DAR ES SALAAM: SURGING gold prices are helping Tanzania cushion the impact of rising oil costs from the Middle East conflict, with the International Monetary Fund (IMF) projecting the current account deficit will remain below three per cent despite mounting external pressures.

That assessment by the IMF captures the country’s growing ability to absorb external shocks even as tensions in the Middle East push up fuel costs and threaten global supply chains.

“Despite the recent surge in oil prices, the current account deficit is projected to remain below 3.0 per cent, aided by high gold prices,” the IMF said in its latest report issued on Tuesday.

An IMF team led by Nicolas Blancher visited the country between April 28 and May 12 for discussions on the sixth and seventh reviews under the Extended Credit Facility (ECF) and the third and fourth reviews under the Resilience and Sustainability Facility (RSF).

The IMF said the economy has so far remained resilient, supported by strong gold exports, stable inflation and prudent macroeconomic management under the ECF and RSF programmes.

The Bretton Woods institution projects the economy to grow by 5.9 per cent this year, while inflation is expected to rise to 4.7 per cent due to higher oil and fertiliser prices linked to the Middle East conflict. April inflation climbed to 4.0 per cent from 3.2 per cent in March.

“Securing fuel supplies, allowing international oil price increases to pass through gradually to domestic prices, and relying on exchange rate flexibility have helped safeguard macroeconomic stability,” the statement said.

The Fund also called for temporary and targeted support measures to cushion vulnerable groups without straining public finances.

“The IMF team underscored the need to protect the most vulnerable through targeted, temporary and transparent interventions in order to preserve fiscal space and sustainability,” Mr Blancher said.

The IMF further advised the Bank of Tanzania (BoT) to remain alert to inflation risks.

“Bank of Tanzania should stand ready to raise policy rates if inflation pressures intensify, while allowing the exchange rate to remain the primary shock absorber,” the statement noted.

The current policy rate is 5.75 per cent. On the fiscal side, the Fund said maintaining strong tax collection and timely payment of tax refunds would support economic activity and safeguard spending on health, education and social protection.

“Steadfast budget implementation, including maintaining strong tax revenue performance, is critical to safeguarding priority social spending on health, education and social protection and meet the authorities’ objective of fiscal sustainability,” the IMF said.

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The Fund also noted that disruptions to global aviation and supply chains are expected to affect agriculture, tourism and transport sectors, placing pressure on prices and external balances. Even so, the IMF said Tanzania’s policy response has helped maintain stability.

“The authorities have strengthened macroeconomic stability, built buffers and improved resilience to economic shocks and risks from climate change,” the statement said.

The medium-term outlook also remains positive, with growth projected to rise to 6.3 per cent, supported by mining, agriculture and tourism.

The IMF also pointed to reforms needed to sustain long-term growth under the country’s Development Vision 2050.

“Building on achievements under the ECF- and RSF-supported programmes, Tanzania’s economic growth and development will depend on accelerated reforms to achieve the ambitious goals under the Development Vision 2050, especially in the areas of human capital and private sector development,”

Mr Blancher said. Meanwhile, subject to approval by the IMF Executive Board, the reviews will unlock Special Drawing Rights -SDR 283.85 million (about 375.5 million US dollars), bringing total IMF support under the ECF arrangement to SDR 795.58 million and SDR 426.2 million under the RSF arrangement.

“The programmes’ broad objectives have been achieved. Growth remains strong, inflation has been stable and within the Bank of Tanzania’s target range, international reserves coverage remains adequate and spending on priority social sectors such as education and health has ticked up,” he added.

The Fund listed key priorities including improving domestic revenue mobilisation, strengthening public financial management, reinforcing central bank independence and improving the business environment.

The IMF mission met Finance Minister Khamis Mussa Omar, BoT Governor Emmanuel Tutuba, development partners, private sector representatives and civil society organisations during the visit.