The International Monetary Fund (IMP) has completed its third review of Tanzania’s economic performance under the programme supported by the Policy Support Instrument (PSI). In the report, the organisations have indicated that medium-term macroeconomics remains strong, but state that energy needs should remain a priority of the government if the current economic climate should remain strong.
“Macroeconomic performance in Tanzania remains strong and medium-term prospects are favorable. The overall deficit for 2014/15 exceeded the programme target once the significant accumulation of expenditure arrears is taken into account, reflecting shortfalls in revenue and financing, and weak expenditure commitment controls. The incoming authorities have taken action to strengthen controls and sanctions against accounting officers that breach rules, in order to contain the accumulation of new arrears. The authorities also plan to complete the settlement of existing verified arrears, including those to pension funds,” said the report.
Slow in inflation
“Budget implementation in 2015/16 faces challenges arising from possible shortfalls in financing and revenue, unbudgeted expenditures carried forward from 2014/15, and the need to make space for the new government’s priorities.
“The current monetary policy stance should bring inflation down to the authorities’ five percent target by the end of 2016. The use of foreign exchange intervention should be limited to liquidity management and smoothing volatility in the foreign exchange market, with higher reliance on domestic-currency instruments to address excess liquidity. Better coordination of fiscal and monetary policy would make it easier for the Bank of Tanzania to focus on its main inflation objectivem,” the report stated.
“Putting TANESCO, the power utility, on a sound financial footing is critical for the development of the energy sector, making the completion of the authorities’ strategy to address TANESCO’s arrears a priority.”
The PSI is an instrument of the IMF designed for countries that do not need balance of payments financial support.