OREANDA-NEWS. July 07, 2015. The Executive Board of the International Monetary Fund completed today the second review of Tanzania’s economic performance under the program supported by the Policy Support Instrument (PSI)1.

The PSI for Tanzania was approved by the Executive Board on July 16, 2014 (see Press Release No. 14/350). Tanzania’s program under the PSI supports the authorities’ medium-term objectives. These include: the maintenance of macroeconomic stability, the preservation of debt sustainability, and the promotion of more inclusive growth and job creation.

Following the Board discussion, Mr. Min Zhu, Deputy Managing Director and Acting Chair, made the following statement:

“Macroeconomic performance in Tanzania remains strong and medium-term prospects are favorable. Performance under the Policy Support Instrument was satisfactory through December 2014, but weakened in early 2015 due to a range of factors, including delays in mobilizing external financing and donor support. Against this backdrop, the authorities’ corrective measures aimed at achieving the 2014/15 budget deficit target are commendable, though earlier expenditure ceiling adjustments could have helped preserve development spending.

“The draft 2015/16 budget, which targets an underlying deficit of 3.5 percent of GDP (excluding arrears clearance), is built on more prudent revenue and foreign financing assumptions. The fiscal target also puts Tanzania on a path to a 3-percent deficit over the medium term, which is consistent with maintaining a low risk of debt distress.

“The authorities’ plans to address verified domestic supplier arrears transparently through the budget are welcome. Commitment controls on expenditures and related sanctions for breaching rules need to be strengthened to ensure new arrears do not accumulate. The strategy to address arrears to pension funds needs to be finalized quickly to allow for clearance of these arrears in 2015/16.

“The current monetary policy stance is appropriate, delivering high growth and low and stable inflation. The use of foreign exchange intervention should be restricted to smoothing volatility in the foreign exchange market, with higher reliance on domestic-currency instruments to address excess liquidity situations.”

1 The PSI is an instrument of the IMF designed for countries that do not need balance of payments financial support. The PSI helps countries design effective economic programs that, once approved by the IMF's Executive Board, signal to donors, multilateral development banks, and markets the Fund's endorsement of a member's policies (see http://www.imf.org/external/np/exr/facts/psi.htm). Details on Tanzania’s PSI program are available at www.imf.org/tanzania.