Tanzanian authorities have reached an agreement with the International Monetary Fund (IMF) for the disbursement of a $151 million loan to help boost its recovery amidst headwinds from global shocks that have slowed growth.
The amount is subject to approval by the lender’s executive board and will bring IMF’s total financial support to Tanzania under the $1.04 billion 40-month extended credit facility (ECF) agreed on last year July to $302 billion.
IMF said that although the Tanzanian economy is showing signs of steady recovery – with its GDP growing at 4.7 percent last year – global economic conditions continue to weigh down fiscal performance and inflation will likely surpass the Bank of Tanzania’s 5 percent threshold within the year.
“The economy is benefitting from improvements in the business environment, but is also expected to continue facing spill overs of the war in Ukraine in the near term,” said IMF’s Tanzania mission chief Charalambos Tsangarides.
Rise in inflation
The rainfall shortage in the region has also slowed down electricity production and agricultural activity in the country, resulting in a continued rise in inflation rates – currently at 4.9 percent, the lender said.
At the same time, despite a relatively stable currency, Dar’s foreign exchange reserves fell by $1.2 billion to $5.2 billion (4.3 months of imports) in 2022, which could mean a growing current account deficit.
IMF has recommended “temporary” fiscal and monetary policy measures to help “safeguard the economy from the spill overs of the war in Ukraine”.
“Monetary policy will continue to be tuned to developments in actual and expected inflation, while allowing exchange rate flexibility to cushion the economy against external shocks,” Mr Tsangarides said.
IMF lauded the implementation of the reforms it had recommended when it first disbursed $151 million under the ECF to Tanzania in November last year, including replacing subsidies with targeted social spending to cushion those adversely affected by economic shocks.
However, the multilateral lender wants Dar to continue implementing other reforms, which it says will see the country’s GDP growth rate rebound to at least 7 percent in the near term, contain inflation within BoT’s target and moderate current account deficit.
The recommended changes include structural reforms in the business environment and governance, improved revenue mobilisation efforts, and “modernising the monetary policy framework through the transition to an interest-rate based monetary policy,” which, the lender says, will improve its effectiveness.
“Advancing structural reforms will create enabling environment for sustainable and inclusive private sector-led growth,” Tsangarides said after a series of consultative meetings with Tanzania’s Finance Minister Mwigulu Nchemba and BoT Governor Emmanuel Tutuba.