Tanzania stands out as one of the world's youngest nations, offering a prime opportunity to harness its demographic dividend—the economic boost from a growing working-age population—before the gradual shift toward ageing begins to reshape monetary policy tools like interest rates. In 2025, the median age is just 17.5 years, with approximately 44% of the population under 15, 55% aged 15-64 (the working-age group), and only 3% over 65. This youth bulge contrasts sharply with global ageing trends, creating high demand for investments in education, health, and jobs to fuel productivity and economic expansion. The age dependency ratio, at 83.1% in 2025, underscores the current burden on the working-age cohort but also highlights the potential for a "dividend" if fertility rates decline and human capital improves—potentially reducing education costs from 3.3% of GDP to 2.9% by 2061 under a low-fertility scenario. Read More: Analysis of Formal and Informal Employment in Tanzania 2025

This demographic structure supports robust monetary policy effectiveness today. The Bank of Tanzania (BoT) has maintained flexibility, lowering its Central Bank Rate (CBR) to 5.75% in July 2025 to stimulate growth amid projected GDP expansion of 6-7% for the year. High youth-driven consumption and investment needs—such as infrastructure and housing for a burgeoning workforce—help sustain demand for loans, keeping interest rates relatively elevated (lending rates averaged 15.18% in May 2025) and making rate adjustments potent tools for influencing economic activity. Unlike ageing economies where excess savings depress rates, Tanzania's profile encourages borrowing and spending, enhancing the BoT's ability to "accelerate" growth via cuts or "brake" inflation via hikes.

However, projections signal a slow but inevitable ageing transition. By 2050, the elderly share could rise to around 7-8%, straining pension systems and increasing old-age dependency from the current low base. This could mirror global patterns: higher savings for retirement (boosting loanable funds supply) and reduced large-scale investments (e.g., fewer home purchases by risk-averse seniors), exerting downward pressure on real interest rates. Research on similar emerging contexts suggests demographics could explain much of any future rate declines, potentially limiting the BoT's room to cut rates during downturns—especially if it approaches the zero lower bound. Early signs include challenges for older Tanzanians accessing credit amid high rates, exacerbating poverty for the 66% of those over 65 who remain economically active, often in informal agriculture.

The opportunity here is transformative: Tanzania can "age into stability" by proactively extending working lives and integrating older adults. Currently, many seniors (aged 55+) desire continued employment but face barriers like physical demands in farming or limited opportunities, curbing spending and investment. Policies promoting intergenerational knowledge transfer—where elders advise on cultural and economic practices—could boost productivity. The National Policy on Ageing emphasizes economic participation for seniors, including health programs to enable longer careers, aligning with global findings that "70 is the new 53" in cognitive terms. Coupled with scaling female workforce entry (post-childbirth participation is rising) and AI-driven innovations in agriculture, this could offset future rate pressures by sustaining investment demand. The BoT could innovate by incorporating demographic modeling into policy statements, as seen in its June 2025 outlook, and exploring macroprudential tools like counter-cyclical buffers to buffer shocks without over-relying on rates.

Broader Africa: From Demographic Dividend to Ageing Challenges

Across Africa, particularly sub-Saharan Africa (SSA), the story echoes Tanzania's but with greater variation: the continent remains the world's youngest, with immense potential for a demographic dividend, yet faces a looming ageing wave that could subtly erode interest rate efficacy by mid-century. In 2025, SSA's population growth is projected at 2.5%, driving GDP expansion to 4.5%, outpacing global averages. The elderly (over 60) comprise just 4.8% of the population, rising to 7.4% by 2050—far below advanced economies' 25-30%—with a median age around 19. This youth-driven boom increases labor supply and investment needs, pushing interest rates higher than in ageing regions and amplifying central banks' leverage over spending and inflation.

The IMF's April 2025 World Economic Outlook emphasizes SSA's "closing window" for dividends: most low-income countries, including SSA nations, will hit their demographic turning point (working-age peak) by 2070, but benefits could add 0.1-0.4 percentage points to annual growth through 2050 if harnessed via education and jobs. Currently, high fertility and youth dependency fuel demand for capital, supporting elevated real rates (e.g., SSA average policy rates ~10-15% in 2025 amid inflation fights). This counters global ageing's downward pull, with SSA potentially attracting inflows from savings-rich older economies. However, as fertility falls and life expectancy rises (to 75+ by 2050), savings will accumulate, and investment demand may wane—mirroring the IMF-noted global dynamic where ageing accounts for three-quarters of a 1.1 percentage point GDP growth slowdown over 2025-50, alongside 1 percentage point wider interest-growth gaps (r-g).

Monetary policy implications are dual-edged. In dividend mode, rate tools remain sharp: cuts spur youth-led consumption, hikes curb overheating. But post-2035, as elderly shares sharpen (e.g., doubling in some SSA countries), central banks like those in Nigeria or Kenya may face "constricted" space—needing deeper cuts for stimulus but risking zero bounds, as older cohorts respond less to incentives. The African Development Bank's 2025 Economic Outlook warns of fiscal strains from pensions, indirectly pressuring rates via higher public borrowing. Unconventional tools, like the UK's counter-cyclical buffers, could help; SSA examples include South Africa's macroprudential lending caps to stabilize amid volatility.

Opportunities abound to mitigate this. Healthy ageing trends—global cognitive gains for 70-year-olds—could extend SSA working lives, with Goldman Sachs-like projections showing labor market shares rising via female participation (now ~40% in SSA, room to grow). AI and tech could reshape jobs, offsetting productivity dips. Policies must prioritize: investing 20-25% of GDP in human capital (as urged by the World Bank) to reap dividends now, then fostering senior inclusion via universal health and retraining. If realized, this could stabilize rates by balancing savings with sustained investments, turning ageing from headwind to "silver economy" tailwind—potentially boosting SSA output 19% via financial integration.

In summary, while global ageing threatens interest rate relevance, Tanzania and Africa are poised at the dividend's edge—using youth to build resilience against future pressures. Central banks should embed demographics in frameworks now, blending rate tweaks with innovations for enduring stability.