Executive Board Approves US$567.25 Million in Emergency Support to Tanzania to Address the COVID-19 Pandemic
FOR IMMEDIATE RELEASE
The COVID-19 outbreak has led to the collapse of the tourism sector and amplified the need for significant financing to tackle the health and economic effects of the pandemic.
The IMF approved US$567.25 million in emergency financial assistance under the Rapid Credit Facility and Rapid Financing Instrument to support the authorities’ efforts in responding to the pandemic by adressing the urgent health, humanitarian, and economic costs. The resources are also expected to play a catalytic role in their efforts to mobilize additional support from development partners.
The authorities also commit to strengthening governance and transparency to ensure that the financial resources are efficiently spent on addressing the crisis.
Washington, DC – September 7, 2021: The Executive Board of the International Monetary Fund (IMF) today approved a disbursement of SDR132.6 million (US$189.08 million) under the Rapid Credit Facility (RCF) and a purchase equivalent to SDR265.2 million (US$378.17 million) under the Rapid Financing Instrument (RFI), a total of SDR397.8 million (US$567.25 million or 100 percent of quota). This emergency financing will help finance Tanzania’s urgent balance of payment needs stemming from the outbreak of the COVID-19 pandemic.
Tanzania’s economic outlook has deteriorated due to the impact of the COVID-19 pandemic. With the collapse in tourism in the wake of travel restrictions, the economy reportedly decelerated to 4.8 percent growth in 2020, and growth is expected to remain subdued in 2021.Tanzania faces an urgent balance of payment need of about 1.5 percent of GDP as the authorities implement a comprehensive plan to mitigate the effects of the pandemic and preserve macroeconomic stability in the face of a reported third wave of the virus.
The disbursement under the RCF and purchase under the RFI will help finance the interventions needed to mitigate the severe socio-economic impacts of the pandemic and help catalyze support from development partners. The authorities have indicated that they are committed to pursuing economic policies appropriate for addressing the impact of the pandemic and are committed to strengthening coordination and transparency to ensure that RCF and RFI resources are spent on fighting the pandemic. These measures include publishing reports of RCF and RFI resources spent and undertaking a post-crisis audit of all pandemic-related spending.
Following the Executive Board’s discussion, Mr. Bo Li, Deputy Managing Director and Chair, issued the following statement:
“The COVID-19 pandemic has negatively impacted Tanzania’s macroeconomic outlook, and the health and wellbeing of its population. Growth decelerated in 2020 and is expected to remain subdued in 2021, increasing poverty and negatively affecting employment. Tanzania’s risk of external and public debt distress increased to moderate, mainly due to the pandemic’s effect on tourism exports. Tanzania’s macroeconomic outlook hinges on satisfactorily addressing the pandemic, but significant downside risks remain due to uncertainties surrounding the course of the pandemic.
“The authorities are implementing a comprehensive pandemic response plan—Tanzania COVID-19 Socioeconomic Response Plan (TCRP) —to address the fallout of the COVID-19 shock. Tanzania requires urgent financial assistance to implement the plan and avert the severe health, social and economic consequences of a reported third wave of the virus. Emergency support under the Rapid Credit Facility and Rapid Financing Instrument will substantially contribute to filling immediate external financing needs and help catalyze donor support. Temporarily loosening macroeconomic and financial policies will mitigate the pandemic’s adverse impact, by deploying a vaccination campaign, increasing health and social spending, and supporting the private sector. Prioritizing the health response, strengthening coordination and transparency to ensure that funds received are spent on fighting the pandemic, and regularly and transparently reporting epidemiological data will be critical for the plan’s success.
“Maintaining fiscal and debt sustainability, and preserving financial stability, while supporting the economy, will also be important. Closely monitoring the banking system’s health in light of increased banking sector vulnerabilities will be key.
“Once the crisis abates, the authorities appropriately intend to resume implementing reforms to achieve sustainable and inclusive growth. Their broader policy and reform agenda includes fiscal reforms to avoid domestic arrears and pay tax refunds on time, increasing support for education and health spending, and improvements to the business climate.”
More information
IMF Lending Tracker (emergency financing request approved by the IMF Executive Board)
https://www.imf.org/en/Topics/imf-and-covid19/COVID-Lending-Tracker
IMF Executive Board calendar
Title page
UNITED REPUBLIC OF TANZANIA
REQUESTS FOR DISBURSEMENT UNDER THE RAPID CREDIT FACILITY AND PURCHASE UNDER THE RAPID FINANCING INSTRUMENT
August 20, 2021
EXECUTIVE SUMMARY
Context. The COVID-19 pandemic has negatively impacted Tanzania’s macroeconomic outlook, and negatively impacted its population’s health and well-being. Tourism collapsed in the wake of travel restrictions, the economy reportedly decelerated to 4.8 percent growth in 2020, and growth is expected to remain subdued in 2021. The previous government downplayed the presence of the COVID-19 virus in Tanzania and the impact of the pandemic in the country, and budgeted insufficient resources to address the health and economic crisis. This has left the new administration of President Hassan with an enormous and urgent challenge to tackle the COVID-19 pandemic. The new administration is implementing comprehensive plans to immediately address the pandemic, resulting in an urgent balance of payments need.
