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IMF Concludes Review of Tanzania’s ECF Program, Approves $150 Million Funding

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A staff team from the International Monetary Fund (IMF), led by Charalambos Tsangarides, IMF mission chief for Tanzania, held meetings in Dodoma and Dar es Salaam from May 2 to 17, 2024, for the third review under the Extended Credit Facility (ECF).

Subject to approval by the IMF Executive Board, this review will unlock SDR113.3 million (approximately US$150 million), bringing the total IMF financial support under this arrangement to SDR455.5 million (about US$604.2 million).

Additionally, the team discussed the Tanzanian authorities’ request to access funds under the Resilience and Sustainability Facility (RSF) amounting to 150% of the quota (SDR 596.7 million, approximately US$789.6 million).

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At the conclusion of the mission, Mr. Tsangarides issued the following statement: “I am pleased to announce that we have reached staff-level agreement on the policies needed to complete the third review of Tanzania’s ECF-supported program, and on the request to access financial resources from the RSF. The IMF’s Executive Board will discuss these requests in the coming weeks. The Tanzanian economy grew 5.1% in 2023 despite headwinds from power outages and strained foreign exchange liquidity that dampened manufacturing and trade activities. Inflation remains within the Bank of Tanzania (BoT) target at 3.1% (yoy) although core inflation ticked up to 3.9% (yoy) in April 2024. The outlook is favorable with growth expected to pick up to 5.4% in 2024 supported by improvements in the business environment and subsiding global commodity prices. Risks to the outlook are tilted to the downside, as intensification of regional conflicts, increased commodity price volatility, abrupt global slowdown, prolonged liquidity issues in the foreign exchange (FX) market, and intensification of floods from El Nino, could weigh negatively on economic outlook. The current account deficit is expected to narrow to 4.3% of GDP this fiscal year, from 6.5% in FY2022/23. However, external financial conditions are expected to remain tight and pressures in the foreign exchange market are likely to persist. The BoT reiterated its commitment to allow more exchange rate flexibility to revitalize the FX interbank market and ensure a market-determined exchange rate, while limiting FX interventions to avoid disorderly market conditions, in line with its intervention policy. To enhance the transparency of its interventions, the BoT will publish the results of its FX auctions. Maintaining a moderately tight monetary policy stance will complement efforts to ease pressures in the FX market while preserving price stability. The government continues to implement its growth-friendly fiscal consolidation plan envisaged in the FY2023/24 budget. This effort is expected to continue in FY2024/25, supported by tax policy and revenue administration efforts to help create fiscal space. The government is committed to increase priority social spending and containing the impact of the recent floods on the most vulnerable. The authorities’ structural reform agenda aims to support resilient, sustainable, and inclusive growth by improving the business environment and strengthening governance. The RSF will support the authorities’ effort to address climate policy challenges and implement reforms to enhance the resilience and sustainability of the Tanzanian economy. The authorities are committed to enhancing governance and coordination of climate change policies; strengthening the disaster risk management framework; mainstreaming climate policies in budgeting and public investment planning; aligning sectoral climate policies with national policies and commitments; and enhancing supervision of financial sector climate-related risks. The RSF will provide additional concessional resources, to help accelerate implementation of the authorities’ climate reforms and investment and catalyze financing for climate change mitigation and adaptation. The mission met with Minister of Finance, Dr. Mwigulu Nchemba, Bank of Tanzania Governor, Mr. Emmanuel Tutuba, other senior officials, development partners, and private sector representatives. The mission would like to thank the Tanzanian authorities for their cooperation, hospitality, and constructive discussions.”

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For his part, Tanzania’s Minister of Finance, Hon. Dr. Mwigulu Nchemba, assured the IMF that the government would continue to enhance its policies and plans, prioritizing key economic and social sectors such as education and health in the national budget.

Dr. Nchemba highlighted the government’s commitment to improving the education sector, including curriculum enhancements and infrastructure development, to meet the job creation and skill development needs of the youth.

The health sector will also remain a priority, especially with the recent passing of the Universal Health Insurance Law aimed at strengthening health services for children, pregnant women, and the elderly.

Dr. Nchemba further emphasized that the government’s fiscal consolidation plan remains on track, supported by tax policy reforms, with a focus on increasing priority social spending and containing the impact of recent floods on the most vulnerable.

He reiterated the authorities’ structural reform agenda aimed at supporting resilient, sustainable, and inclusive growth through improving the business environment and strengthening governance.

Regarding the RSF, Dr. Nchemba stated that it will support the authorities’ efforts to address climate policy challenges and implement reforms to enhance the resilience and sustainability of the Tanzanian economy.

He emphasized the government’s commitment to enhancing governance and coordination of climate change policies, strengthening disaster risk management, mainstreaming climate policies in budgeting and public investment planning, aligning sectoral climate policies with national commitments, and enhancing supervision of financial sector climate-related risks.

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