Tanzania’s external sector has shown resilience in 2025, with the current account deficit narrowing from USD 2,862.6 million in 2024 to USD 2,117.5 million in the year ending May 2025, driven by a robust 19.2% export growth to USD 16,994.7 million, particularly in gold (USD 3.84 billion), cashew nuts, and tourism (Bank of Tanzania, 2025, p. 14). Foreign exchange reserves of USD 5,360 million, covering 4.2 months of imports, exceed the national benchmark of 4 months, providing a buffer against external shocks. However, the economy’s reliance on a few key sectors raises concerns about diversification and sustainability. This analysis evaluates the resilience of Tanzania’s external sector to global economic shocks, focusing on export composition, sectoral dependence, and vulnerabilities to global commodity price fluctuations and geopolitical risks.

Explanation with Figures

• Current Account Performance:
  • The current account deficit improved significantly to USD 2,117.5 million in the year ending May 2025, down from USD 2,862.6 million in 2024, a reduction of approximately 26%. This improvement is attributed to strong export performance outpacing import growth.
  • Service payments rose by 27% to USD 8,447 million, driven by freight payments (47.7% of total service expenditures), indicating increased trade activity. The primary income account deficit widened to USD 1,902 million, reflecting higher external debt servicing costs.
• Export Growth:
  • Total exports grew by 19.2% to USD 16,994.7 million in the year ending May 2025, with significant contributions from gold (USD 3.84 billion), cashew nuts, and tourism. Gold exports alone accounted for roughly 22.6% of total exports, while cash crops and tourism bolstered service receipts.
  • Zanzibar’s current account surplus improved to USD 396.2 million from USD 423.9 million, driven by tourism-related service receipts.
• Foreign Exchange Reserves:
  • Reserves stood at USD 5,360 million in May 2025, slightly below USD 5,512.6 million in 2024 but sufficient to cover 4.2 months of imports, surpassing the national benchmark of 4 months and aligning with EAC/SADC standards.
  • The Tanzanian shilling depreciated by 3.86% annually, trading at TZS 2,884.42 per USD in April 2025, a modest depreciation that supports export competitiveness.
• Global Context:
  • Global economic uncertainties, including geopolitical tensions and trade protectionism, have dampened investor confidence and global growth prospects. Gold prices surged due to demand for safe-haven assets, while crude oil prices eased due to weaker demand and increased OPEC+ output.
  • Tanzania’s reliance on gold, a safe-haven commodity, provides a hedge against global volatility, but falling oil prices reduce import costs, supporting the trade balance.

Reliance on Key Sectors and Sustainability

1. Sectoral Dependence:
   • Gold (22.6% of Exports): Gold exports (USD 3.84 billion) are a cornerstone of Tanzania’s external sector, benefiting from high global prices driven by geopolitical tensions. However, this reliance exposes the economy to price volatility. A sharp decline in gold prices, as seen in past commodity cycles (e.g., 2011–2013), could significantly reduce export earnings.
   • Tourism: Tourism, particularly in Zanzibar, drives service receipts, contributing to a USD 396.2 million current account surplus. However, tourism is vulnerable to global shocks, such as pandemics or travel restrictions, as evidenced by a 30% drop in arrivals during COVID-19 (2020).
   • Cash Crops (e.g., Cashew Nuts): Strong performance in cashew nuts and other crops supports export growth. However, agricultural exports are susceptible to weather-related disruptions and global price fluctuations, with cashew prices historically volatile (e.g., 20% price drop in 2018–19).
2. Diversification:
   • Tanzania’s export base remains concentrated, with gold, tourism, and cash crops dominating. Manufacturing exports, which could enhance value addition, remain underdeveloped, contributing only ~8% to GDP compared to 15–20% in peer economies like Kenya. Limited diversification increases vulnerability to sector-specific shocks.
   • The Interbank Foreign Exchange Market (IFEM) saw improved liquidity from cash crop and gold exports, but over-reliance on these sectors risks instability if global demand weakens. For instance, a 10% drop in gold prices could reduce export earnings by ~USD 384 million, impacting reserves and the current account.
3. Sustainability and Resilience:
   • Positive Factors:
     • The 19.2% export growth and narrowed current account deficit (USD 2,117.5 million) reflect a robust external sector, supported by stable reserves (USD 5,360 million, 4.2 months of imports). This provides a buffer against shocks, such as rising trade tariffs noted globally.
     • Modest shilling depreciation (3.86%) enhances export competitiveness without triggering import-driven inflation, which remains stable at 3.2%.
     • Strong tax revenue (TZS 2,105.3 billion, +1.5% above target) and a fiscal deficit of 3% of GDP (2025/26) reduce reliance on external financing, bolstering resilience.
   • Vulnerabilities:
     • Heavy reliance on gold and tourism makes the external sector sensitive to global price swings and demand shocks. For example, a 20% decline in tourism receipts during a global recession could widen the current account deficit by ~USD 200–300 million (based on 2020 data).
     • Limited manufacturing growth restricts export diversification, with non-traditional exports (e.g., processed goods) constituting less than 15% of total exports.
     • Rising service payments (USD 8,447 million, +27%) and a wider primary income deficit (USD 1,902 million) due to debt servicing could strain reserves if export growth slows.
4. Global Shock Resilience:
   • Commodity Price Volatility: Gold’s safe-haven status cushions Tanzania against financial market shocks, but a prolonged global downturn could depress demand for cash crops and tourism, as seen in 2008–09.
   • Geopolitical Risks: Escalating trade tariffs and geopolitical tensions could disrupt export markets, particularly for cash crops in regional trade blocs like the EAC. Tanzania’s stable reserves and low inflation provide some insulation, but a sharp rise in oil prices could increase import costs, given oil’s significant share in imports.
   • Policy Buffers: The Bank of Tanzania’s monetary policy (Central Bank Rate at 6%) and foreign exchange interventions stabilize the shilling, while fiscal discipline (3% GDP deficit,) supports external sector stability. However, low budget execution rates for development spending (67%, 2017–2021) limit investments in export-enhancing infrastructure.

Conclusion

Tanzania’s external sector demonstrates resilience to global economic shocks, underpinned by a 19.2% export growth (USD 16,994.7 million), a narrowed current account deficit (USD 2,117.5 million), and robust foreign exchange reserves (USD 5,360 million, 4.2 months of imports). Strong performance in gold (USD 3.84 billion), cashew nuts, and tourism, alongside stable inflation (3.2%) and fiscal discipline, provides a buffer against global uncertainties like trade tariffs and geopolitical tensions. However, heavy reliance on gold (22.6% of exports) and tourism, combined with limited diversification into manufacturing, exposes the economy to commodity price volatility and external demand shocks. To enhance resilience, Tanzania should invest in value-added industries, diversify export markets, and improve infrastructure to reduce dependence on a few key sectors, ensuring sustainable export growth and external sector stability.

Table: Key Figures on Tanzania’s External Sector (2025)

Sources: Bank of Tanzania (2025); additional context from World Bank, IMF, sources (2023–2025).