Ratio Magazine :: The Inside Track to East Africa’s Economies - Tanzania: IMF Review Finds Tanzania in Strong Position to Withstand Global Crisis

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Tanzania: IMF Review Finds Tanzania in Strong Position to Withstand Global Crisis

Tuesday, 23 December 2008

The IMF has released its fourth review under Tanzania’s Policy Support Instrument (PSI).

The IMF’s fourth review under Tanzania’s current Policy Support Instrument (PSI), an unfunded monitoring agreement, gives a nod to Tanzania’s sound macroeconomic policies and fundamentals, including low public debt and strong reserves. This puts Tanzania in a good position to withstand the global economic downturn and volatility in commodity prices. However, the Fund cautions the Tanzanian authorities to develop contingency plans.

The budget for the current fiscal year foresees zero domestic financing, but revenue targets are considered ambitious and if Tanzania intends to adhere to its plans, the authorities may have to lower expenditures. The recent fall in commodity prices will support a reduction in the inflation rate – at 12.3% year on year in November 2008, according to Tanzania’s National Bureau of Statistics (NBS).

The IMF urged a further strengthening of monetary policy, and also drew attention to the need to enhance prudential regulation and supervision of the financial sector, especially with a view to the planned gradual liberalization of Tanzania’s current account and the rapid growth in pension funds.

Perspectives

Tanzania had picked up some of the tourists that had been diverted from Kenya due to the political crisis in early 2008, but the global economic downturn is certainly going to have an impact especially in this sector. In 2007, tourism had, for the first time, superseded mining in attracting foreign direct investment. Unsupportive global financial markets have led the Tanzanian government to suspend plans to issue a sovereign bond, and after the Multilateral Debt Relief Initiative in late 2005, Tanzania’s external debt remains low. The IMF also gave a nod to the government’s recent efforts to reduce corruption, although there are some indications that these attempts create further bottlenecks Tanzania: Prospects for Foreign Direct Investment from Germany. The country also remains very dependent on donor financing.

In the East African Community (EAC), the IMF revised the 2008/2009 growth forecasts for both Rwanda and Uganda downwards, but both countries are still expected to expand by clearly more than 5%. Kenya will be the odd one out to deliver the worst performance in the region– just released GDP data showed a slowdown to 2.1% in the third quarter, down from 3.4% in the second quarter. In the first quarter, GDP contracted by 1% as a result of the post-election violence and its disruptions to the economy.

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