The International Monetary Fund has approved a $224.9 million standby credit line to Tanzania to help the country deal with any potential pressures on its balance of payments position from troubles facing the global economy.

The east African nation could have to deal with the effects of any escalation of the debt crisis in the euro area from a position of weakness, after prices climbed sharply last year and its shilling currency weakened against the dollar.

“While Tanzania does not face an immediate balance of payments need, the newly approved Standby Credit Facility (SCF) provides a comfortable buffer against external shocks,” the IMF's deputy managing director, Naoyuki Shinohara, said in a statement seen by Reuters on Monday.

“The authorities intend to treat the SCF as precautionary and will only draw the IMF resources should external demand deteriorate or access to international financial markets become more limited.”

He said Tanzania should sustain a tight monetary policy in 2012/13 to curb high inflation and bring it down to targeted single-digit levels.

The year-on-year inflation rate eased in May to 18.2 percent, from 18.7 percent in April. Just as in neighbouring Kenya and Uganda, inflation was driven up partly by high fuel and food costs.

“The Bank of Tanzania intends to move to more active use of interest rates as a policy instrument. The flexible exchange rate regime will ease the burden on monetary policy and help maintain adequate international reserves,” Shinohara said.

Tanzania's GDP growth in the first half of the 2011/12 fiscal year was 6.5 percent, unchanged from a year ago, the IMF said in the statement.

The government cut its economic growth forecast for 2012 to 6.8 percent, from an earlier estimate of 7 percent, due to a prolonged drought and chronic energy shortages.

Other nations in the region have been racing to build up buffers against the impact of sluggish global growth and any worsening of the euro area crisis, with Mauritius unveiling a credit line to banks to help exporters. - Reuters