IMF raises red flag over Tanzania’s bleak economic outlook

Saturday September 25 2021
A vendor

A vendor sells green pepper on Mabibo Street, Dar es salaam. The country faces an urgent balance of payment support. PHOTO | AFP


Tanzania requires urgent financial support of $1.1 billion (1.5 percent of GDP) in the next 12 months to avert a potential economic fallout arising from the Covid-19 pandemic and the rising import bill linked to rising crude oil prices.

The International Monetary Fund (IMF) says in its Country Report No 21/213, dated September 2021, that the country faces an urgent balance of payment (BOP) support as the government implements a comprehensive plan to tackle the Covid-19 shock in the wake of declining export receipts and rising import bill.

“Emergency imports of medicines, testing materials, and protective equipment are urgently needed to respond to the third wave of the pandemic. Acquiring and distributing vaccines are top priority which also require an expansion of vaccine deployment infrastructure,” says the report prepared by the IMF staff.

Pre-Covid levels

The additional funding need comes after the IMF Board on September 7, 2021, approved a disbursement of $567.25 million to Tanzania to help the country finance its urgent balance of payments needs arising from Covid-19.

The financing package comprised $189.08 million under the Rapid Credit Facility (RCF) and a purchase equivalent to $378.17 million under the Rapid Financing Instrument (RFI).


“The RCF disbursement and RFI purchase will contribute to closing the BOP gap and help catalyse further financial support from development partners. The urgent BOP need is expected to be resolved in 12 months,” the IMF said.

Foreign exchange reserves have declined by over $400 million to $5.2 billion in June from about $5.6 billion in 2019 while tourism receipts are expected to remain well below pre-crisis levels and the projected increase in oil and other commodity prices will increase the import bill and partly offset earnings from gold exports.

“The current account is expected to deteriorate by about 2.5 percent of GDP to 4.5 percent this fiscal year. Staff estimates an immediate balance of payments financing of $1.1 billion (1.5 percent of GDP), that if not addressed would result in severe economic disruption,” says report.

According to the IMF, the Covid-19 outbreak has led to the collapse of the tourism sector and amplified the need for significant financing to tackle the health and economic effects of the pandemic.

According to the IMF, Tanzania’s previous government downplayed the impact of the coronavirus and as a result, it did not provide sufficient resources to address the health crisis and support affected economic sectors and households.

The pandemic and resultant slowdown in economic activity have increased poverty and negatively affected employment, with the World Bank estimating that poverty increased by about a million people in 2020 to about 27.1 percent, of which 600,000 was due to the pandemic-induced growth deceleration.

The economy is expected to remain subdued in 2021 after contracting to 4.8 percent last year.

Tanzania has committed to increase health spending and implement vaccination plans to contain the outbreak and save lives. It has also committed to prioritise social spending to protect the most vulnerable, support tourism sector and SME recovery and expedite clearance of domestic verified arrears.