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Tanzania’s current account deficit expanded Despite Strong FDI Inflows in January 2025

Tanzania’s current account deficit expanded to USD 4,807.9 million in January 2025, a 14.1% increase from USD 4,215.3 million in December 2024, driven by higher imports of fuel and capital goods. Total exports rose to USD 12,865.2 million (+1.7%), supported by gold exports (USD 3,147.6 million) and manufactured goods. However, imports grew faster, reaching USD 19,423.1 million (+3.8%), with oil imports surging to USD 5,603.4 million (+5.8%). The balance of payments deficit improved to USD 718.5 million, supported by FDI inflows of USD 2,643.8 million (+5.4%), while foreign exchange reserves increased to USD 5,323.6 million, covering 4.3 months of imports.

1. Current Account Deficit Expands

  • Tanzania’s current account deficit widened to USD 4,807.9 million in January 2025, compared to USD 4,215.3 million in December 2024.
  • This 14.1% increase was driven by higher imports of capital goods and services.

What It Means:

A rising current account deficit means more foreign exchange is leaving the country than entering, increasing pressure on the Tanzanian Shilling.
Higher imports of capital goods may signal growing investment in infrastructure and production capacity.

2. Exports and Imports: Trade Deficit Widens

Exports Increased Slightly

  • Total exports of goods and services reached USD 12,865.2 million in January 2025, a 1.7% increase from USD 12,653.1 million in December 2024.
  • Traditional exports rose to USD 958.7 million, with coffee and cashew nuts leading the increase.
  • Gold exports remained stable at USD 3,147.6 million, maintaining its position as the top foreign exchange earner.
  • Non-traditional exports (manufactured goods, minerals) increased to USD 4,726.3 million, supported by higher demand in regional markets.

Imports Grew Faster than Exports

  • Total imports of goods and services reached USD 19,423.1 million in January 2025, a 3.8% increase from USD 18,714.5 million in December 2024.
  • Oil imports accounted for USD 5,603.4 million (28.8% of total imports), up from USD 5,298.2 million in December 2024, reflecting rising global fuel prices.
  • Imports of industrial machinery and transport equipment rose to USD 3,984.5 million, indicating investment in industrial development.

What It Means:

Imports are rising faster than exports, increasing the trade deficit.
Higher machinery imports indicate long-term economic investments, which could boost future production capacity.
Stable gold exports support Tanzania’s foreign exchange reserves and economic stability.

3. Balance of Payments (BOP): Deficit Narrows Due to Capital Inflows

  • The overall balance of payments deficit stood at USD 718.5 million in January 2025, an improvement from USD 985.2 million in December 2024.
  • Foreign direct investment (FDI) inflows increased by 5.4% to USD 2,643.8 million, driven by investments in energy and mining.
  • Foreign exchange reserves improved slightly to USD 5,323.6 million, covering 4.3 months of imports, up from USD 5,107.1 million in December 2024.

What It Means:

Higher FDI inflows are supporting economic growth and reducing reliance on debt financing.
Improved forex reserves strengthen Tanzania’s ability to manage currency fluctuations.
The balance of payments deficit remains a concern, but lower than in previous months.

Summary of Key Trends

IndicatorJanuary 2025Comparison with December 2024
Current Account DeficitUSD 4,807.9 millionIncreased from USD 4,215.3 million (+14.1%)
Total ExportsUSD 12,865.2 millionUp from USD 12,653.1 million (+1.7%)
Gold ExportsUSD 3,147.6 millionStable
Total ImportsUSD 19,423.1 millionUp from USD 18,714.5 million (+3.8%)
Oil ImportsUSD 5,603.4 millionUp from USD 5,298.2 million (+5.8%)
Balance of Payments DeficitUSD 718.5 millionImproved from USD 985.2 million (-27.1%)
Foreign Direct Investment (FDI)USD 2,643.8 millionUp from USD 2,507.3 million (+5.4%)
Foreign Exchange ReservesUSD 5,323.6 millionUp from USD 5,107.1 million (+4.2%)

Economic Implications of Tanzania’s External Sector Performance

🔹 Positive Signs:
Exports, particularly non-traditional goods and gold, continue to provide foreign exchange.
FDI inflows are growing, supporting economic expansion.
Foreign exchange reserves have improved, ensuring currency stability.

