afrol News, 2 June - Tanzania's continued implementation of sound macroeconomic policy could sustain its robust economic growth, but with persistent high petroleum prices and slow world economic growth, achievements could be short-lived and all prospects dampened, warned the International Monetary Fund (IMF) on Friday.

Commenting at the completion of the third review under the three-year Policy Support Instrument (PSI) for Tanzania, IMF's Deputy Managing Director and Acting Chair, Mr Murilo Portugal said the country will in the year ahead need a sustained vigilant monetary policy, to ensure that pressures from high global prices of commodities do not spread to other sectors.

"Implementation of the government's budget in 2007/08 has been strong—again led by an impressive revenue performance. For the year ahead uncertainty about donor assistance has complicated budget preparations. While there is some scope for domestic financing to ensure continuity of critical public expenditures, greater spending restraint may also be necessary if aid flows fall significantly short of projections," Mr Portugal.

The IMF further advices for continued expansion of credit to the private sector in order to boost investment as well as infrastructure development that the country needs desperately to re-activate its economic performing sectors.

"The marked improvement in monetary and foreign exchange operations over the past several months has enhanced the predictability of the Bank of Tanzania's monetary policy and contributed to a welcome decline in yields on government securities," he said, adding that with challenges posed, Tanzania's flexible exchange rate policy, ample stock of international reserves, and a favorable near-term agricultural outlook should help to cushion the adverse effects of these shocks.

The IMF further believes that with government focusing on improving infrastructure as well as the health and education services while at the same time ensuring long-term debt sustainability, these would appropriately raise the country's growth potential.

"To that end, there is scope for increased reliance on public-private partnerships, provided that high standards of transparency and accountability are in place to guard against fiscal risks associated with contingent liabilities," said the IMF acting Chair further pointing out that recent cases of alleged fraud and corruption have raised concerns.

He emphasized the need for a continued progress in strengthening governance and public accountability as paramount to restore confidence, saying steps taken so far in addressing these concerns were encouraging.

In the last three years Tanzania has achieved strong economic performance, securing high growth, low inflation, adequate reserves, and a sustainable external debt position, according to the IMF. However, due to an energy crisis caused notably by drought-related reductions in hydropower and higher fuel prices, real GDP growth is expected to slow. The GDP growth rate slowed down to 5.9 percent in 2006, from 6.8 percent in 2005.

The impact of the energy crisis on inflation has been limited so far, as businesses largely absorbed higher costs. The current account deficit, however, widened to 9.3 percent in 2006 from 5.3 percent in 2005, as rapid growth in exports was offset by higher oil and drought-related imports. Nonetheless, the overall balance of payments position remained positive due to continued strong inflows of donor assistance and debt relief of $3.8 billion received under the Multilateral Debt Relief Initiative (MRDI) in 2006.

Tanzania's programme under the PSI aims to achieve sustainable broad-based high growth and poverty reduction, while maintaining macroeconomic stability. The program includes three core objectives, which are: Enhancing public resource mobilization and efficiency of spending, to facilitate higher expenditures on key government priorities as well as to improve efficiency in spending by better aligning spending with poverty-reducing and growth-enhancing measures. The programme also aims at Increasing the financial sector's contribution to growth and the effectiveness of monetary policy, such as facilitating lending to small and medium-sized enterprises for increased economic activity and, Improving the business environment and enhancing investment by removing key bottlenecks and impediments, including inadequate infrastructure and energy provision, weak governance and an overly burdensome regulatory environment.

By staff writer

© afrol News

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