Fri Mar 11, 2011 8:01am GMT DAR ES SALAAM (Reuters) - Tanzania's economy will grow at a slower rate than previously expected this year, weighed down by a power crisis and rising prices, and accelerating inflation is a concern, the International Monetary Fund (IMF) said on Friday. The IMF's resident representative also said the fund backs Tanzania's plans to issue a debut Eurobond this fiscal year and had agreed to an external non-concessional borrowing ceiling of $1.5 billion over three years. The IMF initially expected Tanzania's economy to grow 7.2 percent this year from 7 percent in 2010 before accelerating to 7.5 percent in 2012, while inflation would be 5.5 percent by June 2011, and decline to 5 percent thereafter. But sections of Tanzania, like its northern neighbour Kenya, are suffering from drought, which has hurt food production and cut water levels at the country's main hydropower dams. "The ongoing drought, the related power shortages, and the global rise in food and fuel prices all mean these forecasts must be reconsidered," resident representative John Wakeman-Linn told Reuters. "Clearly these factors will increase Tanzania's inflation in 2011, while reducing its growth somewhat." Inflation rose for the third successive month in January to 6.4 percent from 5.6 percent in December. The IMF said it was working with Tanzania's central bank and finance ministry to revise the 2011 GDP and inflation projections. Wakeman-Linn said Tanzania's economy could rebound next year if the country addressed chronic energy shortages that have forced the state-run Tanzania Electric Supply Company to introduce nationwide rolling blackouts since December. Tanzania, Africa's fourth-biggest gold producer, mainly depends on tourism, mining and agriculture and is increasingly attracting more investor interest in telecommunications, energy, manufacturing, financial services and transport. POWER WOES "Beyond 2011, assuming the power problem is resolved satisfactorily, there is no reason Tanzania should not return to its previous growth path of 7 percent or more," he said. "Communications, financial services, mining and tourism should continue to do well. Manufacturing was doing very well prior to the power problems, and can be expected to continue to do well once the problems are resolved. The prospects for agriculture depend on the weather." The IMF said it approved of plans by Tanzania to issue a Eurobond in the fiscal year starting in July, after the country gets a sovereign rating in the next seven to eight months. "It makes perfect sense for Tanzania to borrow on international capital markets, provided they borrow on reasonable terms and spend the money wisely on well-designed, critical infrastructure projects," Wakeman-Linn said. The country hopes to get a credit rating of B+, similar to other African nations such as Kenya, Angola and Nigeria. Investment Climate Facility for Africa -- a private body working to improve the business climate in the continent -- estimates Tanzania needs to invest $10 billion a year to improve its infrastructure network. "Over time, Tanzania needs to find sustainable ways to finance and address its huge infrastructure needs," Wakeman-Linn said.