🔸 Challenges:
The current account deficit is widening due to high imports, increasing forex pressure.
Rising oil imports (USD 5.6 billion) could strain foreign reserves if global prices remain high.
The trade deficit is growing as imports outpace exports, requiring long-term export diversification.

Key Insights from Tanzania’s External Sector Performance (January 2025)

1. Current Account Deficit is Growing (+14.1%)

  • The current account deficit expanded to USD 4,807.9 million in January 2025, up from USD 4,215.3 million in December 2024.
  • This 14.1% increase was mainly due to rising imports of capital goods, machinery, and fuel.

What It Means:

More foreign exchange is leaving Tanzania than coming in, putting pressure on the Tanzanian Shilling.
Higher imports of machinery and industrial equipment suggest long-term investment in economic growth.

2. Trade Deficit is Expanding as Imports Grow Faster than Exports

  • Total imports rose to USD 19,423.1 million (+3.8%), while exports increased to USD 12,865.2 million (+1.7%).
  • Oil imports surged by 5.8% (USD 5,603.4 million), reflecting higher global fuel prices.
  • Gold exports (USD 3,147.6 million) remained stable, providing a strong source of foreign exchange.

What It Means:

Rising oil prices are increasing Tanzania’s import bill, putting pressure on forex reserves.
The stability of gold exports helps maintain foreign exchange earnings.
The trade deficit is widening, requiring stronger export growth to balance imports.

3. Balance of Payments is Improving Due to FDI Inflows

  • The balance of payments deficit improved to USD 718.5 million, down from USD 985.2 million in December 2024.
  • Foreign Direct Investment (FDI) increased by 5.4% to USD 2,643.8 million, mainly in energy and mining.
  • Foreign exchange reserves rose to USD 5,323.6 million, covering 4.3 months of imports.

What It Means:

Higher FDI inflows reduce reliance on borrowing and improve economic stability.
Stronger forex reserves support exchange rate stability and import coverage.
Tanzania still faces external financing pressures due to the trade and current account deficits.

Overall Economic Implications

🔹 Positive Signs:
Tanzania continues to attract FDI, especially in energy and mining.
Foreign exchange reserves have strengthened, supporting currency stability.
Exports, particularly gold and manufactured goods, remain strong sources of forex earnings.

🔸 Challenges:
The current account deficit is widening due to high import costs, mainly oil and capital goods.
The trade deficit is increasing, meaning more money is leaving the country than coming in.
Tanzania’s reliance on oil imports makes it vulnerable to global fuel price fluctuations.

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Tanzania’s Financial Markets in 2025

Strong Investor Confidence Amid Tightening Liquidity

Tanzania’s financial markets showed strong investor interest in government securities, stable foreign exchange rates, but rising interbank lending rates in January 2025. The 25-year Treasury bond was oversubscribed with TZS 502.7 billion in bids, while the 10-year bond faced weak demand, attracting only TZS 88 billion. Interbank cash market transactions rose to TZS 2,245.8 billion, but the 7-day interest rate increased to 7.80%, signaling tighter liquidity. Meanwhile, foreign exchange market activity declined, with only USD 16.3 million traded, and the Shilling depreciated slightly to TZS 2,454.04 per USD from TZS 2,420.84 in December 2024.

1. Government Securities Market

Government securities include Treasury bills (short-term) and Treasury bonds (long-term), used to finance government operations.

Treasury Bills (Short-Term Securities)

  • In January 2025, the Bank of Tanzania conducted two Treasury bill auctions with a total tender size of TZS 218 billion.
  • The auctions were oversubscribed, attracting bids worth TZS 400.8 billion, but only TZS 281.4 billion was accepted.
  • Weighted average yield (WAY) decreased to 12.51%, from 12.86% in December 2024, showing strong investor demand.

