The Bank of Tanzania's Statement of Financial Position as of January 2025 shows a 1.6% increase in total assets, reaching TZS 25.24 trillion from TZS 24.85 trillion in December 2024. This growth is driven by a 25.3% rise in government advances (TZS 5.67 trillion) and a 6.6% increase in foreign currency marketable securities (TZS 7.74 trillion), highlighting stronger financial buffers. However, currency in circulation declined by 6.0% (TZS 8.15 trillion), signaling possible shifts towards digital transactions or controlled liquidity. Meanwhile, foreign reserves improved, with gold holdings rising by 12.5% (TZS 82.18 billion) and Special Drawing Rights (SDRs) surging by 260% (TZS 27.48 billion), reflecting increased international financial support. Despite a 21.8% increase in equity (TZS 2.18 trillion), the central bank’s growing advances to the government raise concerns about fiscal sustainability.

Breakdown of the Bank of Tanzania Statement of Financial Position

1. Assets (Total: TZS 25.24 Trillion)

Assets grew from TZS 24.85 trillion (Dec 2024) to TZS 25.24 trillion (Jan 2025), an increase of TZS 393.5 billion.

Key Components of Assets:

• Cash and Cash Equivalent: Decreased from TZS 5.78 trillion to TZS 5.26 trillion (-8.9%).
• Holdings of Special Drawing Rights (SDRs): Increased significantly from TZS 7.64 billion to TZS 27.48 billion (+260%).
• Gold Reserves: Increased from TZS 73.08 billion to TZS 82.18 billion (+12.5%).
• IMF Quota: Grew from TZS 1.23 trillion to TZS 1.29 trillion (+4.8%).
• Foreign Currency Marketable Securities: Increased from TZS 7.26 trillion to TZS 7.74 trillion (+6.6%).
• Government Securities: Increased slightly from TZS 2.03 trillion to TZS 2.04 trillion.
• Advances to Government: Grew significantly from TZS 4.53 trillion to TZS 5.67 trillion (+25.3%).
• Loans and Receivables: Slight increase from TZS 940.37 billion to TZS 946.97 billion (+0.7%).
• Equity Investments: Increased from TZS 143.63 billion to TZS 150.39 billion (+4.7%).
• Inventories: Increased sharply from TZS 453.64 billion to TZS 561.78 billion (+23.8%).
• Deferred Currency Cost: Slight decrease from TZS 114.34 billion to TZS 112.07 billion (-2.0%).
• Other Assets: Dropped significantly from TZS 1.25 trillion to TZS 320.20 billion (-74.4%).
• Property, Plant & Equipment: Slight decrease from TZS 1.01 trillion to TZS 1.009 trillion.
• Lease & Intangible Assets: Minimal changes.

2. Liabilities (Total: TZS 23.06 Trillion)

Liabilities remained stable at TZS 23.06 trillion, with minor fluctuations.

Key Components of Liabilities:

• Currency in Circulation: Decreased from TZS 8.67 trillion to TZS 8.15 trillion (-6.0%).
• Deposits (Banks & Non-Banks): Increased from TZS 3.34 trillion to TZS 3.51 trillion (+5.1%).
• Other Deposits: Increased from TZS 2.82 trillion to TZS 3.10 trillion (+9.9%).
• Foreign Currency Financial Liabilities: Slight increase from TZS 4.51 trillion to TZS 4.56 trillion (+1.1%).
• BoT Liquidity Papers: Increased slightly from TZS 537.54 billion to TZS 547.39 billion.
• Provisions & Other Liabilities: Decreased from TZS 163.33 billion to TZS 133.64 billion (-18.2%).
• IMF Related Liabilities: Constant at TZS 1.17 trillion.
• SDR Allocations: Increased from TZS 1.77 trillion to TZS 1.86 trillion (+4.8%).

3. Equity (Total: TZS 2.18 Trillion)

Equity rose from TZS 1.79 trillion to TZS 2.18 trillion (+21.8%).

Key Components of Equity:

• Reserves: Increased significantly from TZS 1.69 trillion to TZS 2.08 trillion (+23.1%).
• Authorized & Paid-up Capital: Constant at TZS 100 billion.

Key Observations & Figures

1. Increase in Total Assets: TZS 393.5 billion (+1.6%).
2. Growth in Equity: TZS 389.9 billion (+21.8%) due to a rise in reserves.
3. Decrease in Currency in Circulation: TZS 519.2 billion (-6.0%).
4. Significant Increase in Advances to Government: TZS 1.15 trillion (+25.3%).
5. Surge in Special Drawing Rights (SDRs): TZS 19.8 billion (+260%).
6. Foreign Currency Marketable Securities Grew: TZS 480.6 billion (+6.6%).
7. Major Drop in Other Assets: TZS 931.1 billion (-74.4%).

The Bank of Tanzania's Statement of Financial Position (Jan 2025) reveals key insights into the country's monetary, fiscal, and financial stability

1. Monetary and Economic Trends

• Currency in Circulation Declined (-6.0%)
  → This could indicate reduced cash demand, possibly due to increased digital transactions, lower inflationary pressure, or economic slowdown affecting consumer spending.
• Increase in Foreign Currency Marketable Securities (+6.6%)
  → Suggests higher foreign reserves, improving exchange rate stability and economic resilience against external shocks.
• Growth in Gold Reserves (+12.5%)
  → Shows the Bank of Tanzania is strengthening its gold holdings as a hedge against currency fluctuations and inflation.
• Advances to Government Increased Sharply (+25.3%)
  → The government borrowed more from the central bank, likely for budget support, infrastructure projects, or debt servicing.
• Special Drawing Rights (SDRs) Surge (+260%)
  → The country received more IMF support, which could be used to boost reserves or finance balance-of-payments needs.

2. Financial Sector Stability

• Bank Deposits Increased (+5.1%)
  → Confidence in the banking sector is improving as financial institutions hold more deposits with the central bank.
• Reduction in Other Assets (-74.4%)
  → Suggests a shift in asset management, possibly due to debt repayments, asset reclassification, or balance sheet restructuring.
• Rise in Government Securities (+0.4%)
  → Indicates continued investment in domestic bonds, helping to finance government projects while maintaining liquidity.
• Growth in IMF-related Liabilities (+4.8%)
  → Reflects ongoing international obligations and external financing reliance.

3. Fiscal and Policy Implications

• Equity (Reserves) Increased (+23.1%)
  → The central bank is strengthening financial buffers, which enhances economic resilience.
• Foreign Currency Financial Liabilities Slightly Up (+1.1%)
  → Indicates controlled external debt exposure, ensuring manageable foreign obligations.
• Drop in Provisions & Other Liabilities (-18.2%)
  → May reflect reduced outstanding liabilities, signaling better financial discipline.

What It Means for Tanzania

1. The economy is stabilizing, but government borrowing is increasing.
   • The rise in advances to government suggests higher fiscal spending, which can stimulate economic growth but raises concerns about debt sustainability.
2. The central bank is strengthening reserves and foreign asset holdings.
   • Increased foreign securities, SDRs, and gold reserves show an effort to stabilize the Tanzanian shilling (TZS) and prepare for external shocks.
3. Monetary policies are shifting towards liquidity control and financial sector stability.
   • The reduction in currency circulation and rise in bank deposits indicate a move towards digital transactions and reduced inflationary pressure.
4. Increased IMF-related assets and liabilities show continued reliance on international financing.
   • This highlights Tanzania’s need for external support to balance fiscal and monetary policies.

Final Thought: Growth with Fiscal Caution

Tanzania’s financial position is improving, but government borrowing and external financing remain key risks. If these trends continue, careful monetary and fiscal management will be needed to sustain growth without increasing debt vulnerabilities.

