Tanzania's external sector performance in August 2024 reflects a positive trajectory, with a narrowing current account deficit driven by strong export growth and robust performance in the services sector. While the primary income account deficit remains a concern, the overall stability provided by healthy foreign exchange reserves offers a buffer against potential economic shocks. Continued focus on enhancing export competitiveness and managing import levels will be essential for maintaining this positive trend in the external sector.

1. Current Account Performance:

• The current account deficit narrowed to USD 2,567.2 million for the year ending August 2024, compared to USD 3,846.5 million in the same period the previous year. This reflects a significant reduction of approximately 33.3%​.
• The improved performance can be attributed to stronger export receipts and moderated import growth, contributing positively to the overall trade balance.

2. Goods Account:

• The goods account recorded a deficit of USD 534.0 million in August 2024. The components of this account include:
  • Exports: Totaled USD 934.3 million.
  • Imports: Amounted to USD 1,468.3 million​.
• Export Performance:
  • The total exports of goods increased significantly to USD 15,064.6 million for the year, up from USD 13,290.1 million, driven by higher sales of traditional products such as tobacco and non-traditional products like gold and horticultural goods.

3. Services Account:

• The services account also contributed positively, with a surplus of USD 488.9 million in August 2024. This was an increase from USD 411.34 million in the previous year​.
• Key components of this account included:
  • Services Receipts: Reached USD 670.6 million, up from USD 609.3 million the previous year, primarily driven by the tourism sector, which benefited from increased tourist arrivals.

4. Primary Income Account:

• The primary income account recorded a deficit of USD 1,760.8 million, wider than the previous year’s deficit of USD 1,446.4 million. This deficit is primarily due to higher interest payments on external debt​.

5. Secondary Income Account:

• The secondary income account showed a surplus of USD 556.5 million, compared to USD 637.6 million in the previous year. This component includes remittances and other transfers, which remained steady but slightly declined​.

6. Foreign Exchange Reserves:

• By the end of August 2024, Tanzania's foreign exchange reserves increased to USD 5,379.7 million, providing sufficient coverage for 4.4 months of projected imports. This level of reserves is in line with international benchmarks and demonstrates the country’s ability to manage external shocks​.

The external sector performance of Tanzania in August 2024 with key insights into the country’s economic health and trade dynamics

Overall, the external sector performance in August 2024 indicates a positive trend in Tanzania’s trade dynamics, characterized by improved export performance and a narrowing current account deficit. However, the challenges posed by the primary income deficit highlight the need for careful debt management. Strengthening the export base and diversifying the economy will be crucial for maintaining this positive trajectory while ensuring long-term economic stability.

1. Improved Current Account Balance:

• The narrowing current account deficit from USD 3,846.5 million to USD 2,567.2 million signifies a positive shift in Tanzania’s external financial position. This reduction of approximately 33.3% suggests that the country is managing its foreign transactions more effectively, with increasing exports helping to offset import expenditures.
• A smaller current account deficit is generally a sign of improving economic stability, indicating that Tanzania is becoming less reliant on foreign borrowing to finance its deficits.

2. Strong Export Growth:

• The increase in total exports to USD 15,064.6 million, particularly in traditional (like tobacco) and non-traditional goods (such as gold and horticultural products), shows that Tanzania is capitalizing on its resource base and expanding its market reach.
• This growth in exports can enhance foreign exchange earnings, support local industries, and potentially lead to job creation in the agricultural and mining sectors. It indicates that Tanzania is competitive in the global market.

3. Services Sector Contribution:

• The services account surplus of USD 488.9 million indicates that sectors like tourism are recovering well, benefiting from increased tourist arrivals and related services.
• A robust services sector contributes to economic diversification, reduces dependence on agriculture and commodities, and can enhance overall economic resilience.

4. Primary Income Deficit:

• The widening primary income deficit (to USD 1,760.8 million) suggests that while the country is earning from exports, it is also incurring substantial costs from interest payments on external debt.
• This raises concerns about debt sustainability. If the trend continues, it may limit the government’s ability to invest in public services or development projects, as more revenue will be required to service debt.

5. Solid Foreign Exchange Reserves:

• The increase in foreign exchange reserves to USD 5,379.7 million, sufficient for 4.4 months of imports, provides a buffer against external shocks and currency fluctuations.
• Healthy reserves enhance the country’s ability to manage trade imbalances and stabilize the currency, reflecting prudent monetary policy and fiscal management.