IMF urges Tanzania to ensure ‘effective management’ for potential gas revenues

Out-Law News | 30 Jul 2014 | 3:18 pm | 2 min. read

Tanzania must prepare for the effective management of “sizeable fiscal revenues” if recent discoveries of significant deposits of offshore natural gas are confirmed as commercially viable, according to a new report from the International Monetary Fund (IMF).

The country also faces several short-term challenges as it works towards increasing investment in much-needed infrastructure while also protecting “critical social spending”, according to the IMF staff report (51-page / 1.03 MB PDF).

The IMF said Tanzania has good prospects over the next decade of becoming a major producer and exporter of natural gas. “This is beginning to generate expectations that greater spending is warranted by likely future revenues. However, a final decision on whether to develop a large-scale liquefied natural gas project using offshore gas resources may not be made by the natural gas companies until 2016, with production to begin no earlier than 2020.”

According to the IMF, beyond “keeping expectations in check until such uncertainty is resolved”, decisions made in the next few years on the contracts and the framework for the management of natural resources revenues “will have long-term implications for whether the ensuing benefits will accrue to all citizens”.

The IMF said public investment in Tanzania’s infrastructure is seen as key “to strengthening competitiveness and removing growth bottlenecks”, but “ambitious” spending proposals still need “further prioritisation and to be fully integrated into the budget process, while safeguarding critical social expenditures”.

In addition, the IMF said political factors may “engender additional pressures to increase spending”. “Uncertainties stem from the ongoing review of the constitution, including the relationship between mainland Tanzania and Zanzibar, which might have significant economic and fiscal implications,” the IMF said. General elections scheduled for October 2015, when president Jakaya Kikwete’s second and last term of office expires, mean reforms “will likely require even greater resolve”, the IMF said.

Perceived weaknesses of Tanzania’s business climate are “significant” and must also be addressed, according to the IMF report. “Tanzania ranks poorly on various indicators of perceptions of competitiveness and governance, including those by Transparency International and the Economic Forum. Tanzania ranked 134th out of 185 countries in the World Bank’s Doing Business 2013 indicators (282-page / 3.46 MB) for the average across all indicators, lagging behind several of its peers in the region (including Kenya, Rwanda, and Uganda).”

Perceptions of good governance have been “further weakened by recently reported allegations of corruption in financial transactions”, the IMF said.

However, the IMF said the government’s ‘Big Results Now’ initiative, part of Tanzania’s work towards shifting from a low to middle-income economy, is tackling obstacles to private sector development. A ‘business environment lab’ has identified several areas as “most severe impediments to growth” including taxation and fees, corruption, labour law, contract enforcement and law and order. The IMF said the lab’s recommendations include “legislative, institutional and regulatory changes aimed at streamlining business registration and operations, enforcing property rights, removing labour and product market rigidities, enhancing transparency, and reinforcing the rule of law”.

According to the government-supported Tanzania Investment Centre (TIC), there are currently 22 oil companies involved in exploration activities for oil and gas in the country. TIC said the country has more than 41 trillion cubic feet of gas reserves based on latest estimates (54-page / 5 MB PDF).