The Tanzania Shilling (TZS) showed significant appreciation in December 2024, reversing the depreciation trend observed in previous months. The currency’s movement was influenced by increased foreign exchange inflows, monetary policy adjustments, and external economic conditions.

1. Exchange Rate Appreciation

• The Tanzania Shilling appreciated by 9.3% in December 2024, strengthening to TZS 2,420.84 per USD from TZS 2,659.03 per USD in November 2024.
• On an annual basis, the Shilling appreciated by 3.8%, compared to a 6.3% depreciation recorded in the previous month.
• This appreciation was one of the largest monthly gains in recent years, signaling strong demand for the Shilling and improved foreign exchange reserves​.

2. Factors Behind the Shilling’s Strengthening

The appreciation of the TZS was driven by multiple factors:
✅ Increased Foreign Exchange Inflows:

• Exports of cashew nuts, tobacco, and gold surged, bringing in more US dollars.
• Tourism earnings rose, contributing to a stronger balance of payments.
  ✅ Monetary Policy Adjustments:
• The Bank of Tanzania (BoT) intervened in the market, selling USD 2 million to stabilize the exchange rate.
• Interest rates in the Interbank Foreign Exchange Market (IFEM) improved, attracting more liquidity.
  ✅ Global Economic Conditions:
• Easing US Federal Reserve interest rates reduced pressure on emerging market currencies, benefiting the Tanzanian Shilling.

3. Impact of a Stronger Shilling

🔹 Positive Effects

• Lower import costs: A stronger TZS makes imported goods, fuel, and raw materials cheaper, helping to reduce inflationary pressures.
• Improved investor confidence: A stable currency encourages foreign direct investment (FDI) and supports economic growth.
• Stronger foreign reserves: The BoT’s foreign exchange reserves rose to USD 5,500.5 million in December 2024, covering 4.5 months of imports, aligning with EAC and SADC benchmarks.

🔹 Potential Risks

• Reduced export competitiveness: A stronger TZS could make Tanzania’s exports more expensive, potentially slowing export growth.
• Impact on debt servicing: If Tanzania holds foreign-denominated debt, a strengthening shilling could affect repayment costs depending on hedging strategies.

Key Takeaways:

• The TZS appreciated by 9.3% in one month, reaching TZS 2,420.84 per USD, driven by strong exports, foreign exchange inflows, and monetary policy interventions.
• Foreign reserves improved to USD 5,500.5 million, covering 4.5 months of imports.
• While the stronger Shilling helps lower import costs and inflation, it may affect export competitiveness in the long run.

The Bank of Tanzania’s monetary policy remains crucial in balancing currency stability, inflation control, and economic growth​

As of December 2024, Tanzania’s domestic debt stood at TZS 32.65 trillion, reflecting a decline of TZS 919.9 billion from the previous month, signaling improved revenue collection and reduced short-term borrowing needs. Commercial banks (30%) and pension funds (27.5%) hold the largest share of government debt, indicating significant financial sector exposure. Meanwhile, state-owned enterprises (SOEs) such as DAWASA (66.7%) and Tanzania Fertilizer Company (27.5%) accounted for TZS 74.1 billion in domestic debt, showing reliance on borrowing for infrastructure and operational financing. While the reduction in government borrowing is a positive sign, high financial sector exposure to government securities underscores the need for balanced fiscal policies and debt diversification​

Tanzania’s domestic debt stock stood at TZS 32.65 trillion at the end of December 2024, reflecting a decrease of TZS 919.9 billion from the previous month. The decline was primarily due to reduced government overdrafts from the Bank of Tanzania (BoT) as revenue collection improved​.

1. Government Domestic Debt by Creditor Category

Tanzania’s domestic debt is held by commercial banks, pension funds, the Bank of Tanzania, insurance companies, and other financial institutions.

Key Observations:

✅ Commercial banks are the largest holders of domestic debt (30%), meaning government borrowing has a direct impact on banking sector liquidity.
✅ Pension funds hold 27.5%, indicating a strong link between government debt and social security investments.
⚠️ The Bank of Tanzania (18.2%) has reduced its exposure, reflecting improved revenue collection, reducing the need for government overdrafts.

2. Selected State-Owned Enterprises (SOEs) Domestic Debt Stock

In addition to central government borrowing, state-owned enterprises (SOEs) also accumulate domestic debt. As of December 2024, SOEs' total domestic debt stood at TZS 74.1 billion, a slight decrease from TZS 75.3 billion in November 2024​.

Key Observations:

✅ DAWASA (66.7%) and Tanzania Fertilizer Company (27.5%) are the largest SOE borrowers, likely financing infrastructure and supply chain improvements.
⚠️ TANESCO, TPA, and ATCL have no reported domestic debt, suggesting they rely more on external borrowing or government subsidies.
✅ SOE debt declined slightly, indicating possible repayments or reduced borrowing needs.

Key Takeaways

📌 Tanzania’s total domestic debt stands at TZS 32.65 trillion, with commercial banks (30%) and pension funds (27.5%) as the main creditors.
📌 SOEs hold TZS 74.1 billion in domestic debt, with DAWASA (66.7%) and Tanzania Fertilizer Company (27.5%) as the largest borrowers.
📌 The decline in domestic debt suggests better government revenue collection, reducing dependence on short-term borrowing from the central bank.

To ensure long-term sustainability, the government must balance domestic borrowing with fiscal discipline, ensuring SOEs operate efficiently and do not rely excessively on public debt

The domestic debt structure of Tanzania provides important insights into government borrowing patterns, financial sector stability, and fiscal sustainability

1. Government Domestic Debt is Declining – A Positive Fiscal Sign

• The total domestic debt stock stood at TZS 32.65 trillion in December 2024, down by TZS 919.9 billion from the previous month.
• This decline suggests improved revenue collection, reducing the need for short-term domestic borrowing to finance budget deficits.
• The Bank of Tanzania’s share of government debt fell to 18.2%, indicating reduced reliance on direct central bank financing.

Implication:
✅ A decline in domestic borrowing reduces debt service costs, freeing up resources for development projects.
⚠️ If revenue collection slows, the government may return to domestic borrowing, increasing financial sector risks.

2. Financial Sector Exposure to Government Debt is High

• Commercial banks hold 30% (TZS 9.78 trillion) of domestic debt, meaning that government borrowing influences banking sector liquidity.
• Pension funds hold 27.5% (TZS 8.99 trillion), making them highly dependent on government repayment capacity.
• If the government delays payments or restructures debt, banks and pension funds could face liquidity challenges.

Implication:
⚠️ High exposure of banks and pension funds to government debt means fiscal instability could weaken the financial system.
✅ If the government continues to reduce borrowing, it may free up liquidity for private sector lending, supporting economic growth.

3. State-Owned Enterprises (SOEs) Rely on Domestic Debt for Operations

• DAWASA (Water Supply) accounts for 66.7% (TZS 49.4 billion) of SOE domestic debt, likely for infrastructure projects.
• Tanzania Fertilizer Company holds 27.5% (TZS 20.4 billion), indicating dependency on government support for agricultural input financing.
• TANESCO, ATCL, and TPA reported no domestic debt, suggesting they rely on external loans or government subsidies.

Implication:
⚠️ SOEs with high debt burdens may struggle with repayments, increasing risks of contingent liabilities for the government.
✅ Reducing reliance on domestic borrowing could improve SOE financial health, ensuring long-term sustainability.

