In August 2024, Tanzania's financial market displayed mixed but stable performance, with rising yields on government securities reflecting higher returns for investors, while the interbank cash market showed increased short-term liquidity demand. The Tanzanian Shilling experienced slight depreciation, though foreign exchange reserves grew to USD 5.38 billion, ensuring adequate coverage for imports. These trends suggest a balanced but cautious economic environment, with both opportunities for investors and pressures on liquidity management.

1. Government Securities Market:

• Treasury bills: The government conducted two auctions with a combined tender size of TZS 253.3 billion. Bids totaling TZS 150.8 billion were received, of which TZS 101 billion were successful.
  • The weighted average yield for Treasury bills increased to 10.61%, compared to 8.81% in July 2024, indicating higher returns for investors in these short-term securities​(2024100418271429).
• Treasury bonds: The Bank of Tanzania also auctioned 10- and 20-year Treasury bonds with a combined tender size of TZS 244.8 billion.
  • The auction attracted bids worth TZS 295.9 billion, of which TZS 174.7 billion were successful.
  • The weighted average yield to maturity for the 10-year bond was 13.26%, while the 20-year bond offered 15.40%​(2024100418271429).

2. Interbank Cash Market (IBCM):

• The interbank cash market (where banks lend to each other) saw total transactions of TZS 2,033.8 billion in August 2024, slightly lower than the TZS 2,375.4 billion traded in July 2024.
• Overnight transactions (very short-term borrowing) became more prominent, accounting for 49.1% of total market turnover, while 7-day transactions decreased to 12.7% from 33.3% in the previous month.
• The overall IBCM interest rate increased to 7.79% from 7.24% in July​(2024100418271429).

3. Interbank Foreign Exchange Market (IFEM):

• In August 2024, foreign exchange liquidity improved due to seasonal increases in tourism and export activities.
• The Tanzanian Shilling (TZS) traded at an average of TZS 2,694.25 per US dollar, slightly depreciating from TZS 2,663.76 per US dollar in July.
• The Bank of Tanzania’s participation in the IFEM reduced, with a net sale of USD 2.1 million, down from USD 10.5 million in July​(2024100418271429).

4. Foreign Exchange Reserves:

• By the end of August 2024, Tanzania’s foreign exchange reserves increased to USD 5,379.7 million, sufficient to cover 4.4 months of projected imports​(2024100418271429).

The performance of Tanzania's financial market in August 2024 with insights into the country's economic environment

Tanzania’s financial market is stable, but experiencing some pressure points. The government is offering higher yields to finance its operations, while liquidity tightness in the banking sector is driving up short-term borrowing costs. The Tanzanian Shilling remains stable, supported by strong foreign exchange reserves, though there is some pressure on the currency. These trends highlight the need for ongoing monitoring of liquidity and fiscal dynamics to ensure continued economic stability.

1. Higher Returns on Government Securities:

• The rise in yields on Treasury bills (from 8.81% in July to 10.61%) and on Treasury bonds (up to 13.26% for 10-year bonds and 15.40% for 20-year bonds) indicates that the government is offering higher returns to attract more investors.

This could be a sign that the government is increasing borrowing to finance development projects or cover fiscal needs, or it may suggest tighter liquidity in the market, prompting higher rates to attract funds. Investors benefit from these higher returns, but it may also signal growing fiscal pressures.

2. Shift in Liquidity Conditions in the Interbank Cash Market:

• The interbank cash market saw a slight reduction in transactions (from TZS 2,375.4 billion to TZS 2,033.8 billion). The increased share of overnight transactions (short-term lending between banks) suggests higher demand for liquidity in the short term.

Banks are prioritizing short-term liquidity needs, likely due to seasonal factors like crop purchasing and higher demand for the Tanzanian Shilling. The increase in the IBCM interest rate (from 7.24% to 7.79%) reflects rising costs of short-term borrowing for banks, which may tighten credit availability.

3. Stable but Slightly Depreciating Currency:

• The Tanzanian Shilling (TZS) depreciated slightly against the US dollar, trading at TZS 2,694.25 compared to TZS 2,663.76 in July.

The slight depreciation reflects seasonal factors, such as fluctuations in demand for foreign currency due to import and export activities. However, the improvement in foreign exchange reserves (to USD 5.38 billion) suggests that the central bank has a buffer to stabilize the currency and manage external shocks.

4. Improving Foreign Exchange Reserves:

• Foreign exchange reserves increased to USD 5.38 billion, sufficient to cover 4.4 months of imports, which is in line with the country’s benchmarks.

This increase in reserves provides economic stability and strengthens Tanzania’s ability to withstand external economic shocks, such as rising import costs or fluctuations in global commodity prices. It also reflects the positive impact of rising export revenues, especially from sectors like tourism and gold.