IMF toasts Dar over austerity

THE International Monetary Fund (IMF) has commended Tanzania for instituting cost-cutting measures in public expenditure, saying it also welcomed adjustment of the 2015/16 budget to prevent building up of arrears.

The Breton Woods institution welcomed the austerity measures by the government as a necessary measure to contain accumulation of arrears, cautioning, however, that implementation of the 2015/16 budget faced challenges arising from possible shortfalls in financing and revenue and unbudgeted expenditures carried forward from 2014/15.

“Against this backdrop, early action to adjust the budget is welcome and will help prevent further arrears accumulation,” IMF Deputy Managing Director and Acting Chair, Mr Mitsuhiro Furusawa, said in a statement after completion of the Third Review of Tanzania’s economic performance under the programme supported by the Policy Support Instrument (PSI).

IMF said macro-economic performance remained strong and medium-term prospects are favourable although there were mixed performance on implementation of programmes under the Policy Support Instrument (PSI), which slowed ahead of the October 2015 elections.

Programmes under PSI include maintenance of macroeconomic stability, the preservation of debt sustainability, promotion of more equitable growth and job creation. “The current monetary policy stance should bring inflation down to the authorities’ 5 per cent target by the end of 2016.

The use of foreign exchange intervention should be limited to liquidity management and smoothing volatility in the foreign exchange market, with higher reliance on domesticcurrency instruments to address excess liquidity.

“Better coordination of fiscal and monetary policy would make it easier for the Bank of Tanzania to focus on its main inflation objective,” he said. The international lender said financial support for the power utility firm, TANESCO, was critical for the development of the energy sector.

The utility firm, which is responsible for electricity generation, transmission and distribution, is in deep financial crisis due to over reliance on volatile rain-fed hydropower and the heavy debt overhang.

“Putting TANESCO on a sound financial footing is critical for the development of the energy sector, making the completion of the authorities’ strategy to address TANESCO’s arrears a priority,” Mr Furusawa said further in the statement. The government introduced radical cost-cutting measures immediately after coming to power after October 2015 election.

President John Magufuli became a social media sensation across Africa after introducing a series of austerity measures after his inauguration in November last year and campaign to root out corruption and inefficiency in the government and public parastatals.

The president ordered restrictions on foreign travel by government officials and cuts in tax exemptions, signalling the beginning of fiscal belttightening measures by his government.

He also instructed the Tanzania Revenue Authority (TRA) to step up revenue collection from large taxpayers and curb tax evasion without fear or favour. He also scrapped independence celebrations, choosing instead to spend money on sanitation, fighting cholera and new beds and equipment for hospitals.