Tanzania: Taking Steps to Enhance Fiscal Sustainability | WPN World People News

A team from the International Monetary Fund (IMF), led by Paolo Mauro, visited Tanzania during February 12–25, 2014. The mission completed the assessment of the recent performance under the Standby Credit Facility (SCF) and discussed a possible new Policy Support Instrument (PSI) program.

“Performance under the government’s IMF-supported SCF program has been broadly favorable. Economic growth remains strong. With continued prudent monetary policy and benign developments in food prices in the region, inflation is expected to further moderate by mid-2014 to the medium term target of 5 percent. The current account deficit widened further in 2013, as the global prices of gold and traditional exports weakened.

“Fiscal pressures last year (fiscal year 2012/13, July to June) resulted in the ceiling on net domestic financing agreed under the government’s IMF-supported program being breached by 1.2 percent of GDP. During the current fiscal year (2013/14), revenues are falling short of the assumptions embedded in the budget approved by Parliament. To attain a fiscal deficit close to the 5 percent of GDP target in the budget, the government has been appropriately cautious in releasing funds for budget implementation. The upcoming mid-year budget review is expected to reduce expenditure allocations to align these with available resources. Meanwhile, expenditure arrears have increased considerably, especially for road projects. To preserve the credibility of fiscal policy, further policy measures are needed to avoid the accumulation of new arrears and to clear existing ones after verification.

“Preserving macro-economic stability is necessary for rapid growth to continue in the medium term. The key challenge is to preserve fiscal space for infrastructure investment and priority social spending while gradually reducing the fiscal deficit to maintain debt sustainability. The government’s tax policy reforms under preparation, including a review of the value added tax, have the potential to improve efficiency and to mobilize additional resources while sharing the burden more fairly. Nevertheless, the revenue shortfalls and subsequent expenditure compression experienced during the current fiscal year reinforce the importance of making realistic revenue assumptions during the upcoming budget cycle.

“Agreement was reached at the technical level on policy measures that, once endorsed by the Government, would permit concluding the final review under the SCF, subject to approval by the IMF’s Executive Board. Broad agreement was also reached on the general outlines of a program that could eventually be supported under a new PSI, once detailed discussions are completed.

“The next IMF Executive Board meeting is tentatively planned for late April 2014.

Source: International Monetary Fund