Request for Fund support. The authorities are seeking financial assistance under the Rapid Credit Facility (RCF) and the Rapid Financing Instrument (RFI) to address the urgent balance of payments needs to tackle the health and economic effects of the pandemic. Given the infeasibility of quickly putting a UCT-quality program in place in the short-term, the authorities are seeking financial assistance under the exogenous shocks window of the RCF and under the RFI. The authorities’ plans will mitigate risks to fiscal and debt sustainability and are supported by the authorities’ prudent fiscal track record. The authorities are requesting a disbursement of SDR132.6 million under the RCF (33.33 percent of quota) and a purchase under the RFI of SDR265.2 million (66.67 percent of quota), totaling SDR 397.8 million (US$566 million), equivalent to 100 percent of quota. Fund support is expected to catalyze additional financing from development partners, which the authorities are actively seeking.
Staff supports the authorities’ request. Staff assesses that Tanzania meets the eligibility criteria for the RCF and RFI as it faces an urgent BOP need triggered by the COVID-19 shock expected to be resolved within 12 months without major policy changes, that, if not addressed, would result in immediate and severe economic disruption. Public debt is sustainable and capacity to repay the Fund is adequate. Staff supports the authorities’ request for a disbursement under the RCF and a purchase under the RFI to be used by the authorities as direct budget support to provide space for the needed interventions to mitigate the severe socio-economic impact of the pandemic. The authorities have indicated that they are committed to pursuing economic policies appropriate for addressing the impact of the pandemic and that they will identify adequate monitoring mechanisms to ensure that RCF/RFI resources are spent in the prescribed fashion.
Macroeconomic policies. The authorities have prepared a comprehensive response plan to address the COVID-19 emergency. In their attached letter of intent (LOI) the authorities commit to increasing health spending and implementing the vaccination plan to contain the outbreak and save lives. They also commit to increasing priority social spending to protect the most vulnerable, to supporting the recovery in the tourism sector and in SMEs, and to expedite the clearance of domestic verified arrears. The authorities also commit to strengthening governance and transparency to ensure that the disbursement under the RCF and purchase under the RFI is efficiently spent on addressing the crisis. Staff supports a temporary widening of the fiscal deficit to address the health crisis and mitigate its socioeconomic impact, including the purchase and deployment of vaccines. As the crisis subsides, the authorities remain committed to maintaining debt sustainability and implementing growth-supporting reforms. External buffers and more exchange rate flexibility can be used to absorb the COVID-19 shock as needed. Monetary policy will continue to be accommodative to help the economic recovery by ensuring adequate liquidity to support credit while preserving financial stability.
Approved By
Catherine Pattillo (AFR) and Maria Gonzalez (SPR)
The staff team comprised Charalambos Tsangarides (Head), Sebastian Acevedo, Xiangming Fang, Ursula Wiriadinata, and Cameron McLoughlin (all AFR), Jens Reinke (Resident Representative) and Chelaus Rutachururwa (local economist). The team held remote technical discussions with teams from the Ministry of Finance and the Bank of Tanzania on June 15, 16, 25 and July 16, 2021. Discussions with the Ministry of Finance Permanent Secretary Emmanuel M. Tutuba, Deputy Permanent Secretary Adolf H. Ndunguru, Deputy Central Bank Governors Dr. Yamungu M. Kayandabila and Bernard Y. Kibesse, and other senior officials were held by teleconference during August 11–12, 2021. Executive Director Ita Mannathoko and Bernard Jappah (OED) participated in the discussions.
Contents
BACKGROUND
RECENT ECONOMIC DEVELOPMENTS AND OUTLOOK
A. Recent Developments
B. Outlook and Risks
POLICY ISSUES AND DISCUSSIONS
ACCESS, MODALITIES, AND CAPACITY TO REPAY
STAFF APPRAISAL
BOX
1. COVID-19 Socioeconomic Response Plan
FIGURE
1. Impact of the Crisis on Recent Economic Indicators
TABLES
1. Selected Economic Indicators, 2016/17–2023/24
2. Central Government Operations, 2016/17–2025/26
3. Balance of Payments, 2016/17–2025/26
4. Monetary Accounts, 2016–2021
5. Financial Soundness Indicators, 2016–2021
6. Capacity to Repay Table, 2021/22–2030/31
7. External Financing Requirements and Sources, 2020/21–2025/26
APPENDICES
I. External Balance Assessment
II. Risk Assessment Matrix
III. Letter of Intent
