Dar, IMF reach key agreement on economic review

DODOMA: TANZANIA and the International Monetary Fund (IMF) have reached a staff-level agreement on the policies needed to complete the fourth review under the Extended Credit Facility (ECF) and the first review under the Resilience and Sustainability Facility (RSF) arrangement.

IMF mission Chief for Tanzania, Mr Charalambos Tsangarides said in a statement on Friday that the RSF is supporting the authorities’ efforts to advance structural reforms and investments in adaptation and mitigation to address risks and challenges associated with climate change.

Mr Tsangarides led a staff team from IMF to visit Dodoma and Dar es Salaam from October 2 to 17, 2024, to hold discussions with the authorities on the fourth review of ECF and RSF.

According to the statement, the economic growth momentum is picking up in 2024 with improved external and fiscal balances and low inflation.

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Policy priorities continue to be focused on enhancing exchange rate flexibility, strengthening the monetary policy framework, continuing to implement growth-friendly fiscal consolidation, enhancing domestic revenue mobilisation and expediting structural reform implementation.

The RSF is supporting the authorities’ efforts to advance structural reforms and investments in adaptation and mitigation to address risks and challenges associated with climate change.

According to Mr Tsangarides, subject to approval by the IMF Executive Board, the review will make available 265.78 million US dollar (about 724.1bn/-), bringing the total IMF financial support under the ECF arrangement to 758.11 million US dollar (about 2.065tri/-) and 114.07 million US dollar (about 310.8bn/-) under the RSF.

“I am pleased to announce that the IMF team and the Tanzanian authorities have reached a staff-level agreement on the policies needed to complete the fourth review under Tanzania’s ECF-supported programme, and the first review of the RSF arrangement,” he said.

He said the momentum in Tanzania’s economy is continuing in 2024 with economic activity growing at about 5.4 per cent in the first half of 2024 after an annual growth of 5.1 per cent in 2023.

Inflation in September remained stable at 3.1 per cent year-on year, well within the Bank of Tanzania (BoT) target.

Earlier headwinds to the economy have subsided and improved liquidity in the foreign exchange market has alleviated some of the shortage in the formal market, although pressures remain.

The outlook is favourable, with growth expected to pick up to 5.4 per cent in 2024; however, risks are tilted to the downside as intensification of regional conflicts, increased commodity price volatility, a global slowdown, reemergence of FX pressures in the first half of 2025 and climate related disasters could weigh negatively on the economy.

“The current account deficit improved markedly to about 3.1 per cent of GDP in FY2023/24 from 6.5 per cent of GDP the previous year, on the back of strong service exports growth and a slowdown in imports of goods and services helped by lower commodity prices,” he said.

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Improvements in the current account balance year-on-year, a 13 per cent exchange rate depreciation over the same period and the seasonal inflows of dollars in the second half of the year have helped ease some of the foreign exchange market pressures.

The BoT remains committed to continue to allow exchange rate flexibility to ensure a market determined exchange rate, while limiting foreign exchange (FX) interventions to avoid disorderly market conditions, in line with its intervention policy.

Maintaining a moderately tight monetary policy stance will complement efforts to ease pressures in the FX market, while preserving price stability.

“Fiscal consolidation in FY2023/24 was achieved through improvements in tax revenue collections and adjustments in current spending. The FY2024/25 budget envisages continued growth-friendly consolidation, supported by tax policy and revenue administration efforts.

The government is committed to increasing priority social spending to protect the most vulnerable. The authorities’ structural reform agenda aims to support a resilient, sustainable and inclusive growth through improving the business environment and strengthening governance.

“At its meeting in October, the BoT Monetary Policy Committee maintained the policy rate, the Central Bank Rate, at 6 per cent, to contain emerging inflationary pressures.

The mission met with Minister for Finance, Dr Mwigulu Nchemba, Bank of Tanzania Governor, Mr Emmanuel Tutuba, other senior officials, development partners and private sector representatives.