4. Key Risks and Policy Recommendations

📌 Risk: High domestic debt could crowd out private sector lending if commercial banks prefer risk-free government securities over business loans.
📌 Risk: Pension funds are heavily exposed to government debt, meaning fiscal instability could impact retirees’ savings.
📌 Opportunity: Lower government borrowing could lead to lower interest rates, increasing private sector access to credit.

What Needs to Be Done?
🔹 Enhance domestic revenue collection to reduce borrowing needs.
🔹 Diversify pension fund investments beyond government securities.
🔹 Improve SOE financial management to reduce reliance on domestic debt.
🔹 Promote private sector growth by ensuring bank liquidity is used for business financing, not just government lending.

Final Takeaway

📌 The government is reducing its domestic debt reliance, a positive fiscal sign.
📌 However, banks and pension funds still hold significant government debt, making them vulnerable to fiscal shocks.
📌 SOEs like DAWASA and Tanzania Fertilizer Company depend on domestic debt, highlighting the need for financial discipline.

To ensure long-term stability, Tanzania must balance domestic borrowing with efficient revenue collection and responsible debt management​

Borrowing Patterns, Debt Service, and Sustainability Risks

As of December 2024, Tanzania’s total public debt stood at USD 46.6 billion, with external debt accounting for 70.7% (USD 32.9 billion). The government relied heavily on multilateral lenders (55.4%) and commercial loans (35.6%), increasing exposure to market-driven interest rates. While 21.2% of borrowed funds supported transport and telecommunications infrastructure, 19.4% was used for budget support, highlighting fiscal dependence on borrowing. With debt service payments reaching USD 185.4 million in December, managing repayment risks and prioritizing productive investments is crucial for long-term sustainability​

Debt Developments in Tanzania – December 2024

Tanzania’s total public debt stock reached USD 46,562.1 million at the end of December 2024, reflecting a 0.5% monthly increase. Of this, external debt accounted for 70.7% (USD 32,928.4 million), while domestic debt stood at TZS 32,649.3 billion. The rise in external debt was attributed to new disbursements amounting to USD 376.8 million, mainly to finance government projects and budgetary support​.

1. External Debt Stock and Composition

• Total external debt stock at the end of December 2024 was USD 32,928.4 million, reflecting a 1.8% decrease from USD 33,528.6 million in November 2024.
• The Central Government held 77.4% of the external debt (USD 25,488.3 million), while the private sector accounted for 22.6% (USD 7,436.4 million).
• The decrease in external debt was due to higher debt service payments (USD 185.4 million in December 2024), including USD 111.2 million in principal repayments​.

2. External Debt Stock by Creditor

Tanzania’s external debt is held by multilateral, bilateral, commercial, and export credit lenders. The composition as of December 2024 was as follows:

• Multilateral institutions (55.4%) remain the largest creditors, providing concessional loans with lower interest rates.
• Commercial loans (35.6%) have grown, increasing exposure to market-driven interest rates, which could raise debt service costs in the future.
• Bilateral and export credit debt (9.1%) mainly finances infrastructure projects​.

3. Disbursed Outstanding Debt by Use of Funds (Percentage Shares)

Tanzania’s external debt is allocated across various sectors, primarily transport, energy, social services, and budget support.

• The transport sector (21.2%) and energy (14.6%) received the largest funding, supporting infrastructure expansion projects.
• Social services (20.3%) include education and healthcare investments, improving human capital development.
• Budget support (19.4%) shows the government's reliance on external borrowing to cover fiscal gaps​.

Key Takeaways:

1. External debt dominates Tanzania’s public debt (70.7% of total debt).
2. Multilateral institutions are the main creditors (55.4%), but commercial loans (35.6%) are rising, increasing debt servicing risks.
3. Most funds go to transport (21.2%), social services (20.3%), and budget support (19.4%), reflecting a focus on infrastructure and fiscal stability.
4. The government must manage rising debt service payments (USD 185.4 million in December 2024) to ensure long-term sustainability.

With total public debt at USD 46.6 billion, debt sustainability remains a critical concern, requiring effective fiscal management and prioritization of productive investments​

The debt developments in Tanzania for December 2024 reveal key trends in borrowing patterns, creditor composition, and the sustainability of external debt.

These figures indicate both opportunities and risks for fiscal management and economic stability

1. External Debt Remains the Largest Share of Public Debt

• External debt accounts for 70.7% (USD 32.9 billion) of total public debt (USD 46.6 billion).
• The government is highly reliant on external borrowing, particularly from multilateral lenders (55.4%) and commercial lenders (35.6%).
• While multilateral loans are concessional (low interest, long-term), the growing share of commercial loans (USD 11.7 billion) exposes Tanzania to higher borrowing costs and foreign exchange risks.

Implication:
✅ Multilateral financing provides stable, low-cost funding.
⚠️ High commercial debt increases vulnerability to global interest rate changes, raising repayment costs.

2. Debt Service Obligations Are Increasing

• In December 2024, the government made debt service payments of USD 185.4 million, including USD 111.2 million in principal repayment.
• The growing debt requires more foreign exchange reserves for repayment, increasing exposure to shilling depreciation risks.

Implication:
⚠️ Future fiscal space may shrink as more funds are allocated for debt repayment instead of public services or development.
✅ If borrowed funds are well-invested, economic growth could offset repayment pressures.

3. Most Borrowed Funds Are Used for Infrastructure and Budget Support

• 21.2% of external debt funds are directed to transport and telecommunications, supporting infrastructure expansion (roads, railways, ports).
• 20.3% is allocated to social services (health & education), improving human capital.
• 19.4% goes to budget support, indicating the government’s reliance on borrowing to fund recurrent expenditures.

Implication:
✅ Investing in infrastructure can boost economic growth, improving debt repayment capacity.
⚠️ Using loans for budget support suggests fiscal weaknesses, as the government borrows to cover recurrent expenses instead of productive investments.

4. Debt Sustainability Risks and Management Needs

• Public debt reached USD 46.6 billion, requiring careful management to avoid over-indebtedness.
• The growing commercial loan share increases interest rate risks, requiring improved revenue mobilization to cover repayments.
• Tanzania’s debt remains below the IMF/World Bank risk threshold (55% of GDP), but a rising trend requires close monitoring.

What Needs to be Done?
🔹 Shift borrowing towards productive sectors (e.g., manufacturing, agriculture) to generate returns.
🔹 Reduce reliance on commercial loans and prioritize concessional financing.
🔹 Enhance revenue collection to reduce reliance on budget support loans.
🔹 Strengthen fiscal discipline to ensure borrowed funds are effectively utilized.

Overall Takeaway

📌 Tanzania’s external debt remains dominant (70.7%), with a shift toward commercial borrowing (35.6%).
📌 Debt service payments (USD 185.4 million) are rising, limiting future fiscal flexibility.
📌 Infrastructure investment (21.2%) supports economic growth, but reliance on budget support loans (19.4%) is a concern.
📌 Debt sustainability requires a shift to revenue-driven fiscal policies, careful borrowing, and economic diversification.

While Tanzania’s debt is still within manageable limits, a proactive approach is needed to prevent future fiscal risks​

Zanzibar’s economy grew by 6.2% in 2024, up from 5.8% in 2023, driven by tourism (12.7% growth), trade (7.1% growth), and infrastructure investments. The inflation rate dropped to 3.9%, improving purchasing power, while government revenue reached TZS 1.43 trillion (+5.6%), exceeding targets. However, a budget deficit of TZS 190 billion remains, requiring better expenditure management. Exports grew by 9.8% (TZS 596.2 billion), but import dependence remained high at TZS 2.01 trillion. To sustain growth, Zanzibar must diversify its economy beyond tourism and enhance domestic production to reduce trade imbalances​.

