The International Monetary Fund (IMF) has approved $204.5 million in additional funding for Tanzania following a successful review of the country’s economic reform program. This milestone underlines Tanzania’s progress in implementing reforms aimed at bolstering economic stability and inclusive growth while addressing emerging challenges such as climate change and fiscal sustainability.

The funding, approved on December 13, 2024, reflects the IMF executive board’s confidence in the Tanzanian government’s reform efforts and the country’s favorable growth trajectory.

Economic Reforms Supported by Extended Credit Facility (ECF)

Tanzania’s reform program, underpinned by the Extended Credit Facility (ECF), continues to focus on maintaining macroeconomic stability, fostering sustainable growth, and enhancing fiscal resilience. The program was initially approved in July 2022 for a total access of SDR 795.58 million (approximately $1.04 billion).

In this fourth review of the ECF arrangement, the IMF disbursed $148.6 million (SDR 113.37 million), bringing the total funds allocated to Tanzania under this program to approximately $754.3 million.

Bo Li, the IMF’s deputy managing director and acting chair, commended the Tanzanian authorities for their dedication to the reform agenda. In his statement, he emphasized that the government’s strong commitment to reforms is crucial in addressing downside risks, especially amid global economic uncertainties.

Focus on Climate Resilience: Resilience and Sustainability Facility (RSF)

In addition to the ECF arrangement, the IMF is supporting Tanzania through the Resilience and Sustainability Facility (RSF), which was approved in June 2024. The RSF provides a total access of $791.6 million (SDR 596.7 million) and is specifically aimed at helping the country implement climate-related reforms to mitigate risks associated with climate change.

During this review, the IMF disbursed an additional $55.9 million (SDR 42.62 million) under the RSF. This funding is critical to advancing Tanzania’s climate agenda, which includes adopting policies to reduce vulnerabilities to climate shocks and building long-term economic resilience.

Economic Performance and Growth Momentum

Tanzania’s economy has demonstrated resilience in the face of global economic challenges, with growth momentum picking up in 2024. The country’s real GDP growth increased to 5.4% (year-on-year) in the first half of 2024, compared to 5.1% in 2023. This acceleration reflects robust performance in key sectors such as services, agriculture, and construction.

Inflation, another critical economic indicator, remains under control and within the central bank’s target range. Prudent monetary policies have helped to manage inflationary pressures while ensuring a stable economic environment conducive to growth.

Tanzania’s current account deficit also narrowed during the 2023/2024 financial year, driven by strong growth in service exports, particularly from tourism and transport, and a slowdown in imports. Seasonal current account flows, a tight monetary policy stance, and exchange rate flexibility have eased pressures in the foreign exchange market.

Structural Benchmarks and Reform Challenges

While the Tanzanian government has made significant progress in implementing its reform agenda, challenges remain. The IMF noted that performance on structural benchmarks under the ECF program has been mixed:

• Three benchmarks were completed on time.
• Two benchmarks were completed with delays.
• Three benchmarks (two due by end-June 2024 and one by end-September 2024) were not completed.

To address these delays, the government has requested a reset of the structural benchmarks to March 2025, allowing sufficient time for completion.

Key Reform Areas and Long-Term Goals

The Tanzanian government’s reform program encompasses several priority areas:

1. Public Financial Management: Strengthening fiscal discipline and enhancing transparency in public resource management.
2. Revenue Mobilization: Increasing tax revenues through improved compliance and policy reforms to support public investment and social services.
3. Climate Policy: Implementing measures to reduce greenhouse gas emissions, promote renewable energy, and enhance disaster resilience.
4. Private Sector Development: Creating a conducive environment for private sector growth through regulatory reforms and investment in infrastructure.

Impact of IMF Support on Tanzania’s Economy

The additional IMF funding is expected to play a crucial role in addressing Tanzania’s immediate financing needs and supporting its long-term development goals. Key areas of impact include:

• Fiscal Space: The funds will provide much-needed fiscal space for the government to invest in critical sectors such as health, education, and infrastructure.
• Climate Resilience: Enhanced support under the RSF will enable Tanzania to tackle climate challenges more effectively, including mitigating risks from droughts and floods.
• Economic Recovery: The funding will support ongoing efforts to strengthen the recovery from the economic impacts of the COVID-19 pandemic and global shocks.

Global and Regional Context

Tanzania’s economic progress is taking place in a challenging global environment marked by geopolitical tensions, high energy prices, and slowing global growth. Regionally, Tanzania has emerged as one of the more stable economies in East Africa, benefiting from robust infrastructure development and strategic investments in sectors like energy and agriculture.

Neighboring countries such as Kenya and Uganda have also pursued IMF-supported programs, highlighting the critical role of international financial institutions in supporting economic reforms across Africa.

Tourism and Energy: Pillars of Growth

Tanzania’s economic outlook is bolstered by its growing tourism and energy sectors. Tourism, a key foreign exchange earner, has rebounded strongly in 2024, driven by increased international arrivals and improved marketing efforts.

The country is also leveraging its natural gas reserves to enhance energy security and attract foreign investment. Ongoing projects in the energy sector, including renewable energy initiatives, are expected to contribute significantly to economic growth and job creation.

Future Outlook: Balancing Growth and Sustainability

The IMF’s latest assessment underscores Tanzania’s favorable growth outlook, but it also highlights the need for sustained reforms to achieve long-term stability and inclusivity. The government’s ability to balance growth-friendly policies with fiscal discipline will be critical in navigating potential risks such as global economic volatility and climate-related shocks.

With continued support from international partners and a strong commitment to reforms, Tanzania is well-positioned to build on its recent achievements and chart a path toward sustainable and inclusive development.

In conclusion, the additional $204.5 million in IMF funding represents both an endorsement of Tanzania’s reform efforts and a vital resource for addressing its economic challenges. As the country moves forward, strategic investments in climate resilience, infrastructure, and human capital will be essential to unlocking its full potential and ensuring shared prosperity.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

17th December, 2024