The IMF has just completed a two week mission in the country to conduct a second review of PSI (Policy Support Instrument) and declared that the economy is “strong.” GDP growth rate was at 6 3/4% for fiscal year 2006/07 and is on track to exceed 7% next year.  In their statement released yesterday, they attributed the economy’s strength to a rebound in the agricultural sector and improved electricity supply. Other strengths were in fiscal performance, in revenue performance and as a result of debt relief under the Multilateral Debt Relief Initiative (MDRI). The foreign reserves had also grown to a record $2.3 billion.

In the short run, the two main challenges mentioned by the mission were inflation and achieving the ambitious 2007/8 budgetary targets in revenue and expenditure.   

Inflation, currently at 7.8% as of August, needs to be reduced to a target of 5% which is “critical toward reducing high interest rates, supporting productive investment and growth, and reducing poverty”. In this regard,  they welcomed the Bank of Tanzania’s efforts to strengthen monetary policy implementation. On the budget, IMF said it “rightly reflects the key priorities of the government to further increase social spending while scaling up infrastructure investment significantly.”

IMF’s statement also stated that “despite rapid growth in recent years, the financial sector remains small, and there is a need to accelerate financial sector development, notably by addressing the legal framework for land ownership and the weak capacity of the judicial system.”

The statement ended by saying it was looking forward to the timely completion of the special audit on the EPA account at the central bank currently conducted by Ernest & Young.

The three-year PSI for Tanzania was approved by the IMF Executive Board in February, 2007, and the first review was concluded in June. The PSI (Policy Support Instrument) is designed for low-income countries that may not need IMF financial assistance, but still seek close cooperation with the IMF in preparation and endorsement of their policy frameworks. PSI-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners.