Tanzania is on the verge of securing approximately $150 million in financial support from the International Monetary Fund (IMF) as the organization expressed satisfaction with the country's economic progress. After nearly two weeks of deliberations and agreement on economic policies tied to Tanzania's 40-month Extended Credit Facility (ECF), the news came as a significant development.
At the conclusion of the review mission, Mr. Charalambos Tsangarides, the IMF Mission Chief for Tanzania, announced, "I am pleased to announce that we have reached a staff-level agreement on economic policies to conclude the second review of Tanzania's economic program under the ECF arrangement." However, it's important to note that the staff-level agreement remains subject to approval by IMF management and the Executive Board, which is expected to occur in the coming weeks. Once the Executive Board review is successfully completed, Tanzania will gain access to the aforementioned $150 million. This will raise the total IMF financial support under the arrangement to approximately $452.7 million.
Tanzania's reform program is designed to bolster economic recovery, ensure macro-financial stability, and promote resilient, sustainable, and inclusive growth. IMF reported that after a modest rebound to 4.9 percent in 2021, the country's real Gross Domestic Product (GDP) growth weakened to 4.7 percent in 2022, primarily due to the unfavorable global economic environment and weak agricultural growth attributed to insufficient rainfall.
Inflation in Tanzania declined to 3.3 percent year-on-year in September, down from its peak of 4.9 percent in January of the same year. Mr. Tsangarides emphasized the positive medium-term outlook, contingent on the successful implementation of the authorities' reform agenda, as outlined in the ECF arrangement. He noted that while a wide current account deficit and tight external financial conditions had put pressure on the foreign exchange market, the Bank of Tanzania (BoT) had stepped up its foreign exchange interventions to ensure market liquidity.
The BoT reiterated its commitment to reviving the forex interbank market, establishing a market-clearing exchange rate system, and limiting forex interventions to address any disorderly market conditions. Additionally, continued monetary policy tightening will complement efforts to alleviate forex market pressures. On the fiscal front, the government is committed to implementing a fiscal consolidation plan based on more realistic revenue and expenditure projections in the 2023/24 financial year budget. These measures will create fiscal space to address significant human and physical capital needs.
Furthermore, the government aims to rebalance spending in favor of priority social areas, such as education and healthcare, while enhancing the social safety net. Mr. Tsangarides emphasized the importance of business environment and governance reforms to unlock Tanzania's economic potential. The authorities will continue to implement the Blueprint for Regulatory Reforms, focusing on simplifying regulations and strengthening governance.
Efforts to mitigate and adapt to climate change risks through investments will lay the foundation for resilient and sustainable growth. The meetings between IMF staff and Tanzanian authorities were aimed at discussing progress on reforms and the authorities' policy priorities within the context of the second review of Tanzania's forty-month program under the ECF. This arrangement was initially approved by the IMF Executive Board on July 18, 2022, for a total amount of $1.046 billion.