Zanzibar’s economy showed steady growth in 2024, supported by strong tourism recovery, increased trade activities, and improved infrastructure investments. The real GDP growth rate was estimated at 6.2%, up from 5.8% in 2023, driven by expansions in tourism, construction, and agriculture​.

1. GDP Growth and Sectoral Performance

• Real GDP growth: 6.2% in 2024, up from 5.8% in 2023.
• Nominal GDP: Estimated at TZS 5.2 trillion, reflecting expansion in key sectors.

Sectoral Contributions to GDP

Key Observations:

✅ Tourism (29.5% of GDP) remained the backbone of Zanzibar’s economy, recording a 12.7% growth, supported by 1.02 million tourist arrivals (+14.2%).
✅ Trade & transport (18.3% of GDP) benefited from increased imports and port activities.
⚠️ Agriculture (16.8% of GDP) recorded slow growth (+4.9%), affected by unpredictable weather and limited value addition.

2. Inflation and Cost of Living

• Average inflation in Zanzibar stood at 3.9% in December 2024, lower than 4.5% in 2023, supported by stable food prices and energy costs.
• Food inflation declined to 4.1%, down from 5.3% in 2023, due to improved local food production and steady imports.
• Non-food inflation remained stable at 3.7%, driven by controlled fuel prices and lower transport costs.

Implication:
✅ Lower inflation improved purchasing power, benefiting households and businesses.
⚠️ Food price volatility remains a risk, requiring further investment in food security and agro-processing.

3. Government Revenue and Expenditure

• Total government revenue: TZS 1.43 trillion, exceeding the target by 5.6%, due to improved tax collection and tourism levies.
• Tax revenue: TZS 1.22 trillion, up 8.4% from 2023, with strong contributions from VAT (TZS 368.9 billion, +10.2%) and import duties (TZS 292.5 billion, +7.8%).
• Total government expenditure: TZS 1.62 trillion, with 62% allocated to development projects such as roads, water, and education infrastructure.

Implication:
✅ Higher revenue collection reduces reliance on central government transfers.
⚠️ A budget deficit of TZS 190 billion remains, requiring better expenditure management.

4. Trade and Investment in Zanzibar

• Total exports: TZS 596.2 billion, up 9.8% from 2023, driven by seafood (TZS 212.4 billion, +12.3%) and spices (TZS 159.7 billion, +11.8%).
• Total imports: TZS 2.01 trillion, up 6.7%, mainly in machinery (TZS 521.3 billion, +9.2%) and petroleum (TZS 642.8 billion, +10.1%).
• Foreign Direct Investment (FDI): TZS 324.7 billion, up 15.6%, led by tourism, construction, and port expansion projects.

Implication:
✅ Higher exports and FDI indicate increased investor confidence.
⚠️ Import dependence remains high, especially in energy and industrial goods.

5. Banking and Financial Services

• Total banking sector assets: TZS 3.42 trillion, up 7.9%, indicating a growing financial sector.
• Private sector credit growth: +10.8%, mainly in real estate (TZS 312.5 billion, +11.2%) and trade (TZS 254.3 billion, +9.6%).
• Interest rates on loans: Average lending rate at 12.8%, slightly lower than 13.2% in 2023, making credit more accessible.

Implication:
✅ Lower interest rates encourage borrowing and investment.
⚠️ Credit concentration in a few sectors (real estate and trade) increases risks if economic shocks occur.

Key Takeaways

📌 Zanzibar’s economy grew by 6.2%, with tourism (12.7% growth) and trade (7.1% growth) as key drivers.
📌 Inflation remained stable at 3.9%, while government revenue (TZS 1.43 trillion) exceeded targets.
📌 Exports increased by 9.8% (TZS 596.2 billion), but import dependence remains high (TZS 2.01 trillion).
📌 The financial sector is expanding, with private sector credit growing by 10.8%.

To sustain growth, Zanzibar must diversify exports, improve agricultural productivity, attract more investment in manufacturing, and manage public spending efficiently

The economic performance of Zanzibar in December 2024 provides key insights into growth trends, sectoral contributions, fiscal management, and financial stability

1. Zanzibar’s Economy is Expanding, Led by Tourism and Trade

• Real GDP growth reached 6.2% in 2024, up from 5.8% in 2023, showing strong economic momentum.
• Tourism contributed 29.5% of GDP and grew by 12.7%, with tourist arrivals reaching 1.02 million (+14.2%), confirming a full post-pandemic recovery.
• Trade & transport (18.3% of GDP) grew by 7.1%, benefiting from increased port activities and import demand.

Implication:
✅ Zanzibar’s economy is growing steadily, driven by services and trade.
⚠️ Overreliance on tourism makes the economy vulnerable to external shocks (e.g., global crises, pandemics).

2. Inflation is Under Control, Improving Household Purchasing Power

• Inflation averaged 3.9% in 2024, lower than 4.5% in 2023, due to stable food and energy prices.
• Food inflation dropped to 4.1% from 5.3%, reflecting better domestic production and imports stability.

Implication:
✅ Lower inflation supports economic stability and consumer spending.
⚠️ Food price volatility remains a risk, requiring further investment in local food production.

3. Government Revenue is Improving, but a Fiscal Deficit Remains

• Revenue collection exceeded targets, reaching TZS 1.43 trillion (+5.6%), with strong tax contributions.
• Total expenditure was TZS 1.62 trillion, with 62% allocated to development projects.
• The budget deficit stood at TZS 190 billion, showing Zanzibar still relies on financing to meet expenditure needs.

Implication:
✅ Improved tax collection reduces dependency on mainland Tanzania.
⚠️ The budget deficit indicates a need for better public spending control and domestic revenue mobilization.

4. Trade and FDI Are Growing, but Import Dependence is High

• Exports increased by 9.8% (TZS 596.2 billion), mainly from seafood (+12.3%) and spices (+11.8%).
• Imports rose by 6.7% (TZS 2.01 trillion), with petroleum and machinery as the largest contributors.
• FDI inflows reached TZS 324.7 billion (+15.6%), driven by tourism, construction, and port expansion.

Implication:
✅ Rising exports and FDI show increasing investor confidence in Zanzibar.
⚠️ High import dependency, especially on petroleum and industrial goods, increases trade vulnerabilities.

5. Banking Sector is Expanding, Encouraging Private Sector Growth

• Total banking assets grew by 7.9% (TZS 3.42 trillion), showing financial sector strength.
• Private sector credit expanded by 10.8%, mainly in real estate (+11.2%) and trade (+9.6%).
• Lending rates dropped slightly to 12.8% (from 13.2% in 2023), making credit more affordable.

Implication:
✅ More credit availability supports business growth and investments.
⚠️ High credit concentration in real estate and trade may pose risks if the market slows.

Key Takeaways and What Needs to Be Done

📌 Zanzibar’s economy is growing steadily (+6.2%), with tourism (+12.7%) and trade (+7.1%) as key drivers.
📌 Inflation is low (3.9%), supporting household purchasing power and business growth.
📌 Government revenue (TZS 1.43 trillion) is improving, but a budget deficit (TZS 190 billion) remains a challenge.
📌 Trade and FDI are increasing, but import dependence on petroleum and industrial goods is high.
📌 The financial sector is expanding, with private sector credit growing by 10.8%.

Policy Recommendations:

🔹 Diversify the economy beyond tourism by promoting manufacturing, agriculture, and ICT.
🔹 Strengthen food security to reduce reliance on imported food items.
🔹 Enhance fiscal discipline to control the budget deficit and ensure sustainable spending.
🔹 Invest in renewable energy to reduce reliance on imported petroleum.
🔹 Support financial inclusion to expand credit access beyond real estate and trade.

