Tanzania's economic reform program has garnered approval from the International Monetary Fund (IMF), marking a significant milestone in the country's efforts to strengthen its economic foundations. The IMF Executive Board, having recently completed the second review under the Extended Credit Facility (ECF) arrangement for Tanzania, has sanctioned a financial injection of 150.5 million US dollars (376 billion Tanzanian Shillings) for budgetary support.
In a statement released on Monday, the IMF acknowledged Tanzania's steadfast commitment to the reform agenda, noting that the authorities' structural reform initiatives are progressing well. The completion of all end-June 2023 structural benchmarks on time reflects the country's dedication to achieving its reform goals. Additionally, the statement highlighted that most quantitative performance criteria and indicative targets were met by June.
The IMF statement emphasized the positive impact of Tanzania's policy responses, temporary fuel and fertilizer subsidies, and subsiding commodity prices on inflation. Inflation has moderated from 4.9 percent year on year in January to 3.2 percent in October, comfortably below the Bank of Tanzania's 5 percent target.
The Bank of Tanzania (BoT) supported this sentiment in a statement released on Tuesday, indicating that inflation is expected to remain stable in both Mainland Tanzania and Zanzibar, aligning with the medium-term target of 5 percent. The Monetary Policy Committee (MPC) reported a robust economic growth rate, with the first and second quarters of the year recording growth rates of 5.4 percent and 5.2 percent, respectively. The MPC anticipates that the full-year growth outcome will surpass the projected 5 percent, attributing the positive trend to the diversified nature of economic activities.
However, the global economic outlook, as discussed by the MPC, remains challenging due to geopolitical tensions, tightened financial conditions, and high energy prices. While conditions may improve in 2024, contingent on the resolution of geopolitical conflicts and other factors, the IMF cautioned that an unfavorable global economic environment, including the impact of the war in Ukraine, continues to impede Tanzania's economic recovery.
The IMF noted a wider-than-expected fiscal deficit in 2022/2023, primarily attributed to shortfalls in revenue collections. Despite this, the Tanzanian authorities are committed to implementing fiscal consolidation outlined in the 2023/2024 budget.
Mr. Bo Li, IMF's Deputy Managing Director and Acting Chair, emphasized that the ECF-supported program aims to strengthen economic recovery, maintain macroeconomic stability, and foster sustainable and inclusive growth. He underscored the importance of efforts to enhance domestic revenue mobilization, improve spending efficiency, and prioritize social spending in budget planning and execution.
Closing gaps in human and social development, according to Mr. Li, requires strengthening public financial management and oversight of state-owned enterprises to mitigate fiscal risks. He called for a coordinated macroeconomic policy response to address foreign exchange pressures, advocating for exchange rate flexibility, fiscal consolidation, and continued tightening of local currency liquidity.
The ECF arrangement aligns with Tanzania's reform priorities outlined in the government's third five-year Development Plan, focusing on safeguarding macroeconomic stability and supporting reforms toward sustainable and inclusive growth. The IMF's endorsement signifies international confidence in Tanzania's economic trajectory and commitment to implementing crucial reforms.