Treasury Bonds (Long-Term Securities)

  • The government issued 10-year and 25-year Treasury bonds in January 2025:
    • 10-year bond: Tender size TZS 167.32 billion, but only TZS 88 billion in bids were received, of which TZS 33.0 billion was accepted (indicating undersubscription).
    • 25-year bond: Oversubscribed, attracting TZS 502.7 billion, but only TZS 362.0 billion was accepted.
  • Yields on bonds:
    • 10-year bond yield increased to 14.08% (suggesting higher borrowing costs for the government).
    • 25-year bond yield slightly decreased to 15.84% (indicating investors’ long-term confidence).

2. Interbank Cash Market (IBCM)

The Interbank Cash Market allows banks to lend and borrow short-term funds among themselves.

  • In January 2025, total transactions in the interbank market increased to TZS 2,245.8 billion, from TZS 1,616.8 billion in December 2024.
  • 7-day transactions accounted for 42.9% of total market turnover, while overnight transactions made up 18%, indicating improved liquidity conditions in the banking sector.
  • Overall interbank cash market interest rate rose to 7.80%, compared to 7.41% in December 2024, reflecting tightened liquidity conditions.

3. Interbank Foreign Exchange Market (IFEM)

The Interbank Foreign Exchange Market (IFEM) facilitates trading of foreign currencies among banks.

  • Market activity declined compared to December 2024, but participation remained stronger than January 2024.
  • Total transactions in January 2025 stood at USD 16.3 million, much lower than USD 95.7 million in December 2024, but significantly higher than USD 3.8 million in January 2024.
  • The Bank of Tanzania intervened by selling USD 7 million to stabilize the market.
  • Exchange rate movements: The Tanzanian Shilling traded at an average of TZS 2,454.04 per USD, compared to TZS 2,420.84 per USD in December 2024.
  • On an annual basis, the Shilling appreciated by 2.6%, lower than 3.8% appreciation in December 2024, showing gradual stability in the foreign exchange market.

Summary of Key Trends

MarketJanuary 2025 Key FiguresComparison with December 2024
Treasury BillsTZS 400.8 billion in bids, WAY at 12.51%Higher demand, lower yields (12.86% in Dec 2024)
Treasury Bonds (10-yr)TZS 88 billion in bids, WAY at 14.08%Undersubscribed, higher yield
Treasury Bonds (25-yr)TZS 502.7 billion in bids, WAY at 15.84%Oversubscribed, lower yield
Interbank Cash MarketTZS 2,245.8 billion total transactionsHigher than TZS 1,616.8 billion in Dec 2024
Interbank Interest Rate7.80%Increased from 7.41% in Dec 2024
Foreign Exchange MarketUSD 16.3 million tradedLower than USD 95.7 million in Dec 2024
TZS/USD Exchange Rate2,454.04Slight depreciation from 2,420.84 in Dec 2024

Implications for Tanzania’s Economy

  • Stronger investor demand for government securities (except for the 10-year bond) shows confidence in Tanzania’s financial stability.
  • Higher interbank rates (7.80%) suggest tighter liquidity, meaning banks are charging more for short-term loans.
  • Weaker foreign exchange market activity may indicate reduced trade or investor participation.
  • The Tanzanian Shilling remains stable, with only slight depreciation against the USD.

Key Takeaways from Tanzania’s Financial Market Trends (January 2025)

1. Government Securities Market: Strong Demand but Mixed Performance

  • Treasury bills and long-term bonds continue to attract strong investor interest, especially the 25-year bond, which was oversubscribed (TZS 502.7 billion in bids).
  • The 10-year bond was undersubscribed, meaning investors are hesitant about medium-term lending to the government.
  • The decline in Treasury bill yields (12.51% from 12.86%) suggests strong demand for safe assets, lowering the government’s borrowing costs.
  • However, higher yields on the 10-year bond (14.08%) indicate concerns about mid-term risks, such as inflation or fiscal pressures.

