Tanzania’s commitment to fostering economic resilience and sustainability is gaining international recognition as structural reforms take center stage.
The International Monetary Fund (IMF), following its recent mission to the East African nation, has commended the Tanzanian government for its steadfast efforts in economic management and reform implementation under the Extended Credit Facility (ECF) and Resilience and Sustainability Facility (RSF) programs. These initiatives underscore Tanzania’s resolve to strengthen its fiscal framework, boost economic growth, and address climate-related challenges.
Structural reforms are critical for enhancing the productivity and competitiveness of an economy. For Tanzania, such reforms aim to improve the business environment, mobilize domestic revenue, and foster economic inclusivity. Through a mix of policy adjustments and strategic investments, the government is addressing bottlenecks that have long hindered growth while laying the groundwork for sustained economic progress.
Key reforms being implemented include efforts to enhance exchange rate flexibility, modernize the monetary policy framework, and consolidate fiscal policies in a growth-friendly manner. Together, these initiatives aim to create a stable macroeconomic environment conducive to investment and development.
IMF’s Recognition of Progress
The IMF’s staff-level agreement on the fourth review of Tanzania’s ECF-supported program and the first review of the RSF highlights the country’s impressive strides in structural reforms. During the mission, led by IMF mission Chief, Charalambos Tsangarides, the Fund acknowledged the Tanzanian government’s ability to navigate economic challenges, including external shocks and climate-related risks, while staying committed to policy priorities.
“The Tanzanian authorities have made commendable progress in their structural reform agenda. These efforts are critical in fostering a resilient, sustainable, and inclusive economy,” stated Tsangarides.
The completion of these reviews is set to unlock significant financial support for Tanzania, with $265.78 million under the ECF and $114.07 million under the RSF. These funds will bolster the nation’s reform agenda and provide a cushion against external vulnerabilities.
One of the cornerstone reforms highlighted by the IMF is Tanzania’s commitment to exchange rate flexibility. A flexible exchange rate allows the currency to adjust to market conditions, ensuring a more efficient allocation of resources and reducing imbalances in the foreign exchange market.
In recent years, Tanzania has faced challenges in maintaining liquidity in its forex markets, with earlier shortages creating headwinds for the economy. However, improved foreign exchange inflows, seasonal dollar supply, and targeted interventions by the Bank of Tanzania (BoT) have eased these pressures.
The BoT has also maintained a moderately tight monetary policy stance to preserve price stability while supporting economic recovery. In October 2024, the Monetary Policy Committee retained the Central Bank Rate at 6%, signaling its commitment to containing inflationary pressures while promoting sustainable growth.
Fiscal Consolidation and Revenue Mobilization
Tanzania has made significant strides in fiscal consolidation as it seeks to strike a balance between robust economic growth and macroeconomic stability. In the fiscal year (FY) 2023/24, the government demonstrated commendable progress in revenue mobilization, achieving a 17.5% increase in tax revenue compared to the previous fiscal year.
This success was underpinned by enhanced tax compliance measures, the introduction of digital tax platforms, and the broadening of the tax base. The Tanzania Revenue Authority (TRA) exceeded its revenue collection target of TZS 23.65 trillion, collecting TZS 25 trillion by the end of the fiscal year.
This increased revenue facilitated a disciplined approach to public spending. Current expenditure was streamlined, with the government focusing on eliminating inefficiencies and reallocating resources to high-impact areas. As a result, Tanzania was able to allocate more funding to social sectors, safeguarding essential services such as healthcare and education. For instance, healthcare spending rose by 12%, ensuring better access to medical services for vulnerable populations, while investments in free basic education expanded access for over 1.2 million children in rural areas.
In the FY2024/25, Tanzania’s budget emphasizes growth-friendly fiscal consolidation. The government plans to enhance domestic resource mobilization through robust tax policy reforms and improved revenue administration. Key initiatives include leveraging digital tools to improve efficiency, introducing progressive tax measures, and incentivizing the formalization of informal sector businesses. The budget also outlines an ambitious revenue collection target of TZS 28 trillion, a 12% increase over the previous year.
These measures aim to reduce Tanzania’s reliance on external financing, which accounts for 30% of its budget. By increasing fiscal space, the government can fund critical development projects in infrastructure, agriculture, and renewable energy. Such investments are vital for sustaining economic growth, which is projected to remain strong at 5.6% in 2024, while ensuring macroeconomic stability.
