In its characteristic style, the International Monetary Fund (IMF) has raised eyebrows on the growing domestic debt profile of prominent East African player, Tanzania, saying it needs to address arrears to pension funds and improve the transparency of government relations with the Breton Woods institution.
“The issue of domestic arrears, which continued to accumulate, needs to be addressed comprehensively and forcefully. The authorities’ plan to prevent future arrears accumulation is appropriately ambitious and will require sustained implementation,” the IMF said in a recent press release signifying the end of the first review under the Policy Support Instrument (PSI) discussion.
Following a review of its economic performance, the country was granted a waiver for the non-observance of the continuous assessment criterion on the non-accumulation of external arrears. However, the IMF, also known as the world’s biggest cheque book, emphasized that the government must prevent future accumulation of arrears even though efforts to verify and eventually clear already incurred arrears to suppliers were underway.
Mr Min Zhu, IMF’s Deputy Managing Director, believes that, apart from arrears, macroeconomic developments in Tanzania are favourable. In his words, “Economic growth was strong during the first half of 2014 and is expected to remain close to 7.0 percent.”
He added that the performance under the PSI was satisfactory through June, but had deteriorated since then. “Against this backdrop, the authorities’ commitment to keep the programme on track is welcome, and they have reaffirmed their intention to meet the budget deficit target and will review revenues and adjust expenditures accordingly in the context of the mid-year budget review,” he added.
A final recommendation from the IMF suggested that fiscal and monetary policies be synchronized and properly coordinated because the conversion of monetary policy instruments to financing papers complicated overall monetary policy implementation even though it also facilitated the front-loading of capital expenditure.
“It will be more effective and less disruptive to accommodate the planned expenditure through better planning to align spending and financing,” Mr Zhu concluded.
According to the African Development Bank (AfDB), the main development challenge is that Tanzania’s growth is not sufficiently broad-based and poverty levels still remain high. Despite high growth averaging 7 percent over the past decade, the recent household budget survey results indicate that 28.2 percent of Tanzanians are poor, and poverty remains more prevalent in rural areas than in urban areas.
The country, however, continues to strengthen its fiscal position and promote regional integration through tariff reduction. It remains a top destination for foreign direct investment (FDI) especially in the extractive and tourism sectors.
By Emmanuel Iruobe
