By Prosper Makene
The Executive Board of the International Monetary Fund (IMF) has approved a 40-month extended arrangement under the Extended Credit Facility (ECF) for Tanzania, with access equivalent to SDR 795.58 (200 percent of quota, equivalent to US$1,046.4 million).
The Board’s approval allows for an immediate disbursement equivalent to US$151.7 million after recognizing Tanzania’s strong track record in reform implementation.
The ECF arrangement follows Fund emergency support to Tanzania in 2021 (100 percent of quota, equivalent to US$561.5 million). The arrangement is expected to catalyze additional bilateral and multilateral financial support.
Spillovers from the war in Ukraine are stalling the Tanzanian economy’s gradual recovery from the COVID-19 pandemic, exacerbating the country’s development and reform challenges to unleash its economic potential. The ECF arrangement is centered on supporting the economic recovery from the scarring effects of COVID-19 and coping with spillovers from the war in Ukraine; preserving macroeconomic stability; and advancing the structural reform agenda toward sustainable and inclusive growth.
The program draws from the key priorities of the government’s Five-Year Development Plan. IMF financial support is also expected to help stimulate private sector investment and catalyze financial support from development partners.
Following the Executive Board discussion, Mr. Bo Li, Deputy Managing Director and Acting Chair, made the following statement:
“Executive Directors commended the authorities for their economic response to the pandemic and the policies enacted to mitigate the spillovers from the war in Ukraine.
Directors noted, however, that considerable development and reform challenges and external headwinds, including COVID-19 induced scars and the war in Ukraine, risk eroding hard-won economic gains. Against this backdrop and recognizing Tanzania’s strong track record in reform implementation, Directors supported the authorities’ requests for an ECF arrangement to meet pressing financing needs.
They underscored that the Fund supported program would help catalyze additional external financing, support a gradual recovery while increasing social and development spending, and anchor the country’s National Development Plan. Directors also noted the importance of scaling up vaccination efforts.
“Directors welcomed the authorities’ commitment to rebalance expenditure towards social spending and improve its efficiency and execution. They highlighted that creating additional fiscal space for priority spending requires raising government revenue, improving spending quality, and containing fiscal risks from SOEs, PPPs, and local governments. Ensuring that measures to cope with high fuel and food prices are targeted, temporary, and limiting non-concessional financing will also be important to preserve debt sustainability.
Directors welcomed progress towards COVID-related transparency commitments and encouraged continued efforts in fiscal transparency and accountability.
Directors also emphasized the importance of an integrated capacity development strategy to bolster far-reaching reform efforts.
“Directors welcomed the authorities’ commitment to tighten monetary policy as needed, while allowing exchange rate flexibility to cushion shocks. Directors looked forward to further strengthening of the monetary policy framework and noted that a strong communication strategy would be needed. Improving financial regulation and supervision and implementing the 2018 FSAP recommendations would be important to address financial sector vulnerabilities. Further actions to align the AML/CFT framework with FATF guidelines are also needed.
“Noting the need to boost private investment and potential growth, Directors encouraged the authorities to implement their ambitious reform agenda, including improvements in human capital and infrastructure spending, and close any remaining gender gaps. Improving National Accounts statistics is also important. They also stressed the need to continue to address climate risks, building on the findings from the upcoming C-PIMA.”