A team from the International Monetary Fund (IMF), led by Hervé Joly, visited Tanzania from September 17–30, 2015. The mission initiated the third review under the Policy Support Instrument (PSI) program that was approved on July 16, 2014. It overlapped with a team from the IMF Fiscal Affairs Department that was conducting a fiscal transparency evaluation. The mission met with Hon. Saada Mkuya Salum, Minister of Finance, Professor Benno Ndulu, Governor of the Bank of Tanzania, and other senior government officials.
Mr. Joly released the following statement at the end of the mission:
“Recent macroeconomic developments have continued to be broadly favorable. GDP is estimated to have grown by 6.5 percent in the first quarter of 2015, with strong performance recorded in transport, electricity generation, and information, communication, and financial services. Economic growth is expected to remain close to 7 percent in the remainder of 2015 and in 2016.
“Inflation rose gradually in the past few months to 6.4 percent in August 2015. This was largely driven by supply side factors, particularly food prices, and the exchange rate depreciation in the first half of 2015, which raised the domestic cost of imports and partly offset the relief from the fall in global oil prices. While inflation could increase somewhat more in the coming months, due to the lagged effects of the recent depreciation, it is expected to continue to remain within single digits, helped by expected stable global oil prices as well as continued tight monetary policy. It would gradually decline next fiscal year back to the authorities’ objective of 5 percent.
“The shilling depreciated rapidly against the U.S. dollar particularly in April–June 2015, as the global strength of the dollar overlapped with high liquidity in the banking system, seasonally low export earnings, and high repatriation of corporate dividends. The situation was further compounded by delays in the mobilization of external program financing, which may have fuelled a foreign exchange shortage psychology. A combination of measures, including a tightening of monetary policy and seasonally higher export earnings, subsequently helped to stabilize the shilling and have allowed a return to normal in the interbank and foreign exchange markets since August 2015. The shilling, which was assessed to be somewhat overvalued in 2014, is now closer to equilibrium.
“Performance in implementing the IMF-supported PSI program was mixed. While most end-June 2015 quantitative program targets were met, the assessment criterion on tax revenue was missed. In addition, shortfalls in external financing and insufficient commitment controls led to a large accumulation of domestic arrears. Delays were incurred in the implementation of a number of structural reforms supported under the PSI.
“While it is still early in the fiscal year, there are indications that budget implementation for 2015/16 could face challenges because of possible continued financing and revenue pressures. The mission discussed with the authorities ways to address these challenges and avoid the accumulation of more arrears. The mission and the authorities also discussed other issues, including ongoing efforts to: strengthen revenue mobilization, public financial management, and debt management; address arrears to pension funds; modernize the monetary policy framework; and develop and improve the functioning of financial markets.
“Discussions will continue in the coming weeks to reach final understandings on an economic policy framework that can underpin the completion of the third review under the PSI. The discussion of the third program review by the IMF Executive Board is expected to take place by end-2015.
“The IMF team is appreciative of the constructive and open policy dialogue and thanks the authorities for their hospitality during the visit.”