Resilience and Sustainability Facility: Tackling Climate Challenges
Tanzania’s partnership with the IMF under the RSF reflects its commitment to addressing climate-related challenges. The RSF provides a framework for implementing climate reform agendas and mobilizing resources for adaptation and mitigation measures.
The government has taken significant steps to define institutional frameworks for climate policies and strengthen public investment management to align with climate risks. Investments in infrastructure, renewable energy, and sustainable agriculture are key components of this strategy, ensuring that Tanzania builds resilience against climate change while fostering economic sustainability.
IMF support under the RSF is particularly crucial in mobilizing technical and financial assistance from development partners, enabling Tanzania to scale up its climate action efforts.
Strengthening Governance and Business Environment
Good governance and a conducive business environment are essential for attracting investment and driving sustainable economic growth. Aware of this, Tanzania has undertaken significant reforms to enhance transparency, accountability, and regulatory efficiency, creating a solid foundation for private sector development and foreign direct investment (FDI).
One of the government’s key initiatives has been simplifying business registration processes. The introduction of an online registration system has significantly reduced the time and costs associated with starting a business. Entrepreneurs can now register a company within 24 hours, compared to the previous average of 10 days. This reform has contributed to Tanzania’s rise in the World Bank’s Ease of Doing Business rankings, where the country improved its position by 12 places in 2023.
Another critical area of focus has been strengthening contract enforcement. The government has established specialized commercial courts to expedite the resolution of business disputes, reducing the average case resolution time from 400 days to 250 days. This efficiency not only fosters investor confidence but also ensures a more predictable and fair business environment.
Efforts to reduce bureaucratic hurdles are also evident in the streamlining of licensing and permit procedures. The establishment of a one-stop investment center under the Tanzania Investment Center (TIC) has provided a centralized platform for investors to access all required services, including permits, licenses, and tax registration, in a more efficient and transparent manner.
Furthermore, the government has intensified its fight against corruption, a long-standing impediment to business operations. Strengthened anti-corruption measures, including the digitization of procurement systems and rigorous enforcement of anti-graft laws, have enhanced accountability. In 2023, the Prevention and Combating of Corruption Bureau (PCCB) recorded a 25% increase in corruption cases resolved compared to the previous year, signaling progress in promoting a level playing field for all businesses.
These governance and business environment reforms have begun to yield results. FDI inflows reached $1.3 billion in 2023, up from $922 million in 2022. By building on these gains, Tanzania is creating an environment conducive to sustainable economic growth and private sector-led development.
Economic Outlook: Favorable Yet Cautious
Tanzania’s economic outlook for 2024 is optimistic, with growth projected at 5.4%, up from 5.1% in 2023. Key drivers of this growth include robust performance in the service sector, improved liquidity in forex markets, and strategic policy interventions.
Inflation remains low, at 3.1% year-on-year as of September 2024, well within the BoT’s target range. This stability is a testament to effective monetary policy management and favorable external conditions, including lower commodity prices.
However, risks remain. Regional conflicts, commodity price volatility, and global economic uncertainties could weigh on Tanzania’s economic performance. The government’s proactive approach to managing these risks, coupled with IMF support, is crucial in safeguarding the recovery.
Tanzania’s engagement with the IMF and other development partners underscores the importance of international collaboration in addressing structural challenges. The financial support unlocked through the ECF and RSF programs is a testament to the country’s commitment to reform and its alignment with global economic and sustainability goals.
Moreover, Tanzania’s efforts to mobilize additional technical and financial resources for climate resilience highlight its leadership in championing sustainable development in the region.
Lessons for Other Developing Economies
Tanzania’s experience offers valuable lessons for other developing economies striving for sustainable growth. Its emphasis on structural reforms, fiscal discipline, and climate action demonstrate that even amid external shocks, a focused and determined policy approach can yield positive outcomes.
Key takeaways include the importance of exchange rate flexibility, the role of robust monetary and fiscal policies, and the need to integrate climate considerations into national development agendas.
Tanzania’s structural reform journey is a testament to its resilience and forward-thinking leadership. As the nation continues to implement its reform agenda, the IMF’s support and commendation reflect the international community’s confidence in Tanzania’s economic management.
By prioritizing governance, business environment enhancements, and climate resilience, Tanzania is not only positioning itself for sustainable growth but also setting a benchmark for other economies in the region. While challenges persist, the momentum gained in structural reforms offers a solid foundation for a prosperous future.
With sustained efforts, Tanzania is poised to build a more inclusive, resilient, and sustainable economy, leveraging its partnership with the IMF and the broader international community to realize its development aspirations.