What it means:

  • Government borrowing remains strong, showing a need for financing.
  • Investors prefer long-term securities (25-year bonds), showing confidence in Tanzania’s long-term economic stability.
  • Short-term interest rates are declining, meaning investors expect stable inflation and controlled monetary policy.

2. Interbank Cash Market: Rising Interest Rates Signal Tight Liquidity

  • Total interbank transactions increased to TZS 2,245.8 billion (from TZS 1,616.8 billion in December 2024), meaning banks are lending more to each other.
  • Interbank interest rates rose to 7.80% (up from 7.41%), showing banks are charging more for short-term loans due to tighter liquidity.
  • 7-day transactions (42.9% of market share) suggest banks are preferring short-term liquidity management rather than long-term lending.

What it means:

  • Liquidity in the banking sector is tightening, possibly due to higher government borrowing or increased credit demand from businesses.
  • Banks are cautious about lending, which could mean higher borrowing costs for businesses and individuals in the short term.
  • A rise in short-term rates might push overall lending rates higher, making credit more expensive.

3. Interbank Foreign Exchange Market: Lower Activity, But Shilling Remains Stable

  • Market transactions dropped significantly to USD 16.3 million, compared to USD 95.7 million in December 2024, indicating reduced foreign exchange trading activity.
  • The Tanzanian Shilling traded at TZS 2,454.04 per USD, slightly weaker than TZS 2,420.84 in December 2024.
  • The Bank of Tanzania sold USD 7 million to stabilize the market, showing efforts to manage exchange rate fluctuations.

What it means:

  • Lower foreign exchange trading suggests reduced external transactions—either lower imports/exports or less investor participation in the forex market.
  • The Shilling remains relatively stable, with only a slight depreciation (2,454.04 from 2,420.84), showing resilience despite external pressures.
  • The Bank of Tanzania’s intervention (selling USD 7 million) suggests efforts to prevent excessive depreciation, ensuring exchange rate stability.

Overall Economic Implications

🔹 Positive Signs:
Government securities remain attractive, especially for long-term investors.
The Shilling remains stable, with only slight depreciation.
Investor confidence in long-term bonds (25 years) is high, showing optimism for Tanzania’s future.

🔸 Challenges:
Interbank interest rates are rising (7.80%), signaling liquidity tightening in the banking sector.
Reduced forex market activity may indicate slower trade or lower capital inflows.
Government borrowing remains high, which could put pressure on public finances.

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Tanzania’s Interest Rates in 2025

Borrowing Costs Remain High, Savings Offer Mixed Returns

In January 2025, Tanzania's lending interest rates remained high, with the overall lending rate at 15.73%, slightly up from 15.70% in December 2024. Meanwhile, the negotiated lending rate stood at 12.80%, indicating that creditworthy borrowers could secure better terms. On the savings side, the overall deposit rate declined slightly to 8.31%, but negotiated deposit rates increased to 11.80%, encouraging large-scale deposits. The interest rate spread narrowed to 5.63 percentage points from 6.68% in January 2024, suggesting increased competition in the banking sector and potential future adjustments in lending rates.

Lending Interest Rates (January 2025)

  • Overall lending rate: 15.73% (up from 15.70% in December 2024)
  • Negotiated lending rate: 12.80% (slightly down from 12.83% in December 2024)
  • Short-term lending rate (up to 1 year): 15.70%

Deposit Interest Rates (January 2025)

  • Overall deposit rate: 8.31% (down slightly from 8.33% in December 2024)
  • Negotiated deposit rate: 11.80% (up from 10.39% in December 2024)
  • 12-month fixed deposit rate: 10.08% (up from 9.62% in December 2024)
  • Savings deposit rate: 2.97% (up from 2.84% in December 2024)

Interest Rate Spread

  • The spread between short-term lending and deposit interest rates narrowed to 5.63 percentage points, down from 6.68 percentage points recorded in January 2024.

These figures indicate that lending rates remained stable with slight upward movement, while deposit rates showed mixed trends, with an increase in negotiated deposit rates. The interest rate spread narrowing suggests banks are slightly reducing the gap between borrowing and lending costs.

