THE International Monetary Fund (IMF)
has warned that the country still faces bumpy road on its economy due to
high inflation and increasing fiscal deficits.
However, the Breton Wood institution has
praised the government for managing to absorb the world global
financial crisis shocks.
“Despite the success story about
Tanzania on how it handled the crisis, the downside risks remain,
because the macroeconomic fundamental remain shaky on the back of high
inflation and increasing fiscal deficits”, IMF’s Executive Board Deputy
Managing Director and Acting Chair Naoyuki Shinohara said in Dar es
Salaam over the weekend.
“Further fiscal adjustments will be
needed in 2012/13 to strengthen debt sustainability while creating space
for infrastructure investment and social spending,” he said at the
weekend. He said the government needs to remain vigilant and tighten
domestic liquidity further if inflationary pressures were to rise.
“To help rebuild macroeconomic buffers,
the authorities have decided to tighten the fiscal stance for 2011/12 by
eliminating non-priority recurrent spending and delaying some
development spending,” the Deputy Director said.
In a letter of intent
to IMF last month, the Ministry of Finance and Economic Affairs said
that the government plans to cut spending by 755bn/- this financial year
as part of austerity measures that could also hurt some development
projects.
The move aims to reduce the widening
budget deficit caused by low aid inflows from donors, partly due to Euro
Zone credit woes. The expenditure cuts are expected to affect a number
of construction and rehabilitation projects already underway but with a
caution that no penalties are incurred as a result of delay in
disbursing funds.
The IMF also approved the modification
of assessment criteria for end of December 2011 for net international
reserves and external debt. The country reserves at the end of October
were enough to cover imports for four months, while external debt was
slightly above 10 billion US dollars.
“The new foreign reserves should be
maintained at an adequate level to provide a buffer against external
shocks,” Mr Shinohara said. The IMF completed the third review under
the Policy Support Instrument (PSI) for Tanzania last Friday.
After
the review, the board approved waivers of the non-observance of end-June
2011 assessment criteria on net domestic financing and on net
international reserves.
Source Daily News: www.dailynews.co.tz: reported by Abduel Elinaza
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