A general picture shows the skyline of Tanzania's port city of Dar es Salaam

IMF forecasts Tanzanian economic growth of 4-5 pct in medium term

NAIROBI (Reuters) - Tanzania's economy will be subdued if recent government policies and legislation continue, threatening to hit growth in East Africa's third largest economy, an International Monetary Fund report seen by Reuters on Thursday said.

President John Magufuli's government has embarked on an ambitious program of industrialization, but foreign investment in the country has fallen after contentious government interventions in the mining and agriculture sectors.

Foreign direct investment fell to 2 percent of GDP in 2017, down from about 5 percent in 2014, the World Bank has said.

In a report which was not made public after Tanzanian authorities did not consent to its publication, the IMF said that a weak business environment and the implementation of projects that may not have high rates of return are likely to constrain annual GDP growth to below the 6.3 percent average recorded between 1998 and 2017.

The 2019 Article IV Consultation with the United Republic of Tanzania Staff Report is part of the IMF's "mandate to exercise surveillance over the economic, financial and exchange rate policies of its members in order to ensure the effective operation of the international monetary system," the IMF said in a statement on Wednesday.

The IMF projected a rate of GDP growth of around 4-5 percent in the medium term, should current policies continue.

That forecast differed from the government's projection that the economy will grow by 7.3 percent in 2019 after an estimated 7.2 percent expansion last year.

"The Fund does not comment on leaked reports," an IMF spokesperson told Reuters.

"Member countries may (refuse) consent to the publication of their staff reports or the related press releases. While most country reports are published, some countries have in the past decided otherwise," the spokesperson said.   

In the report, the IMF said authorities were more optimistic about growth prospects. "They considered that their recent estimates of economic growth properly reflect economic activity and envisage that real GDP growth will be in the order of 7-8 percent per year in the short to medium-term," it said.

Tanzania's finance ministry spokesman did not immediately respond to a request for comment, saying he was in a meeting when contacted by Reuters.

The IMF report said that there were serious weaknesses in official data with other indicators pointing to a more subdued pace of economic activity.

Unrealistic budgets based on over-optimistic revenue projections and spending in large development projects led to expenditure arrears, the IMF said. Adverse tax administration practices contributed to delays in tax refunds, it added.

"This backlog also contributed to high non-performing loans, a slowdown of credit to the private sector, and increasing bank vulnerabilities in the financial sector," the IMF said.

"Fiscal arrears, coupled with amendments to key legislation that departed from good international practice alongside an interventionist stance in some markets have raised uncertainty and increased the cost of doing business."

The Statistics Act, which critics say criminalizes publishing statistics that differ from official ones, and mining laws that gives the government the power to renegotiate or nullify agreements with terms it deem to be "unconscionable", are some of the laws that the Fund said could have adverse implications.

During discussions with officials, authorities indicated that they will undertake corrective actions but risks remain, the IMF said.

"While the authorities' intention to proceed with moderate reforms could, if implemented, prevent a further erosion of trust and maintain economic stability, growth is likely to be subpar and vulnerabilities may linger," the IMF said.

(Writing by Nairobi newsroom; Additional reporting by Alexander Winning in Johannesburg; Editing by Toby Chopra)

2019-04-18 18:06:37

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