Sluggish public sector reform poses risk to Tanzania economy

1 Nov 16

Tanzania remains on track for 7% growth in 2016, according to a review by the International Monetary Fund, but the slow pace of a public sector reform programme could pose a risk to the economy.

In a review of the IMF’s policy support instrument, which has been providing support for public sector reform since 2014, the IMF said that preliminary data for the first half of 2016 indicate that economic growth is strong and that the 7% annual target remains within reach.

Mauricio Villafuerte, who led the review team, highlighted that notable progress has been made so far, particularly in stepping up revenue collections.

The policy support instrument allows the IMF to provide assistance to countries that do not need balance of payments financial support.

The mission met with finance minister Philip I. Mpango, Ministry of Finance permanent secretary Doto M. James and Bank of Tanzania governor Benno Ndulu to examine the progress of a support programme to improve the efficiency of the public sector.

Villafuerte highlighted that government current spending has been lower than programmed and, together with the slow pace of project implementation at the beginning of the fiscal year, this has led to a fiscal surplus in the first quarter.

The represents a “downside risk” to the country’s economy, he added.

“The mission held discussions on how to address these macroeconomic challenges. In particular, it noted the importance of mobilising external financing to step up the pace of planned capital spending.

“Tanzania is at low risk of external debt distress and has room to borrow externally on concessional and non-concessional terms to meet its financing needs. The mission commended the authorities’ efforts to improve the efficiency of spending and noted that it should not compromise the delivery of essential services.”

The IMF review welcomed the adoption of the second five-year development plan for the country, but stated it would be essential to improve the dialogue with the private sector and accelerate reforms to bolster the business environment.

“Discussions will continue in the coming weeks to reach final understandings on an economic policy framework that can underpin the completion of the fifth review under the PSI,” said Villafuerte. “The IMF executive board is tentatively expected to discuss the review in early 2017.”

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