Zanzibar’s economic outlook remains positive, but diversification and fiscal discipline will be key to sustaining long-term growth​

Revenue Growth, Expenditure Trends, and Fiscal Deficit Challenges

Tanzania’s budget performance in December 2024 reflected strong revenue collection, controlled expenditure, and a widening fiscal deficit. The government collected TZS 2,737.6 billion, exceeding the target by 2.4%, driven by tax revenue (TZS 2,338.5 billion, up 4.4%). However, total government expenditure reached TZS 3,612.4 billion, with 67% allocated to recurrent costs and 33% to development projects. This resulted in a budget deficit of TZS 874.8 billion, financed through domestic and external borrowing, increasing public debt to USD 46.6 billion. While revenue mobilization improved, fiscal sustainability remains a concern, requiring diversification of income sources and better expenditure management​

Government Budgetary Operations – December 2024

Tanzania’s government budgetary operations in December 2024 reflected strong revenue collection and controlled expenditure, but the country still faced a budget deficit, requiring strategic fiscal management.

1. Central Government Revenues

• Total domestic revenue collected in December 2024 amounted to TZS 2,737.6 billion, exceeding the monthly target by 2.4%.
• Central government revenue accounted for 96% of total collections, reaching TZS 2,628.6 billion, surpassing the target by 2.5%.
• Tax revenue outperformed expectations by 4.4%, reaching TZS 2,338.5 billion, with strong contributions from:
  • Taxes on imports: TZS 940.6 billion
  • Income tax: TZS 628.8 billion
  • Taxes on local goods and services: TZS 495.9 billion
  • Non-tax revenue: TZS 290.1 billion, slightly below target​.

Implication:

✅ Higher revenue collection suggests improved tax compliance and efficient revenue mobilization.
⚠️ Non-tax revenue underperformance could indicate challenges in public sector efficiency and collection mechanisms.

2. Central Government Expenditure

• Total government spending in December 2024 was TZS 3,612.4 billion.
  • Recurrent expenditure: TZS 2,420.3 billion (for salaries, interest payments, and operational costs).
  • Development expenditure: TZS 1,192.1 billion (for infrastructure and social projects).
• Breakdown of spending categories:
  • Wages and salaries: TZS 1,105.2 billion
  • Interest payments: TZS 387.1 billion
  • Other recurrent expenditure: TZS 1,192.1 billion
  • Development expenditure: TZS 1,192.1 billion, primarily focused on public investments​.

Implication:

✅ Balanced spending on recurrent and development sectors ensures government services continue while maintaining infrastructure growth.
⚠️ High recurrent spending (~67% of total) may limit development financing, affecting long-term economic expansion.

3. Budget Deficit

• Budget deficit (before grants) stood at TZS 874.8 billion, meaning the government spent more than it collected.
• The deficit was primarily financed through borrowing, including domestic bonds and external loans.
• The public debt stock rose to USD 46,562.1 million, with 70.7% of this being external debt​.

Implication:

⚠️ A persistent budget deficit means the government relies on borrowing, increasing future debt service obligations.
✅ Managing the deficit through investment in productive sectors (infrastructure, energy, agriculture) could stimulate economic growth and future revenue.

Key Takeaways

• Revenue collection exceeded targets, with TZS 2,737.6 billion collected (+2.4% higher than planned).
• Total spending reached TZS 3,612.4 billion, with wages and salaries (TZS 1,105.2 billion) and development (TZS 1,192.1 billion) as major expenses.
• The budget deficit (TZS 874.8 billion) was mainly covered by borrowing, increasing total public debt to USD 46.6 billion.
• While strong revenue mobilization is promising, reducing reliance on borrowing is crucial for long-term fiscal sustainability​

The government budgetary operations for December 2024 reveal key insights about Tanzania’s fiscal position, revenue performance, expenditure priorities, and debt sustainability

1. Strong Revenue Performance but Dependence on Tax Revenue

• Revenue collection exceeded the target by 2.4% (TZS 2,737.6 billion), showing improved tax compliance and effective revenue mobilization.
• Tax revenue accounted for 85.4% of total revenue (TZS 2,338.5 billion), meaning the government relies heavily on taxes rather than alternative revenue sources.
• Non-tax revenue underperformed at TZS 290.1 billion, suggesting limited diversification of government income from sources like fees, dividends, and state-owned enterprises.

Implication:
✅ The government is collecting more revenue than expected, which is positive for fiscal stability.
⚠️ Heavy reliance on tax revenue means any economic slowdown could impact future revenue collection, requiring more diversification.

2. High Government Spending but Investment in Development

• Total expenditure was TZS 3,612.4 billion, with 67% going to recurrent spending (TZS 2,420.3 billion) and 33% to development (TZS 1,192.1 billion).
• High wage and salary costs (TZS 1,105.2 billion) suggest a large public sector wage bill, which limits resources for investment.
• Development spending (TZS 1,192.1 billion) was significant, meaning the government is still prioritizing infrastructure and public service improvements.

Implication:
✅ The government is maintaining investment in development projects, which can boost economic growth.
⚠️ High recurrent costs may crowd out spending on critical infrastructure and increase reliance on borrowing.

3. Budget Deficit and Rising Debt Levels

• The budget deficit stood at TZS 874.8 billion, meaning the government spent more than it collected.
• Public debt rose to USD 46.6 billion, with 70.7% being external debt.
• The government financed the deficit through domestic and external borrowing, increasing future debt servicing costs.

Implication:
⚠️ A persistent budget deficit means the government must borrow more, increasing debt obligations.
✅ If borrowing is channeled into productive sectors, it can stimulate long-term growth, making debt more sustainable.

Overall Takeaways

• Revenue collection is strong, but tax revenue dominates, posing a risk if economic conditions change.
• Government spending is high, particularly on wages and salaries, but development projects are still being prioritized.
• The budget deficit is concerning, but if borrowed funds are used effectively, they can help drive economic growth.
• Debt sustainability remains a challenge, requiring careful management to ensure Tanzania does not enter a debt crisis.

What Needs to be Done?

🔹 Diversify revenue sources beyond tax income.
🔹 Control recurrent spending, especially the public sector wage bill.
🔹 Ensure borrowed funds are invested in growth-driven sectors like infrastructure, agriculture, and energy.
🔹 Strengthen fiscal discipline to reduce reliance on debt financing

As of December 2024, Tanzania’s external debt stood at TZS 79.72 trillion (USD 32.93 billion), with 67.8% (TZS 54.10 trillion) denominated in US dollars (USD). The Euro accounted for 16.2% (TZS 12.92 trillion), while the Chinese Yuan made up 6.4% (TZS 5.10 trillion). This heavy reliance on USD borrowing exposes Tanzania to exchange rate risks, where a 10% depreciation of the Tanzania Shilling (TZS) could increase debt servicing costs by TZS 5.41 trillion. To mitigate this risk, Tanzania must enhance foreign reserves, diversify its export earnings, and negotiate more concessional loans to maintain long-term debt sustainability​

Tanzania’s external debt is held in multiple currencies, exposing the country to foreign exchange risks depending on fluctuations in the global market. As of December 2024, the total external debt stock stood at TZS 79.72 trillion (USD 32.93 billion), with the majority denominated in US dollars​.

