Tanzania’s tourism sector expanded significantly in 2024, with 1,748,500 tourist arrivals (+12.4%), generating USD 3,259.8 million in earnings (+9.5%). The sector contributed 17.2% to GDP, up from 16.4% in 2023, and supported over 1.5 million jobs. Serengeti National Park remained the top attraction, receiving 589,300 visitors (+11.2%), while Mount Kilimanjaro saw the fastest growth (+13.4%). However, rising costs and regional competition pose challenges, requiring continued investment in infrastructure and marketing to sustain growth.

1. Tourism Sector Growth: Strong Recovery and Increased Earnings

• Tanzania received 1,748,500 tourists in 2024, a 12.4% increase from 1,556,200 in 2023.
• Tourism earnings reached USD 3,259.8 million in 2024, compared to USD 2,976.3 million in 2023, reflecting a 9.5% increase.

What It Means:

✅ More tourists are visiting Tanzania, showing post-pandemic recovery and increased global interest in Tanzanian destinations.
✅ Higher earnings indicate stronger foreign exchange inflows, supporting the economy.
⚠ The growth rate has slowed slightly compared to previous years, requiring further tourism development strategies.

2. Visitor Arrivals by Region

• European tourists led arrivals, accounting for 39.6% (693,500 visitors), driven by demand for wildlife safaris and beach tourism.
• North America contributed 18.3% (319,900 visitors), reflecting growing interest from the U.S. and Canada.
• Asian tourists accounted for 14.2% (248,300 visitors), with an increase in visitors from India and China.
• African tourists made up 21.7% (379,500 visitors), mainly from Kenya, South Africa, and Uganda.

What It Means:

✅ Europe remains Tanzania’s largest tourism market, but North America and Asia are emerging as key growth areas.
✅ Regional tourism from African countries is growing, supporting cross-border trade and investment.
⚠ More investment is needed in marketing to diversify Tanzania’s tourism sources further.

3. Key Tourism Destinations and Their Growth

What It Means:

✅ Serengeti remains the top attraction, but Zanzibar and Kilimanjaro are gaining more visitors.
✅ Growth in mountain tourism (+13.4%) shows increased interest in adventure tourism.
⚠ More investments in infrastructure and conservation are needed to sustain growth.

4. Contribution of Tourism to Tanzania’s Economy

• Tourism contributed 17.2% to Tanzania’s GDP in 2024, up from 16.4% in 2023.
• The sector provided direct employment to over 1.5 million people, supporting jobs in hotels, transportation, and cultural tourism.
• Hotel occupancy rates increased to 74.5%, up from 69.8% in 2023, showing higher demand for accommodation.

What It Means:

✅ Tourism is a key economic driver, supporting jobs and GDP growth.
✅ Higher hotel occupancy rates indicate strong demand, benefiting the hospitality sector.
⚠ More investment is needed in training and service quality to maintain competitiveness.

5. Challenges Facing Tanzania’s Tourism Sector

🔸 High operating costs – Rising costs for park fees, hotel services, and travel expenses may limit growth.
🔸 Competition from other African destinations – Countries like Kenya and South Africa offer similar safari experiences.
🔸 Climate change effects – Rising temperatures and unpredictable rainfall patterns could affect wildlife and natural attractions.
🔸 Infrastructure gaps – Some key parks and destinations still face challenges with road access and accommodation availability.

Summary of Key Trends in Tanzania’s Tourism (2024)

Economic Implications of Tourism Growth in Tanzania

🔹 Positive Signs:
✅ Tourism remains a key foreign exchange earner, supporting economic growth.
✅ Diversification in visitor sources (North America and Asia) reduces reliance on Europe.
✅ Growth in adventure tourism (Kilimanjaro) and cultural tourism strengthens the sector.

🔸 Challenges:
⚠ High costs and competition require better pricing and service strategies.
⚠ Infrastructure improvements are needed to support continued growth.
⚠ Climate change could impact long-term sustainability of tourism attractions.

Key Insights from Tanzania’s Tourism Performance (2024-2025)

1. Tanzania’s Tourism Industry is Expanding (+12.4% Arrivals, +9.5% Revenue)

• 1,748,500 tourists visited Tanzania in 2024, up 12.4% from 2023.
• Tourism earnings grew by 9.5% to USD 3,259.8 million, reflecting higher spending by visitors.

What It Means:

✅ Tanzania remains a leading destination in Africa, attracting more tourists each year.
✅ More foreign exchange is entering the economy, strengthening reserves and GDP growth.
⚠ Revenue growth (+9.5%) is slower than arrival growth (+12.4%), suggesting that tourists may be spending less per visit.

2. Europe Dominates, But New Markets Are Emerging

• Europe remains the largest source of tourists (39.6%), followed by North America (18.3%) and Asia (14.2%).
• African tourists (21.7%) are increasing, mainly from Kenya, Uganda, and South Africa.

What It Means:

✅ European tourism remains strong, supporting peak seasons.
✅ North America and Asia are growing markets, diversifying revenue sources.
⚠ Tanzania must continue marketing efforts in Asia and North America to reduce reliance on European tourists.

3. Serengeti and Kilimanjaro Lead Tourism Growth

• Serengeti National Park remains the top attraction, receiving 589,300 visitors (+11.2%).
• Mount Kilimanjaro had the fastest growth, with a 13.4% increase in climbers.
• Zanzibar’s beach tourism continues to expand (+9.6%), boosting hotel occupancy.

