Tanzania receives Policy Support Instrument from IMF - CNBC Africa

Tanzania receives Policy Support Instrument from IMF

East Africa

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Tanzania's GDP growth is projected at seven per cent for 2014. PHOTO: Getty Images

The Policy Support Instrument (PSI) aims to support the medium-term objectives of Tanzania’s authorities, which include the preservation of debt stability, macroeconomic stability, and the promotion of more equitable growth and job creation.

“Tanzania is expected to sustain its recent positive macroeconomic performance over the medium term, leading to a gradual reduction relative to Gross Domestic Product (GDP) of its still large current account deficit,” Naoyuki Shinohara, deputy managing director and acting chair of the International Monetary Fund, said in a statement.

“This positive outlook is predicated in part on the authorities’ intention to undertake further reforms to improve the investment climate and diversify the economic base.”

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Shinohara added that in future, Tanzania’s authorities will however need to make fiscal adjustments and make sure that opportunities to increase infrastructure and social services spending are multiplied. The country will also need to find additional revenue to improve fiscal management.

“Although Tanzania remains at a low risk of debt distress, fiscal risks, including those arising from public enterprises and social security funds, need to be better monitored and managed,” Shinohara explained.

While GDP growth for Tanzania has been projected at seven per cent for the year, its external current account deficit is among the largest in the region at 14 per cent of GDP for the same period. Overall fiscal deficit in 2014 and 2015 has also been projected at 4.9 per cent of GDP. Tanzania is however at low risk of debt distress.

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“Tanzania stands to benefit from potential revenues from offshore extraction of natural gas, likely to start in the early 2020s. In approving the PSI, the IMF Executive Board stressed the need for a comprehensive framework to manage natural resource wealth,” said Shinohara.

“Such a framework should ensure full integration of resource revenues in the budget, and institutionalize the transparency and accountability of spending decisions.”