The country experienced inflation rate of 19.8 per cent last December, the highest in 15 years, significantly reducing consumers’ purchasing power. The IMF cited the tighter monetary and fiscal policies as the other factors that would lower the inflation rate to single digit.
The Bretton Woods institution however cautioned in its Tanzania’s country report that authorities should stand ready to tighten liquidity further if inflationary pressures build.“The core rate of inflation and risks from the exchange rate should be monitored closely.
If needed, policy tightening should be prompt to avoid a build up of currency market pressure,” IMF said. The shilling yesterday slightly gained ground against the greenback to reach 1,603/- on the back of some inflows in the interbank and corporate markets.
Money market reports show that the shilling is gaining ground since last December. In October 2011 the shilling reached all time low of 1,870/- a dollar, compelling the Bank of Tanzania to intervene to reduce money on circulation. On international reserves cover, the IMF shows concern as the level is continuing to decline gradually and is projected to remain close to four months of imports.
“We encourage the authorities to maintain a level of international reserves that would continue to provide a buffer against external shocks,” the report indicates. On a bid to tame budget deficit in raising inflation, the fiscal policy is being tightened for 2011/12 because of the deteriorating financing climate since mid-2011.
One of the measures is to eliminating non-priority recurrent spending and delaying some development spending to next year. “This will reduce the projected overall fiscal deficit for the current fiscal year from a budgeted 7.5 to 6.5 per cent of GDP,” IMF team observed. It added: further tightening of fiscal policies will be needed in the 2012/13 budget to further reduce the overall deficit and to keep net domestic financing at low levels. The country GDP is around 60trn/-.
The economy growth in 2011/12 is projected to ease to 6 per cent under the impact of power outages and softening world economy. For 2012/13, a gradual growth recovery is projected, assuming that energy issues are addressed in the absence of negative external shocks.