The International Monetary Fund (IMF) is set to grant Tanzania a $151 million loan to boost its economic recovery amidst headwinds from global shocks that have slowed growth.
The amount is subject to approval by the executive board of the International Monetary Fund.
The overall financial aid by IMF to Tanzania through the 40-month extended credit facility (ECF) will increase from $1.04 billion agreed upon in July last year to $302 billion.
Despite the Tanzanian economy’s steady recovery, evidenced by its 4.7 per cent GDP growth last year, the global lender notes that challenging global economic conditions are hindering fiscal performance, and inflation is expected to surpass the Bank of Tanzania’s 5 per cent limit within the year.
The economy is benefitting from improvements in the business environment but is also expected to continue facing spillovers of the war in Ukraine in the near term.
IMF’s Tanzania mission chief – Charalambos Tsangarides
IMF’s View on the Rising Inflation
According to IMF, the country’s inflation rates, currently at 4.9 per cent, continue to rise due to the rainfall shortage that has slowed down electricity production and agricultural activity.
It has also affected the economy’s foreign exchange reserves, which have decreased by $1.2 billion to $5.2 billion, equivalent to 4.3 months of imports in 2022, despite the currency remaining relatively stable. This could result in a growing current account deficit.
In light of the situation, the IMF has recommended implementing “temporary” fiscal and monetary policy measures to protect the economy from the impact of the conflict in Ukraine.
Monetary policy will continue to be tuned to developments in actual and expected inflation, while allowing exchange rate flexibility to cushion the economy against external shocks.
IMF’s Tanzania mission chief – Charalambos Tsangarides
Although the IMF praised Tanzania for implementing the reforms it suggested in November of last year, which involved substituting subsidies with targeted social spending to protect those negatively affected by economic shocks and disbursing $151 million under the ECF, the multilateral lender is urging the Tanzanian government to continue implementing additional reforms.
These measures, according to the IMF, would enable the country’s GDP growth rate to rebound to at least 7 per cent in the short term, limit inflation within BoT’s target, and regulate the current account deficit.
The proposed changes include reforms to the business environment and governance, improved efforts to mobilize revenue, and the modernization of the monetary policy framework by transitioning to an interest-rate-based monetary policy. This transition would enhance the effectiveness of the monetary policy, according to the multilateral lender.
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