Fiscal Policy Is Priority as Mineral Exports Boost Tanzania

Strong economic record over past decade helped buffer global crisis effects

Rapid population growth is putting pressure on delivery of public services

Large investments set to boost commodities' share of output, exports

But, the IMF noted in its regular review of the east African nation’s economy, poverty affects one-third of the population and the country is dependent on foreign aid.

Rapid population growth is putting pressure on the delivery of public services in the infrastructure and social areas, far outpacing the growth of domestic revenue and foreign aid. A combination of spending rationalization, tax policy reforms and enhanced public financial management will be called for to maintain fiscal balance.

The IMF’s Executive Board concluded May 6 its biennial consultation with Tanzania on the country’s medium-term economic developments and policies. It also completed its biannual review of Tanzania’s three-year Policy Support Instrument, a framework for low-income countries that may not need IMF financial assistance but still seek IMF advice on and endorsement of their policies.

The economic program of the authorities—supported by the IMF through the Policy Support Instrument—aims to reduce poverty within a stable macroeconomic environment. It also aims to create fiscal space for infrastructure investment—critical for accelerated growth—together with the consolidation of social sector gains, in line with the authorities’ new poverty-reduction strategy.

Peaceful elections

Tanzania’s tradition of peaceful elections has provided a solid basis for growth, which has averaged 7 percent a year since 2000. The country’s abundant natural resources have spurred a robust expansion in exports.

The authorities have implemented wide-ranging policy reforms over the past decades, and policy buffers built up in previous years served Tanzania well during the global financial crisis.

However, Tanzania faces formidable hurdles. Per capita income is about $550, reflecting earlier decades of stagnation and high population growth. Poverty declined only slightly during the last decade and remains widespread, with one in three living below the poverty line. Tanzania is highly dependent on foreign aid, projected to peak at 10 percent of GDP this year.

Favorable prospects

Following a projected slowdown in growth to 6 percent in 2011 due to poor rainfall, the economy should rebound quickly with a return to normal weather and reach an annual growth...