Tanzania needs to implement further fiscal adjustments during 2012/13 -IMF

BY GEOFFREY NANGAI

WITH barely few days gone after the completion of the Third Review under Policy Support Instrument for Tanzania, the International Monetary Fund (IMF) Executive Board insists that Tanzania’s economic growth remains robust but cautions that there is still need to eliminate non-priority recurrent spending and delaying some development spending.

The Executive Board of the International Monetary Fund (IMF) last Friday completed the third review under the Policy Support Instrument (PSI) for Tanzania and approved waivers of the nonobservance of end-June 2011 assessment criteria on net domestic financing and on net international reserves.

According to a statement availed to businesslinktz.blogspot.com, “The Board also approved a modification of assessment criteria for end-December 2011 for net international reserves and external debt,”

The IMF's framework for PSIs is designed for low-income countries that may not need, or want, IMF financial assistance, but still seek IMF advice, monitoring and endorsement of their policies. PSIs are voluntary and demand driven.

According to Naoyuki Shinohara, the Deputy Managing Director and Acting Chair of the Board, “Tanzania has weathered the global financial crisis well, and economic growth remains robust. Nevertheless, downside risks remain, and inflation and fiscal deficits have increased.

“To help rebuild macroeconomic buffers, the authorities have decided to tighten the fiscal stance for 2011/12 by eliminating non-priority recurrent spending and delaying some development spending. Further fiscal adjustment will be needed in 2012/13 to strengthen debt sustainability while creating space for infrastructure investment and social spending.

 The Tanzanian authorities have also raised electricity tariffs to help pay for emergency near-term generating costs and strengthen power utility finances for the medium term.

“The authorities have tightened monetary conditions to contain inflation. They will need to remain vigilant, and tighten domestic liquidity further if inflationary pressures were to rise. International reserves should be maintained at an adequate level to provide a buffer against external shocks.

“Tanzania’s prospects of becoming a major producer of natural gas by the end of the decade appear good. There could be large foreign direct investment inflows over the next five years, and a substantial increase in exports and government revenue beginning around 2020.

Successfully managing this future gas wealth will be critical. The authorities are appropriately planning to review over the coming year the macroeconomic policies and institutions that are needed to meet this challenge”,  Shinohara added.