News Brief No. 02/34

News Brief: IMF Completes Fourth Review Under Tanzania's PRGF Arrangement and Approves US$25 Million Disbursement

April 16, 2002

The Executive Board of the International Monetary Fund (IMF) has completed the fourth review of Tanzania's arrangement under the Poverty Reduction and Growth Facility (PRGF) arrangement. As a result, Tanzania will be able to draw up to SDR 20 million (about US$25 million) under the arrangement immediately.

Tanzania's three-year PRGF arrangement was approved on March 31, 2000 (see Press Release No. 00/25), for SDR 135 million (about US$169 million). So far, Tanzania has drawn SDR 80 million (about US$100 million) under the arrangement.

The PRGF is the IMF's concessional facility for low-income countries. It is intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty.

PRGF loans carry an annual interest rate of 0.5 percent, and are repayable over 10 years with a 5 ½-year grace period on principal payments.

After the Executive Board's discussion on Tanzania, Horst Köhler, Managing Director and Chairman, stated:

"Tanzania's macroeconomic performance continues to be strong. Owing to good performance in agriculture, real GDP growth in 2001 remained buoyant at an estimated 5.1 percent. Inflation continued to decline. On the external front, exports grew by 16 percent, as a decline in traditional export earnings was offset by a sharp increase in nontraditional exports (mainly gold); imports grew by 12.5 percent, reflecting mainly higher imports of capital goods. There was a sizable buildup in gross official reserves in 2001, to the equivalent of over five months of import cover.

"Despite a shortfall in value-added tax collections, total government revenue was slightly higher than programmed during the first half of fiscal year 2001/02 (July-June), while slow adjustment by government agencies to new procurement regulations and a shortfall in program financing were noted as factors behind a compression of expenditure. Notwithstanding the latter, the authorities successfully maintained their program levels of spending on priority sectors. The authorities need to mobilize additional revenue in order to reduce Tanzania's dependence on external assistance, and should therefore forcefully implement their plans for reducing tax exemptions and strengthening tax administration.

"The policies to be implemented in 2002 aim at maintaining macroeconomic stability while strengthening poverty-reducing programs. Real GDP is projected to grow by 5.5 percent in 2002, and monetary policy will aim at containing inflation at about 4 percent by the end of the year. Fiscal policy will be geared toward mobilizing additional government revenue while public expenditure in the priority areas—primary education, primary health care, water, agricultural research and extension, rural roads, the judiciary and the fight against HIV/AIDS—will be increased significantly in the budget for 2002/03. The authorities will continue to adhere to the principle of little recourse to domestic financing.

"In addition to growth-oriented macroeconomic policies, the program for 2002 aims at deepening structural reforms, including privatization, improving financial intermediation, removing impediments to bank lending, strengthening debt management, and implementing the government's education, agriculture, and rural development programs as identified in Tanzania's PRSP. The government of Tanzania intends to prepare a second annual progress report on the PRSP by September 2002, which will incorporate an updated poverty analysis," Mr. Köhler said.