The interest rate trends from the Bank of Tanzania with key insights into the current monetary environment and the cost of borrowing and saving in Tanzania

Key Takeaways:

  1. Lending Rates Remain High (15.73%)
    • This suggests that borrowing remains relatively expensive for businesses and individuals.
    • High lending rates could slow down investment and economic expansion if businesses find it costly to access credit.
    • However, the slight increase in the lending rate (from 15.70% to 15.73%) is minimal, meaning borrowing costs have remained stable.
  2. Negotiated Lending Rates Are Lower (12.80%)
    • Businesses and high-value borrowers with good creditworthiness can negotiate better loan terms, meaning not all borrowers face the highest lending rates.
    • This indicates that banks are willing to offer flexible rates to attract quality borrowers.
  3. Deposit Rates Show Mixed Trends
    • Overall deposit rate (8.31%) is slightly lower, meaning banks are not offering much incentive for savings.
    • Negotiated deposit rate (11.80%) is higher, which suggests that large depositors (e.g., institutional investors) can get better returns on deposits.
    • 12-month fixed deposit rate (10.08%) is rising, which encourages long-term savings.
  4. Narrowing Interest Rate Spread (5.63%)
    • The difference between lending and deposit rates is reducing (from 6.68% in January 2024 to 5.63% in January 2025).
    • This suggests banks are offering slightly better rates to depositors while keeping loan rates stable.
    • A smaller spread can indicate increased competition among banks or policy measures to make credit more affordable.

Implications for the Economy

  • For Borrowers:
    • Businesses still face high borrowing costs, which could slow expansion.
    • However, those with strong financial records can access cheaper loans.
  • For Savers:
    • Higher negotiated deposit rates encourage large-scale savings.
    • Lower overall deposit rates mean small savers might not benefit much from interest earnings.
  • For the Banking Sector:
    • The narrowing spread suggests competition among banks, which may lead to lower lending rates in the future.
    • Banks may need to balance between attracting deposits and maintaining profitability.
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The Impact of Tax Laws on Investments and Investors in Tanzania

Tax policies significantly influence Tanzania’s investment climate, affecting both local and foreign investors. While taxation is crucial for government revenue, an overly complex and high tax regime can discourage investments, limit capital inflows, and slow economic growth. This article explores how tax laws shape investment trends in Tanzania, presenting key figures, challenges, and potential solutions.

Tanzania’s Tax System and Investment Trends

1. Corporate Tax Rates and Regional Comparison

Tanzania imposes a 30% corporate tax rate on resident companies, one of the highest in East Africa. In contrast:

  • Kenya: 25%
  • Rwanda: 28%
  • Ethiopia: 25%

The high tax rate discourages investments, as seen in 2022 when Tanzania attracted only $922 million in Foreign Direct Investment (FDI), compared to Kenya’s $2 billion and Ethiopia’s $3.1 billion.

2. Tax Compliance and Bureaucracy

Tanzania ranks 163rd out of 190 countries in the World Bank’s Ease of Doing Business Index (2020), reflecting long tax compliance procedures. Businesses spend an average of 240 hours per year filing tax documents, compared to 150 hours in Rwanda.

A survey conducted by TICGL in 2025 revealed:

  • 72% of investors found Tanzania’s tax system too complex.
  • 63% reported high corporate taxes as a barrier to business expansion.
  • 55% believed frequent tax policy changes discouraged long-term investments.

3. Multiple Taxation and VAT Burden

Investors in Tanzania face multiple layers of taxation, including:

  • Corporate tax (30%)
  • Withholding tax (10-15%)
  • Skills and Development Levy (4%)
  • Value-Added Tax (VAT) (18%)

Tanzania’s VAT refund delays are a significant issue, with pending refunds amounting to TSh 1.4–1.5 trillion ($650 million) in 2025. Some businesses wait over 12 months for VAT refunds, severely affecting cash flow and expansion plans.