1. Currency Composition of External Debt (Percentage Share & TZS Value)

2. Key Observations & Implications

✅ US Dollar Dominance (67.8%)

• The majority of Tanzania’s external debt is in USD (TZS 54.10 trillion), making the country highly sensitive to exchange rate fluctuations.
• If the Tanzania Shilling depreciates, debt servicing costs in TZS will increase, putting pressure on government finances.

✅ Euro Loans (16.2%) Provide Some Diversification

• TZS 12.92 trillion is denominated in Euros, offering some protection from USD volatility.
• However, if the Euro strengthens, Tanzania will need more TZS to repay Euro-denominated loans.

✅ Chinese Yuan Exposure (6.4%) Reflects Infrastructure Financing Ties

• TZS 5.10 trillion of Tanzania’s external debt is in CNY, largely financing transport, energy, and telecommunications projects.
• The yuan’s stability reduces risks, but any CNY appreciation will raise repayment costs in TZS.

✅ Other Currencies (9.5%) Reflect a Diverse Creditor Base

• TZS 7.60 trillion is spread across other currencies (GBP, JPY, etc.), limiting reliance on a single currency.
• This reduces overall currency risk but makes debt servicing more complex due to multiple exchange rate fluctuations.

3. Exchange Rate Risks & Debt Management Strategy

⚠️ Tanzania is vulnerable to exchange rate movements, particularly in the USD-TZS exchange rate.
⚠️ If the Tanzania Shilling depreciates against the US dollar, debt servicing costs will increase, reducing fiscal space.
✅ Diversification into Euros and Chinese Yuan helps, but debt repayment strategies should factor in exchange rate risks.

Key Takeaways

📌 67.8% of Tanzania’s external debt (TZS 54.10 trillion) is in US dollars, making debt service costs dependent on USD-TZS fluctuations.
📌 Euro-denominated debt (16.2% or TZS 12.92 trillion) offers some diversification, while CNY exposure (6.4% or TZS 5.10 trillion) reflects infrastructure financing links with China.
📌 Government debt management strategies should focus on reducing currency risks by increasing TZS-denominated borrowing and hedging against USD volatility.

To maintain debt sustainability, Tanzania must closely monitor exchange rate movements, diversify borrowing sources, and prioritize revenue generation to offset repayment risks​

The currency breakdown of Tanzania’s external debt reveals key insights into the country’s financial exposure, exchange rate risks, and debt sustainability

1. Heavy Dependence on the US Dollar (67.8%) Increases Exchange Rate Risk

• USD 54.10 trillion (TZS) of Tanzania’s external debt is in US dollars, meaning any depreciation of the Tanzania Shilling (TZS) against the USD will increase repayment costs.
• If the TZS weakens by just 10%, the government will need an extra TZS 5.41 trillion to service USD-denominated debt.
• Since global interest rates and US monetary policy influence the USD, Tanzania’s debt costs could rise unexpectedly if the USD strengthens.

Implication:
⚠️ Tanzania is highly vulnerable to USD fluctuations, which could increase debt servicing costs and fiscal pressure.
✅ If the Shilling remains stable or strengthens, repayment costs will be lower.

2. Euro (16.2%) and Chinese Yuan (6.4%) Help Reduce USD Dependence

• TZS 12.92 trillion in Euro debt provides some diversification, but the Euro is still volatile against the Shilling.
• TZS 5.10 trillion in Chinese Yuan (CNY) debt reflects Tanzania’s strong infrastructure financing ties with China.
• The CNY is more stable than the USD, but if China tightens monetary policy, Tanzania’s loan repayment costs in TZS could rise.

Implication:
✅ Having some debt in Euros and Yuan reduces USD reliance.
⚠️ However, fluctuations in these currencies could still affect repayment costs.

3. Exchange Rate Movements Can Impact Tanzania’s Fiscal Position

• A weaker TZS will make debt servicing more expensive, reducing funds available for public services and development.
• If the TZS depreciates by 5-10%, the government may need to allocate an extra TZS 4-8 trillion annually for debt repayment.
• Foreign reserves (USD 5.5 billion) cover 4.5 months of imports, but if debt repayments rise, reserves could deplete faster.

Implication:
⚠️ Tanzania must generate more export revenue in USD, EUR, and CNY to ease repayment pressures.
✅ Stable foreign exchange reserves help offset currency risks, ensuring the country meets its obligations.

4. Policy Actions Needed to Reduce Exchange Rate Risks

✅ Increase Local Currency Borrowing: More TZS-denominated debt would protect Tanzania from forex fluctuations.
✅ Enhance Foreign Currency Reserves: A stronger reserve position would act as a buffer against currency swings.
✅ Diversify Export Earnings: More revenue from gold, tourism, and agriculture will help Tanzania repay debts in USD, EUR, and CNY without depleting reserves.
✅ Negotiate for More Concessional Loans: More multilateral funding in low-interest, long-term debt can reduce reliance on expensive commercial borrowing.

Final Takeaway

📌 67.8% of external debt is in USD (TZS 54.10 trillion), making Tanzania vulnerable to currency depreciation risks.
📌 Euro (16.2%) and Chinese Yuan (6.4%) provide diversification, but they also come with their own exchange rate risks.
📌 The government must carefully manage forex reserves and export revenue to avoid debt distress.

While Tanzania’s debt remains manageable, exchange rate volatility could create future repayment challenges if not addressed through strong fiscal management and export-driven economic growth

In December 2024, Tanzania’s external sector showed resilience, with total exports rising by 9.8% to USD 14.72 billion, driven by gold (USD 3.49 billion, +4.3%) and tourism (USD 3.10 billion, +15.1%). Meanwhile, total imports increased by 7.2% to USD 17.85 billion, with petroleum imports (USD 4.08 billion, +10.2%) remaining the largest contributor to trade costs. As a result, the trade deficit narrowed to USD 3.13 billion, improving Tanzania’s external position. Foreign reserves stood at USD 5.5 billion, covering 4.5 months of imports, ensuring currency stability. To sustain this progress, Tanzania must diversify exports, attract more FDI (USD 1.83 billion, +8.2%), and reduce reliance on imported petroleum​

Tanzania’s external sector performance in December 2024 reflected strong export growth, increased foreign exchange inflows, and a narrowing trade deficit, supported by higher commodity prices and improved tourism earnings. However, import growth and external debt obligations remained key challenges.

1. Balance of Payments (BoP) and Foreign Reserves

• Tanzania’s overall balance of payments recorded a deficit of USD 135.6 million, an improvement from a deficit of USD 287.1 million in November 2024.
• Foreign exchange reserves stood at USD 5.5 billion, covering 4.5 months of imports, aligning with EAC and SADC benchmarks.

Implication:
✅ Higher reserves provide a cushion against external shocks and currency depreciation.
⚠️ A persistent BoP deficit means Tanzania still relies on external borrowing and capital inflows to maintain reserves.

2. Exports Performance

Tanzania’s total exports of goods and services increased by 9.8% to USD 14.72 billion in the year ending December 2024, compared to USD 13.41 billion in December 2023.

Key Export Categories

Key Observations:

✅ Tourism earnings (USD 3.10 billion, up 15.1%) indicate a full post-pandemic recovery, supported by increased international arrivals.
✅ Gold remains Tanzania’s top export (USD 3.49 billion, 23.7% of total exports), benefiting from strong global prices.
⚠️ The export base is still concentrated in commodities, increasing vulnerability to price fluctuations.

3. Imports Performance

• Total imports increased by 7.2% to USD 17.85 billion, compared to USD 16.65 billion in December 2023.
• The increase was driven by higher demand for capital goods and intermediate goods, reflecting economic expansion.

