WASHINGTON D.C., United States of America, November 3, 2023/APO:
The Bank of Tanzania (BoT) has reiterated its commitment to revive the forex interbank market, to ensure price discovery that allows a market-clearing exchange rate system, and limit forex interventions to address disorderly market conditions.
Continued tightening of monetary policy will complement efforts to ease pressures in the forex market.
These commitments have been made public at the conclusion of consultations between Tanzania officials and the International Monetary Fund (IMF).
Tanzanian authorities and IMF staff have reached a staff-level agreement on economic policies to conclude the second review of Tanzania’s 40-month Extended Credit Facility (ECF); The unfavorable global economic environment and shortfalls in rainfall stalled Tanzania’s recovery from the pandemic. External and domestic conditions have put pressure on the external balance and the foreign exchange market; Near-term policy priorities include exchange rate flexibility combined with monetary policy tightening and fiscal consolidation, while preserving priority social spending. Over the medium-term, reform priorities center on creating fiscal space, modernizing the monetary policy framework and financial supervision, and advancing structural reforms.
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 October 23 to November 3, 2023, to discuss progress on reforms and the authorities’ policy priorities in the context of the second review of Tanzania’s forty-month program under the Extended Credit Facility (ECF). The arrangement was approved by the IMF Executive Board on July 18, 2022, for a total amount of SDR 795.58 million (US$1.046 billion at that time).
At the conclusion of the mission, Mr. Tsangarides issued the following statement:
“I am pleased to announce that we have reached a staff-level agreement on economic policies to conclude the second review of Tanzania’s economic program under the ECF arrangement. Staff-level agreement is subject to approval of IMF management and the Executive Board in the coming weeks. Upon completion of the Executive Board review, Tanzania will have access to SDR113.37 million (about US$150 million), bringing the total IMF financial support under the arrangement to SDR342.1 million (about US$452.7 million). The authorities’ reform program aims to strengthen the economic recovery, safeguard macro-financial stability, and support a resilient, sustainable, and inclusive growth.
“After modestly rebounding to 4.9 percent in 2021, real GDP growth weakened to 4.7 percent in 2022, reflecting the impact of the unfavorable global economic environment and weak growth in agriculture due to low rainfall. The recovery is expected to pick up starting in 2023, but faces headwinds from the global economy, including volatile commodity prices, subdued growth, and tight financial conditions. Inflation decelerated to 3.3 percent (year on year) in September, down from a peak of 4.9 percent in January 2023. The medium-term outlook is positive contingent on the steadfast implementation of the authorities’ reform agenda, anchored by the ECF arrangement.
“A wide current account deficit (about 6 percent in FY2022/23) accompanied by tight external financial conditions resulted in pressures in the foreign exchange market. The Bank of Tanzania (BoT) stepped up its forex interventions to provide liquidity to the market, while allowing the exchange rate to depreciate faster than before since July. The BoT reiterated its commitment to revive the forex interbank market, ensure price discovery that allows a market-clearing exchange rate system, and limit forex interventions to address disorderly market conditions. Continued tightening of monetary policy will complement efforts to ease pressures in the forex market.
“On the fiscal front, the government is committed to implementing the fiscal consolidation plan envisaged in the FY2023/24 budget, which is based on more realistic revenue and expenditure projections. Tax policy and revenue administration efforts will help open fiscal space to tackle substantial human and physical capital needs. In addition, the government is committed to rebalancing the composition of spending in favor of priority social spending to reduce gaps in the provision of education and health services and strengthening the social safety net.
“Business environment and governance reforms are key to unlock the potential of the Tanzanian economy. In this regard, the authorities will continue to implement the Blueprint for Regulatory Reforms, focusing on streamlining regulations and strengthening governance. Efforts to reduce climate change risks by investing in mitigation and adaptation policies will help build a strong foundation for resilient and sustainable growth.
“The mission met with Minister of Finance Mwigulu Nchemba, Bank of Tanzania Governor 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.”