4. Case Studies: How Taxes Affect Investors

Mining Industry: Acacia Mining’s $190 Billion Tax Dispute

  • In 2017, Tanzania’s Revenue Authority (TRA) imposed a $190 billion tax bill on Acacia Mining.
  • The dispute lasted two years, causing a 70% stock price drop and a 30% decline in FDI in the mining sector.

Telecommunications: Vodacom Tanzania’s $2.5 Million Tax Case

  • Vodacom was issued a TSh 5.8 billion ($2.5 million) tax bill in 2021, disrupting its planned 5G expansion.

Tourism Sector: Serena Hotels’ VAT Refund Issues

  • Serena Hotels in Tanzania faced a two-year delay on VAT refunds worth TSh 2.1 billion ($900,000), leading to cash flow problems.

Recommendations for a Better Investment Climate

  1. Lower Corporate Tax to 25%
    • Aligning with Kenya and Ethiopia could increase Tanzania’s FDI inflows.
  2. Simplify Tax Compliance
    • Introduce a one-stop tax portal to reduce paperwork and compliance time.
  3. Reduce VAT to 16%
    • This would enhance competitiveness and reduce operational costs for businesses.
  4. Automate VAT Refund Processing
    • Ensuring refunds are processed within 30 days would improve business cash flow.
  5. Introduce a 5-Year Tax Stability Framework
    • This would provide predictability and confidence for long-term investors.

Conclusion

Tanzania's current tax policies present significant barriers to investment. High corporate taxes, multiple taxation, VAT refund delays, and unpredictable policy changes discourage both local and foreign investors. If key reforms are implemented—such as lowering tax rates, simplifying compliance, and improving tax administration—Tanzania could increase FDI by 10-15% over the next five years, boosting economic growth and job creation.

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Tanzania's Financial Position Strengthens Amid Rising Government Borrowing

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.

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Tanzania Shilling Performance – December 2024

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

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Domestic Debt in Tanzania – December 2024

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.

Creditor CategoryAmount (TZS Trillion)Percentage Share (%)
Commercial Banks9.7830.0%
Pension Funds8.9927.5%
Bank of Tanzania5.9318.2%
Insurance Companies1.905.8%
BoT Special Funds0.461.4%
Other Institutions5.5917.1%
Total Domestic Debt32.65100%

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​.

SOEDebt Stock (TZS Billion)Percentage Share (%)
Tanzania Fertilizer Company20.427.5%
DAWASA (Water Supply Authority)49.466.7%
Tanzania Railways Corporation4.35.8%
TANESCO (Power Utility)0.00.0%
TPA (Tanzania Ports Authority)0.00.0%
ATCL (Air Tanzania)0.00.0%
Total SOEs Domestic Debt74.1100%

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

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Tanzania’s External Debt Trends in December 2024

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:

Creditor TypeAmount (USD Million)Percentage Share (%)
Multilateral lenders (e.g., World Bank, IMF, AfDB)18,229.055.4%
Commercial lenders (e.g., Eurobonds, syndicated loans)11,706.635.6%
Bilateral lenders (e.g., China, France, India)1,369.14.2%
Export credit agencies1,623.84.9%
Total External Debt32,928.4100%
  • 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.

SectorAmount (USD Million)Percentage Share (%)
Budget support (BoP financing)6,090.619.4%
Transport & telecommunications6,664.621.2%
Agriculture1,542.64.9%
Energy & mining4,568.414.6%
Social services (health & education)6,363.920.3%
Manufacturing & industrial sector1,198.93.8%
Real estate & construction1,475.04.7%
Other services (finance, tourism, etc.)2,962.29.1%
  • 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

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Economic Performance in Zanzibar – December 2024

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

SectorGDP Share (%)Annual Growth (%)
Tourism (Hotels & Restaurants)29.5%+12.7%
Trade & Transport18.3%+7.1%
Agriculture, Forestry & Fishing16.8%+4.9%
Construction & Real Estate12.6%+6.2%
Manufacturing & Industry10.2%+5.5%
Public Administration & Services7.4%+3.8%
Financial Services & ICT5.2%+6.1%

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

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Tanzania’s Budget Performance in December 2024

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

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