Tanzania's strong economic fundamentals, including low public debt and ample foreign currency reserves, will help the East African country cope with the current global downturn and fall in world commodity prices, the International Monetary Fund said on Monday.
Still, the IMF urged the authorities to prepare contingency plans in case the global downturn worsens.
"The fiscal stance for 2008-09 provides an appropriate modest stimulus, while retaining the target of zero net domestic financing, which is supportive of monetary policy," the IMF said in a review of Tanzania's economy.
"The authorities will need to exercise expenditure restraint in the event of a revenue shortfall," it added.
Earlier this year, the government had targeted average inflation at below 4.5 percent by the end of the current year.
The IMF said higher infrastructure investment is needed to support growth, but care should be taken to achieve value for money and avoid increasing public debt, IMF Deputy Managing Director Murilo Portugal said in a statement on Monday.
The sharp drop in global commodity prices will help lower inflation, he said, but the fund urged authorities to strengthen monetary control to return inflation to the authorities' medium-term objective.
Tanzania's annual inflation was at 12.3 percent in November from 11.8 percent in October due to higher food prices, the National Bureau of Statistics reported on Dec. 17.
The country's annual inflation rate hit double digits in September for the first time in September, an increase felt in most developing countries hit by higher global food and fuel prices.
"In this regard, the recent agreement between the Ministry of Finance and Economic Affairs and the Bank of Tanzania on their respective roles and responsibilities will help improve liquidity forecasting and management," Portugal added.