News Brief No. 99/43

News Brief: IMF Approves ESAF Disbursement to Tanzania

July 27, 1999

The International Monetary Fund (IMF) today completed the midterm review of the third annual arrangement under the Enhanced Structural Adjustment Facility (ESAF)¹ for Tanzania, and approved the disbursement of the second annual installment under the third year of the arrangement, amounting to SDR 29.374 million (about US$39 million). This is the sixth and last drawing, which brings the total borrowed under the three-year ESAF arrangement to SDR 181.59 million (about US$241.6 million).

In commenting on the IMF Executive Board's discussion of the review, Shigemitsu Sugisaki, Deputy Managing Director, made the following statement:

"Directors commended the authorities for their continued strong macroeconomic policy implementation. Despite lower agricultural production due to continuing adverse weather conditions, appropriately tight fiscal and monetary polices had allowed the inflation rate to decline to the single digits for the first time in two decades. Directors noted that the adverse weather had also contributed to a higher trade deficit than projected, resulting in a lower increase in net official reserves than targeted for end June 1999.

"Directors regretted the delays in implementing structural reforms. However, they considered that these had been largely caused by technical factors, reflecting the complexities of the privatization process. They welcomed the government's actions in recent months, including establishment of a high level group of officials to bring the reform agenda back on track. Directors encouraged the authorities to make further progress in the restructuring of the banking sector. They stressed the need to act decisively with regard to the divestiture program, notably in the petroleum sector.

"Directors welcomed recent improvements in budgetary systems. They commended the government for the successful implementation of the VAT and the further tax reforms announced in the 1999/2000 budget. They noted the reduction in the maximum import duty rate as of July 1, 1999, in line with Tanzania's international commitments under the Cross-Border Initiative. They stressed the importance of further strengthening revenue performance - notably by reducing tax exemptions, and of further harmonizing tax incentives for investment. Directors welcomed the considerable increase in allocations for the social sectors and encouraged the authorities to continue with the civil service reform in order to enhance efficiency and transparency.

"Directors looked forward to a preliminary analysis and discussion of Tanzania's eligibility under the HIPC Initiative² in the near future."

1 The ESAF is a concessional IMF facility for assisting eligible members that are undertaking economic reform programs to strengthen their balance of payments and to improve their growth prospects. ESAF loans carry an interest rate of 0.5% a year and are payable over 10 years with a 5½-year period.

2 The HIPC Initiative entails coordinated action by the international financial community, including multilateral institutions, to reduce to sustainable levels the external debt burden of heavily indebted poor countries that pursue IMF and World Bank-supported adjustment and reform programs, but for whom traditional debt relief mechanisms are insufficient.