The future looks positive for Tanzania, the East African nation that was once known as one of the most dismally performing economies in Africa. Donors - including the IMF - re-opening aid taps, writes Hobbs Gama

The government of Japan has waived $11 million worth of debt that Tanzania had incurred with the Japanese Bank for International Corporation over 20 years. Head of economic co-operation at the Japanese embassy in Dar es Salaam, Tatsuo Hirayama, said that his government used to provide debt relief grants, but decided at the end of 2002 to cancel debt for the Highly Indebted Poor Countries (HIPC) one of which is Tanzania.

"The cancellation of the debt referred only to overseas assistance accumulated-- discussions are now going on about possible cancellation of commercial loans," said Hirayama. Analysts welcome the move, saying the money that would have been used to repay debts will now be spent on the country's second Poverty Reduction Strategy (PRS) aimed at improving access to services for the poor.

Flora Musonda, an economist at the Economic and Social Research Foundation, an independent institution that carries out research and policy analysis, said that if the money was correctly used, it will be of great benefit to the poor in rural areas where 85 percent of them live. "The next phase is more important as it targets the rural sector. But the issue is that the basic infrastructure in some areas is totally inadequate or even non-existent'", she said, "Poverty will remain for some time before people begin to feel the difference."

Tanzania embarked on preparing its PRS, which examines the country's macro-economic, structural and social policies to promote growth and reduce poverty, in order to qualify for HIPC status. The document is formulated by the government after a participatory process involving civil society and development partners. The first phase focused on budgetary support for education, health and infrastructure development.

On top of the debt relief, the Executive Board of the International Monetary Fund (IMF) has approved a $4.2 million loan in support of poverty reduction programmes. The loan carries an interest of 0.5 per cent repayable in 10 years.

Clearance to obtain the loan follows the completion of the fund's first review of performance under a $29.3 million Poverty Reduction and Growth Facility (PRGF) arrangement. The decision will bring to $8.3 million the total amount drawn. PRGF is the IMF's concessional programme for low income countries.

IMF deputy managing director and acting chairman, Augustin Carstens says: "Tanzanian authorities deserve credit for maintaining macro-economic stability and making substantial progress with structural reforms that have paved the way for a steady, if modest, increase in real per capita income combined with low inflation."

Carstens warned, however, that poverty despite these achievements remained widespread, particularly in rural areas, and that economic development had to be evenly spread across the country. Strengthening the business environment and agriculture, as well as managing the micro-economic impact of high flows, would be key to the government's efforts to guarantee growth and reduce poverty further. "Enhancing revenue mobilisation and containing aid dependence will be critical. Authorities must plan towards a comprehensive reform of tax policy and administration," he concluded.