IMF: Tanzania’s Economy Strong Despite Upcoming Elections and Climate Change

The International Monetary Fund (IMF) completed a staff visit this week. The visit follows closely the 5th review of the Extended Credit Facility (ECF) and the 2nd review of the Resilience and Sustainability Facility (RSF), both held in June this year. This particular visit consisted of a staff-level consultation to take stock of Tanzania’s recent economic and financial developments in light of the upcoming elections and climate issues, future prospects and a review of progress on Tanzania’s IMF programs in preparation for the next formal review. 

The IMF supports nations experiencing long-term balance of payments issues with long-term and low-interest financing arrangements, known as the ECF. At the same time, the RSF is a relatively new lending instrument, started in 2022, to assist nations in tackling climate change and building resilience. These instruments help governments deal with unexpected shocks.

Tanzania sought ECF support to address COVID-19 issues and the impact of the Russia-Ukraine war. Since these are programmatic instruments, the IMF normally disburses funds in tranches tied to the achievement of certain targets, and these disbursements follow quantitative and structural reviews. Quantitative performance criteria entail numeric benchmarks, such as keeping the deficit within a specific bound, debt metrics, inflation, and revenue collection. Structural reforms focus on the legal and policy aspects. 

Details of Tanzania’s ECF and RSF programs are captured in the table below. 

Special Drawing Rights (SDR) is a special accounting unit used by the IMF. 

When the IMF lends to a country, the loan is expressed in SDRs. For example, Tanzania’s borrowing under the ECF is measured in SDRs, but when money is disbursed, it is converted into usable currencies such as dollars or euros. Countries can also exchange SDRs with one another to obtain hard currency for imports, debt payments, or reserves. 

During the just-concluded visit, staff noted that growth in Tanzania was robust at 5.4% in Q1 2025, driven by mining, agriculture, manufacturing, and construction. Meanwhile, inflation remained low at 3.4% in August 2025. Structural reforms are progressing but need to accelerate, particularly in revenue mobilisation, climate resilience, and governance.
They recognised certain risks such as the global slowdown, reduced aid, election-related fiscal pressures, and erratic rainfall.

Tanzania is headed for elections in October this year, and the IMF warned that with elections approaching, there is a tendency for governments to expand spending or postpone difficult reforms, which could undermine the program’s progress if not carefully managed.

Staff also noted that fiscal consolidation in Tanzania was paused in FY24/25 to allow more social spending, but in FY25/26, the government needs to stick closely to its budget to preserve debt sustainability. The Bank of Tanzania has reduced the central bank rate (5.75%) due to low inflation, and FX market reforms are improving liquidity. International reserves remain adequate, at approximately US$6.2 billion, covering four months of imports. 

To continue benefitting from the ECF (and RSF) and reach their goals, Tanzania needs to continue to sustain reforms and maintain fiscal discipline.  Quantitative performance criteria for December 2024 were fully met, resulting in no major misses noted during the 5th review.

However, there were two unattained or delayed Structural Benchmarks captured in the table below:

The IMF has given a broadly positive assessment, noting that key quantitative targets are being met and reforms are progressing, though some structural measures have been delayed. With continued support, Tanzania is well placed to sustain its recovery and advance long-term development. However, the approaching elections and external uncertainties mean that maintaining reform momentum and fiscal discipline will be crucial to safeguarding these gains.