However, the Breton Wood institution has praised the government for managing to absorb the world global financial crisis shocks.
“Despite the success story about Tanzania on how it handled the crisis, the downside risks remain, because the macroeconomic fundamental remain shaky on the back of high inflation and increasing fiscal deficits”, IMF’s Executive Board Deputy Managing Director and Acting Chair Naoyuki Shinohara said in Dar es Salaam over the weekend.
“Further fiscal adjustments will be needed in 2012/13 to strengthen debt sustainability while creating space for infrastructure investment and social spending,” he said at the weekend. He said the government needs to remain vigilant and tighten domestic liquidity further if inflationary pressures were to rise.
“To help rebuild macroeconomic buffers, the authorities have decided to tighten the fiscal stance for 2011/12 by eliminating non-priority recurrent spending and delaying some development spending,” the Deputy Director said. In a letter of intent to IMF last month, the Ministry of Finance and Economic Affairs said that the government plans to cut spending by 755bn/- this financial year as part of austerity measures that could also hurt some development projects.
The move aims to reduce the widening budget deficit caused by low aid inflows from donors, partly due to Euro Zone credit woes. The expenditure cuts are expected to affect a number of construction and rehabilitation projects already underway but with a caution that no penalties are incurred as a result of delay in disbursing funds.
The IMF also approved the modification of assessment criteria for end of December 2011 for net international reserves and external debt. The country reserves at the end of October were enough to cover imports for four months, while external debt was slightly above 10 billion US dollars.
“The new foreign reserves should be maintained at an adequate level to provide a buffer against external shocks,” Mr Shinohara said. The IMF completed the third review under the Policy Support Instrument (PSI) for Tanzania last Friday. After the review, the board approved waivers of the non-observance of end-June 2011 assessment criteria on net domestic financing and on net international reserves.