Key Import Categories

Key Observations:

✅ Increased imports of machinery (USD 2.81 billion, +9.5%) and raw materials (USD 2.45 billion, +6.8%) suggest industrial expansion.
⚠️ High petroleum import costs (USD 4.08 billion, +10.2%) increase trade deficit risks, making energy diversification crucial.

4. Trade Balance and Current Account Deficit

• The trade deficit narrowed to USD 3.13 billion from USD 3.24 billion in December 2023, supported by strong export growth.
• The current account deficit improved to USD 2.08 billion, down from USD 2.36 billion in December 2023, reflecting better export performance and remittance inflows.

Implication:
✅ Narrowing deficits indicate improved external stability, reducing pressure on foreign reserves.
⚠️ The trade deficit remains large, requiring further efforts to boost export diversification.

5. Foreign Direct Investment (FDI) and Capital Flows

• FDI inflows increased by 8.2% to USD 1.83 billion, up from USD 1.69 billion in December 2023, driven by mining, energy, and telecom sectors.
• Portfolio investment inflows rose to USD 594.7 million, indicating increased investor confidence.
• Remittances from Tanzanians abroad reached USD 589.2 million, up 6.3% year-on-year.

Implication:
✅ Higher FDI supports long-term economic growth, while increased remittances help stabilize the current account.
⚠️ Reliance on capital inflows means external shocks (e.g., global interest rate changes) could impact Tanzania’s financial position.

Key Takeaways:

📌 Exports grew by 9.8% (USD 14.72 billion), led by gold (USD 3.49 billion) and tourism (USD 3.10 billion), reducing the trade deficit.
📌 Imports increased by 7.2% (USD 17.85 billion), mainly in petroleum (USD 4.08 billion) and machinery (USD 2.81 billion), reflecting industrial growth.
📌 Foreign reserves remain strong at USD 5.5 billion (4.5 months of imports), supporting exchange rate stability.
📌 FDI inflows (USD 1.83 billion) and remittances (USD 589.2 million) improved, enhancing external financial stability.

To further strengthen external sector resilience, Tanzania should expand non-traditional exports, attract more FDI, and promote energy diversification to reduce petroleum import costs​

The external sector performance for December 2024 provides key insights into trade, foreign reserves, capital flows, and economic stability

1. Tanzania’s Export Growth is Strong, But Still Reliant on Commodities

• Total exports increased by 9.8% to USD 14.72 billion, led by gold (USD 3.49 billion, +4.3%) and tourism (USD 3.10 billion, +15.1%).
• Agricultural exports such as cashew nuts (USD 0.98 billion, +12.5%) and tobacco (USD 0.79 billion, +11.4%) performed well, benefiting from higher global commodity prices.
• Manufactured goods exports rose by 8.7%, reaching USD 1.92 billion, reflecting growth in Tanzania’s industrial sector.

Implication:
✅ Strong export growth helped narrow the trade deficit, reducing external vulnerabilities.
⚠️ The export base is still commodity-driven (gold, cashew nuts, tobacco), making Tanzania vulnerable to price fluctuations.
🔹 Tanzania must diversify its exports beyond raw commodities by increasing value addition (e.g., processed agricultural goods and finished manufactured products).

2. Imports Growth Reflects Economic Expansion, But High Energy Costs Are a Concern

• Total imports rose by 7.2% to USD 17.85 billion, mainly due to higher demand for capital goods, industrial raw materials, and petroleum products.
• Petroleum imports increased by 10.2% to USD 4.08 billion, making up the largest share of imports.
• Machinery & equipment imports grew by 9.5% (USD 2.81 billion), reflecting investments in industrial and infrastructure projects.

Implication:
✅ Higher imports of machinery and industrial inputs suggest economic expansion and manufacturing growth.
⚠️ Heavy dependence on petroleum imports increases trade deficit risks, highlighting the need for energy diversification (e.g., renewable energy investment).

3. Trade Deficit is Narrowing, Improving Tanzania’s External Position

• The trade deficit narrowed to USD 3.13 billion, down from USD 3.24 billion in December 2023, due to strong export performance.
• The current account deficit improved to USD 2.08 billion, reflecting higher remittances, FDI inflows, and strong services exports (tourism).

Implication:
✅ The narrowing trade and current account deficits indicate improved economic resilience and reduced pressure on foreign reserves.
⚠️ Tanzania must continue promoting exports and attracting FDI to sustain this positive trend.

4. Foreign Exchange Reserves Remain Stable, Supporting Currency Stability

• Foreign exchange reserves stood at USD 5.5 billion, covering 4.5 months of imports, meeting EAC and SADC benchmarks.

Implication:
✅ Adequate reserves ensure Tanzania can manage external shocks (e.g., exchange rate volatility, rising global interest rates).
⚠️ Sustaining reserve levels requires continued export growth and careful debt management.

5. Increased FDI and Capital Inflows Boost External Stability

• Foreign Direct Investment (FDI) inflows increased by 8.2% to USD 1.83 billion, mainly in mining, energy, and telecommunications.
• Portfolio investment inflows reached USD 594.7 million, reflecting increased investor confidence in Tanzania’s economy.
• Remittances from Tanzanians abroad rose to USD 589.2 million (+6.3%), providing additional foreign exchange inflows.

Implication:
✅ FDI growth supports economic expansion and job creation, while rising remittances strengthen household incomes.
⚠️ Tanzania must continue improving its investment climate to attract long-term capital flows.

Key Takeaways and Policy Actions Needed

📌 Exports grew by 9.8%, narrowing the trade deficit, but reliance on commodities remains a risk.
📌 Imports rose by 7.2%, mainly in petroleum and machinery, supporting industrial expansion but increasing energy dependence.
📌 Foreign reserves remain strong at USD 5.5 billion (4.5 months of import cover), stabilizing exchange rate risks.
📌 FDI and remittances increased, strengthening Tanzania’s external financial position.

🔹 What Needs to Be Done?
✅ Diversify export products and markets to reduce commodity reliance.
✅ Expand energy investments to reduce petroleum import costs.
✅ Strengthen policies to attract FDI in manufacturing, agribusiness, and technology.
✅ Boost domestic industries to reduce import dependence.

Overall, Tanzania’s external sector performance in December 2024 shows resilience, but efforts to strengthen export diversification and reduce reliance on external borrowing are crucial for long-term stability​

Liquidity Trends, Government Borrowing, and Exchange Rate Movements

In December 2024, Tanzania’s financial markets showed notable shifts in liquidity, government borrowing, and currency performance. Interbank cash market rates fell to 7.41% from 8.06%, signaling improved liquidity among banks. The government securities market saw Treasury bill yields rise to 12.86%, reflecting higher borrowing costs. Meanwhile, the Tanzanian shilling appreciated by 9.3%, trading at TZS 2,420.84 per USD, supported by strong inflows from cashew nut, tobacco, and gold exports. These developments indicate a stable financial system, easing monetary conditions, and a strengthening currency, which could have mixed effects on borrowing costs, investment, and trade​

The financial market in Tanzania, as reported in the Bank of Tanzania’s Monthly Economic Review (January 2025), showed notable developments in the Government Securities Market, Interbank Cash Market, and Interbank Foreign Exchange Market during December 2024.

1. Government Securities Market

• The Bank of Tanzania conducted two Treasury bill auctions in December 2024, with a combined tender size of TZS 252.8 billion to support government budgetary needs.
• Total bids received amounted to TZS 239.5 billion, of which TZS 217.8 billion were successful.
• The weighted average yield (WAY) on Treasury bills increased to 12.86%, up from 12.68% in November 2024, indicating rising government borrowing costs.
• In the Treasury bond market:
  • The 10-year bond auction was canceled due to undersubscription.
  • The 20-year bond was in high demand, with total bids of TZS 244.9 billion, out of which TZS 211.9 billion were accepted.
  • The yield on the 20-year bond increased to 15.71% from 15.64%, reflecting higher investor expectations for returns​.

