IMF says Tanzania must tame domestic price growth

Tanzania must fight homegrown inflation as global food and fuel prices ease, but it has so far been unaffected by turmoil in the world's financial markets, the International Monetary Fund said on Friday.

The east African country's annual inflation rate stood at 9.8 percent in August, up from 9.5 percent the month before and 7.8 percent in August 2007. The government aims to bring the rate back down to 7.0 percent by the end of June 2009.

"Inflation has risen sharply over the past nine months and has remained persistently above the Bank of Tanzania's target. Pressures from the international fuel and food price surge have played a part in this," the IMF said in a statement.

"As global pressures subside, the key challenge for Tanzania is to ensure that domestic inflation also retreats."

The statement said that Tanzania, through its central bank, had to "use all the instruments at its disposal to rein in excessive growth in monetary aggregates".

The Bank of Tanzania (BOT) aims to keep money supply growth to below 18 percent by June 2009, compared with a rate of 21.0 percent by the end of June 2008.

At the end of May, broad money supply growth stood at 27.6 percent, according to June's monthly economic review from BOT.

The IMF said that so far Tanzania had not been affected by the carnage in the global financial markets.

"Should the tumultuous global financial conditions persist, or should growth prospects deteriorate significantly, low income countries may not remain immune," it said.

"In particular, reduced access to foreign capital and slower export growth may also dampen economic activity in Tanzania."

Tanzania is an attractive investment destination -- especially in agriculture, tourism, mining and lately, financial services and telecoms -- because of its political stability.