Poor revenue collection and rising inflation are major challenges facing the government’s implementation of the over 22trn/- budget for 2015/16 fiscal year.
International Monetary Fund said in a statement yesterday that its mission which visited the country last week under Herve Joly who is Assistant Director and IMF mission chief to Tanzania, said as a result of the shortcomings, the government is accumulating arrears.
“The mission and the authorities also discussed other issues, including ongoing efforts to: strengthen revenue mobilisation, public financial management, and debt management; address arrears to pension funds; modernise the monetary policy framework; and develop and improve the functioning of financial markets,” the statement added.
“Discussions will continue in the coming weeks to reach final understandings on an economic policy framework that can underpin the completion of the third review under the Policy Support Instrument ( PSI),” Joly’s statement noted.
The Fund also backed the depreciating shillings, saying the local currency has been over valued since 2014 but also forecasted that inflation is likely to increase till end of the year.
The Bretton Woods institution noted that the local currency’s rapid depreciation against the U.S. dollar particularly between April – June 2015 is a result of the strength of the dollar overlapped with high liquidity in the banking system, seasonally low export earnings, and high repatriation of corporate dividends.
The Bretton Woods institution noted that the local currency’s rapid depreciation against the U.S. dollar particularly between April – June 2015 is a result of the strength of the dollar overlapped with high liquidity in the banking system, seasonally low export earnings, and high repatriation of corporate dividends.
The situation was further compounded by delays in the mobilisation of external programme financing, which may have fuelled a foreign exchange shortage psychology. A combination of measures, including a tightening of monetary policy and seasonally higher export earnings, subsequently helped to stabilise the shilling and have allowed a return to normal in the interbank and foreign exchange markets since August 2015, the statement added.
“The shilling, which was assessed to be somewhat overvalued in 2014, is now closer to equilibrium,” the statement added while pointing out that inflation which was pegged at 6.4 percent last August largely driven by supply side factors, particularly food prices, and the exchange rate depreciation, will continue to increase.
The IMF team which visited the country between September 17 – 30, initiated the third review under the Policy Support Instrument programme that was approved on July 16, 2014.
The mission met with Saada Mkuya Salum, Minister of Finance, Professor Benno Ndulu, Governor of Bank of Tanzania, and other senior government officials.
The mission’s statement further noted that growth of gross domestic product is likely to reach 7 percent by end of year.
The PSI is an instrument of the IMF designed for countries that do not need balance of payments financial support. The PSI helps countries design effective economic programmes that, once approved by the IMF's Executive Board, signal to donors, multilateral development banks, and markets the Fund's endorsement of a member's policies.
SOURCE: THE GUARDIAN
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