2. Interbank Cash Market (IBCM)

• The Interbank Cash Market plays a key role in distributing liquidity among banks.
• In December 2024, total transactions in the IBCM reached TZS 1,616.8 billion, slightly lower than TZS 1,650 billion in November 2024.
• The overnight segment represented 12% of total market turnover, while 7-day transactions accounted for 43.9%.
• The overall IBCM interest rate decreased to 7.41%, down from 8.06% in November 2024, reflecting improved liquidity conditions in the banking sector​.

3. Interbank Foreign Exchange Market (IFEM)

• The foreign exchange market showed a significant improvement in liquidity, driven by increased foreign exchange inflows from exports of cashew nuts, tobacco, mining, and tourism receipts.
• Total transactions in IFEM reached USD 95.7 million in December 2024, up from USD 17.1 million in December 2023, showing a more active market.
• The Bank of Tanzania intervened, purchasing USD 0.5 million and selling USD 2 million.
• The Tanzanian shilling appreciated significantly, reversing the depreciation trend observed in previous months:
  • The exchange rate strengthened to TZS 2,420.84 per USD, compared to TZS 2,659.03 per USD in November 2024, representing a monthly appreciation of 9.3%.
  • On an annual basis, the shilling appreciated by 3.8%, a notable improvement from the 6.3% depreciation recorded in the previous month​.

Key Takeaways:

• The government securities market saw increased yields, indicating rising government borrowing costs and investor demand for higher returns.
• The interbank cash market experienced lower interest rates, suggesting improved liquidity and reduced short-term borrowing costs for banks.
• The foreign exchange market saw strong inflows, leading to Tanzania Shilling appreciation by 9.3% in one month, supported by rising exports and monetary policy adjustments.

The developments in Tanzania's financial markets provide key insights into liquidity conditions, investor sentiment, and monetary policy effectiveness

1. Government Securities Market: Rising Yields & Demand Shift

• The increase in Treasury bill yields to 12.86% (from 12.68%) and 20-year bond yields to 15.71% (from 15.64%) suggests that investors demand higher returns, possibly due to:
  • Perceived risk of government debt.
  • Tighter liquidity conditions in the market.
  • Expectations of inflation or monetary tightening in the future.
• The 10-year bond cancellation due to low demand signals that investors prefer shorter or longer maturities, possibly due to uncertainties over medium-term economic policies.

Implication: The government may face higher borrowing costs, affecting fiscal planning and debt sustainability.

2. Interbank Cash Market (IBCM): Improved Liquidity, Lower Rates

• The IBCM interest rate fell to 7.41% (from 8.06%), and total transactions reached TZS 1,616.8 billion, indicating:
  • Improved liquidity in the banking system.
  • More confidence among banks to lend to each other.
• The fact that 7-day transactions accounted for 43.9% of turnover shows that banks are shifting towards slightly longer borrowing periods rather than relying solely on overnight liquidity.

Implication: The banking system has adequate liquidity, reducing pressure on short-term funding costs and supporting credit expansion to businesses and individuals.

3. Interbank Foreign Exchange Market (IFEM): Stronger Shilling & Increased Transactions

• The shilling appreciated by 9.3% in one month, trading at TZS 2,420.84 per USD (from TZS 2,659.03 in November 2024).
• Foreign exchange transactions increased significantly to USD 95.7 million, up from USD 17.1 million in December 2023, driven by:
  • Higher export earnings from cashew nuts, tobacco, and gold.
  • Tourism inflows and mining revenues.
  • Easing global interest rates, which reduced capital outflows.

Implication: A stronger shilling reduces import costs, helping to contain inflation, but could make exports less competitive if the trend continues.

Overall Takeaway:

1. Monetary policy is effectively stabilizing liquidity, as reflected in lower interbank rates and an active foreign exchange market.
2. The government is facing rising borrowing costs, which may impact fiscal planning.
3. The shilling is strengthening, showing strong foreign exchange inflows, but policymakers should balance this to avoid hurting exports.

These trends suggest that Tanzania’s financial markets are active and responsive to policy changes, investor sentiment, and external economic factors​

Implications for Credit, Savings, and Economic Growth

In December 2024, Tanzania’s interest rates showed mixed movements, reflecting shifts in monetary policy and banking sector dynamics. The overall lending rate declined to 15.17% from 15.67%, making credit more affordable, while deposit rates rose to 8.33% from 8.18%, incentivizing savings. The spread between short-term lending and deposit rates narrowed to 6.12 percentage points, down from 7.02% in December 2023, signaling increased banking sector efficiency. These trends suggest a pro-growth monetary policy stance, aimed at boosting investment and economic activity while maintaining financial stability​

The interest rates in Tanzania, as reported in the Bank of Tanzania's Monthly Economic Review (January 2025), are as follows:

Lending and Deposit Interest Rates (December 2024)

1. Overall Lending Rate:
   • 15.17%, down from 15.67% in November 2024.
2. Negotiated Lending Rate:
   • 12.83%, up from 12.77% in November 2024.
3. Overall Deposit Rate:
   • 8.33%, up from 8.18% in November 2024.
4. Negotiated Deposit Rate:
   • 10.39%, up from 10.14% in November 2024.
5. Short-term Lending Rate (Up to 1 Year):
   • 15.74%, compared to 15.56% in November 2024.
6. Savings Deposit Rate:
   • 2.84%, up from 2.69% in November 2024.
7. 12-Month Time Deposit Rate:
   • 9.62%, slightly lower than 9.63% in November 2024.

Interest Rate Spread

• The spread between short-term lending and deposit rates narrowed to 6.12 percentage points from 7.02 percentage points in December 2023.

The changes in interest rates reflect key economic and monetary policy dynamics in Tanzania

1. Declining Lending Rates (15.17% from 15.67%)

• A lower lending rate means credit is becoming cheaper, making it easier for businesses and individuals to borrow.
• This suggests monetary easing, where the Bank of Tanzania (BoT) is supporting economic growth by making loans more accessible.
• The increase in negotiated lending rates (12.83%), however, indicates that some banks are charging higher rates based on risk assessment, suggesting credit risk concerns in certain sectors.

2. Rising Deposit Rates (8.33% from 8.18%)

• Higher deposit rates encourage savings, helping banks to attract more funds.
• The increase in negotiated deposit rates (10.39%) suggests that banks are competing more for deposits, possibly due to:
  • Higher demand for liquidity.
  • The need to fund loan growth.

3. Narrowing Interest Rate Spread (6.12% from 7.02%)

• A lower spread means the difference between lending and deposit rates is shrinking, which usually implies:
  • More efficiency in the banking system.
  • Increased competition among banks, forcing them to offer better rates to depositors while reducing borrowing costs.

4. Implications for the Economy

• Encourages borrowing: More businesses and individuals can take loans for investment and consumption.
• Supports economic growth: Easier access to credit can drive investments, job creation, and productivity.
• Sustains inflation stability: If lending is growing without excessive inflation, the economy can expand sustainably.
• Indicates liquidity adjustments: BoT is managing liquidity by influencing rates, ensuring banks have enough funds to lend.

Overall Takeaway

The trend suggests a pro-growth monetary policy stance, with lower borrowing costs stimulating economic activities, while banks adjust their deposit rates to maintain liquidity and profitability. However, higher negotiated lending rates in some cases suggest that banks remain cautious about credit risks in certain sectors.