Magufuli launched a campaign to root out corruption and inefficiency in Tanzania since his inauguration in November last year and has already sacked several top public officials as a sign of his determination to fight graft.
The IMF mission chief in Tanzania, Hervé Joly, said in a statement the international lender of last resort welcomed the government's ongoing anti-graft purge.
"The mission welcomed the efforts being made by the authorities in their strong drive against corruption, noting that it would help address the perception that governance had deteriorated in recent years, as suggested by a number of surveys," Joly said in a statement.
Businesses have long said corruption and government inefficiency were major obstacles to investing in Tanzania, which ranked 117 out of 168 countries in Transparency International’s 2015 index of least corrupt countries. No. 1 is deemed the least corrupt.
The IMF said the Magufuli government needs to carry out "vigorous reforms" to foster further structural transformation of the economy and sustain high productivity gains and investment.
"Improving the business environment is also a priority. This includes, among others, better energy and transportation infrastructure and improving access to land and finance," said Joly.
"Further improving the financial sustainability of the public electricity utility, TANESCO, and settling outstanding arrears on gas and electricity supplies are critical to facilitating continued private sector investment in energy."
President Magufuli has already dismissed several senior officials, including the long-serving director general of the Prevention and Combating of Corruption Bureau (PCCB), Edward Hoseah, the commissioner general of the Tanzania Revenue Authority (TRA), Rished Bade, and the director general of the Tanzania Ports Authority (TPA), Awadh Massawe, as part of his purge.
Other top public officials from railways, immigration and national identity cards authorities were also either sacked or suspended in the government crackdown.
The IMF said Tanzania's economy remains bouyant and inflation will likely remain in check, helped by lower global oil prices.
“Economic performance has remained strong. Preliminary estimates suggest that GDP (gross domestic product) grew by 7 percent in 2015, with activity particularly buoyant in the construction, communication, finance and transportation sectors. Economic growth is expected to remain close to 7 percent in 2016," said the IMF.
“Inflation remained in single digits throughout 2015, averaging 5.6 percent, despite the significant exchange rate depreciation in the first half of the year. Inflation is expected to decrease further in the coming months, remaining close to the authorities’ medium-term target of 5 percent."
Tanzania's annual headline inflation rate eased in February to 5.6 percent from 6.5 percent in January due to slower rises in food prices.