IMF to provide $150 million to Tanzania, cautions against prolonged foreign currency shortages

The minister for Finance, Dr Mwigulu Lameck Nchemba, speaks with the International Monetary Fund’s mission chief for Tanzania, Mr Charalambos Tsangarides, (second right) and the IMF Resident Representative in Tanzania, Mr Jens Reinke (right), during staff-level negotiations with the IMF team in February 2023. Second from left is the Permanent Secretary in the Ministry of Finance, Dr Natu Mwamba, and the Governor of the Bank of Tanzania (BoT), Mr Emmanuel Tutuba (left). The Tanzanian authorities and the IMF team have concluded staff-level negotiations for 2024. PHOTO | FILE

By  The Citizen Reporter Media/news company Mwananchi Communications Limited

What you need to know:

• The IMF warned that foreign currency shortages would persist in Tanzania this year, posing risks to economic growth that has weathered various challenges, including serious power shortages late last year and early this year

Dar es Salaam. The International Monetary Fund (IMF) said on Friday, May 17, 2024 that it would make available to Tanzania a credit of about $150 million after the fund and the respective authorities recently reached a staff-level agreement.

Meanwhile, the IMF warned that foreign currency shortages would persist in Tanzania this year, posing risks to economic growth that has weathered various challenges, including serious power shortages late last year and early this year.

The $150 million would be provided through the Extended Credit Facility (ECF). It would bring the total IMF financial support under the ECF arrangement to $604.2 million.

The IMF team also discussed the Tanzanian authorities’ request to access, under the Resilience and Sustainability Facility (RSF), about $789.6 million.

“I am pleased to announce that we have reached staff-level agreement on the policies needed to complete the third review of Tanzania’s ECF-supported programme, and on the request to access financial resources from the RSF,” Mr Charalambos Tsangarides, IMF mission chief for Tanzania, was quoted as saying in a statement released late on Friday, May 17, 2024.

The third review arrangement negotiations under the ECF between the IMF team and Tanzanian authorities were held in meetings in Dodoma and Dar es Salaam from May 2 to 17, 2024.

The RSF funds would be spent to address climate change challenges.

“The RSF will support the authorities’ efforts to advance structural reforms and investments on adaptation and mitigation to address risks and challenges associated with climate change,” the statement notes.

Foreign currency shortages to persist

The IMF statement said the outlook for the Tanzanian economy is favourable, with growth expected to pick up to 5.4 percent in 2024, supported by improvements in the business environment and subsiding global commodity prices.

However, risks to the outlook persist, the IMF says, as a result of prolonged liquidity issues in the foreign exchange (FX) market, an abrupt global slowdown, the intensification of regional conflicts, and increased commodity price volatility, among others.

During negotiations, the IMF team observed some commitments by Tanzanian authorities to cushion further erosion of the FX market.

“The BoT reiterated its commitment to allow more exchange rate flexibility to revitalise the FX interbank market and ensure a market determined exchange rate, while limiting FX interventions to avoid disorderly market conditions, in line with its intervention policy,” the IMF statement notes.

To enhance the transparency of its interventions, the BoT will publish the results of its FX auctions.

“Maintaining a moderately tight monetary policy stance will complement efforts to ease pressures in the FX market, while preserving price stability,” the IMF says in the statement.