What It Means:

✅ Safari tourism remains strong, keeping Tanzania competitive in Africa.
✅ Kilimanjaro’s growth suggests a rising interest in adventure tourism.
⚠ Infrastructure improvements in parks and transport networks are needed to sustain growth.

4. Economic Impact: Tourism Now Contributes 17.2% to GDP

• Tourism’s share of GDP increased to 17.2%, up from 16.4% in 2023.
• Over 1.5 million jobs are directly supported by tourism, including hotels, transport, and tour operations.

What It Means:

✅ Tourism is a critical sector for employment and national revenue.
✅ A strong tourism industry supports businesses and local economies.
⚠ Rising costs for travel, accommodation, and park fees may slow future growth.

5. Challenges to Tanzania’s Tourism Growth

⚠ Higher costs – Increasing Park fees, hotel rates, and transport costs may reduce affordability.
⚠ Regional competition – Kenya, South Africa, and Rwanda are investing in tourism, increasing competition.
⚠ Climate change – Unpredictable weather patterns could affect wildlife migration and beach tourism.
⚠ Infrastructure gaps – Roads and airports need upgrades to handle increasing visitors.

Overall Economic Implications

🔹 Positive Signs:
✅ Tourism continues to grow, boosting Tanzania’s foreign exchange earnings.
✅ New markets (North America & Asia) are emerging, reducing reliance on Europe.
✅ Kilimanjaro and Zanzibar are attracting more adventure and luxury tourists.

🔸 Challenges:
⚠ Slower revenue growth compared to arrivals suggests visitors are spending less.
⚠ High travel costs and infrastructure gaps could slow future expansion.
⚠ Competition from other African destinations requires better marketing and service improvements.

Zanzibar’s economy grew by 6.2% in 2024, up from 5.6% in 2023, driven by tourism (7.1%) and construction (5.8%), while agriculture lagged at 3.5%. However, inflation rose to 4.3% in January 2025, fueled by higher food (+5.6%) and transport costs (+4.8%). The trade deficit widened to USD 387.4 million, as imports increased to USD 521.6 million (+4.5%), outpacing exports of USD 134.2 million (+2.9%). Despite a 5.2% rise in revenue to TZS 115.6 billion, government spending exceeded collections by TZS 22.3 billion, maintaining a budget deficit.

1. Zanzibar’s GDP Growth: Strong Expansion Driven by Services and Industry

• Zanzibar’s economy grew by 6.2% in 2024, up from 5.6% in 2023.
• Growth was mainly driven by services (7.1%) and industry (5.8%), while agriculture expanded by 3.5%.

Sectoral Growth Breakdown (2024 GDP Growth Rates)

What It Means:

✅ Tourism and trade are driving economic expansion, supported by increased visitor arrivals.
✅ The construction sector is growing, boosting industrial performance.
⚠ Agriculture is growing slowly (3.5%), indicating the need for modernization and investment.

2. Inflation: Slight Increase Due to Rising Food and Transport Costs

• Inflation in Zanzibar stood at 4.3% in January 2025, up from 4.0% in December 2024.
• The increase was mainly driven by higher food prices (+5.6%) and transport costs (+4.8%).

What It Means:

⚠ Higher food prices are putting pressure on household purchasing power.
✅ Inflation remains moderate and within the acceptable range.

3. Trade Performance: Imports Rising Faster than Exports

Exports Grew but Remain Low Compared to Imports

• Total exports reached USD 134.2 million in January 2025, an increase of 2.9% from December 2024.
• Clove exports (USD 46.8 million) and seaweed exports (USD 12.1 million) remained the top earners.

Imports Increased, Widening Trade Deficit

• Total imports rose to USD 521.6 million (+4.5%), led by fuel and construction materials.
• The trade deficit widened to USD 387.4 million, reflecting higher demand for imported goods.

What It Means:

⚠ Zanzibar remains a net importer, increasing reliance on foreign exchange inflows from tourism and remittances.
✅ Growth in clove and seaweed exports helps sustain the economy.

4. Government Revenue and Spending: Improved Collection but Budget Deficit Persists

• Total revenue collection reached TZS 115.6 billion in January 2025, a 5.2% increase from December 2024.
• Tax revenue accounted for 85.3% of total revenue, supported by higher VAT and import duties.
• Total government expenditure stood at TZS 137.9 billion, leaving a budget deficit of TZS 22.3 billion.

What It Means:

✅ Revenue collection is improving, reducing reliance on external funding.
⚠ The government continues to spend more than it collects, increasing the need for budget control measures.

Summary of Key Trends in Zanzibar’s Economy (January 2025)

Economic Implications of Zanzibar’s Performance

🔹 Positive Signs:
✅ Economic growth remains strong (6.2%), driven by tourism and construction.
✅ Revenue collection is improving, reducing fiscal pressure.
✅ Clove and seaweed exports are supporting foreign exchange earnings.

🔸 Challenges:
⚠ Inflation is rising, increasing the cost of living.
⚠ Imports are growing faster than exports, widening the trade deficit.
⚠ Government spending exceeds revenue, creating a budget deficit.

Key Insights from Zanzibar’s Economic Performance (January 2025)

1. Strong Economic Growth (6.2%) Driven by Tourism and Industry

• Zanzibar’s economy expanded by 6.2% in 2024, up from 5.6% in 2023.
• Growth was driven by tourism (services up 7.1%) and construction (industry up 5.8%).

What It Means:

✅ Tourism recovery is fueling service sector growth, increasing employment and foreign exchange.
✅ Construction and industrial expansion indicate long-term development and infrastructure improvements.
⚠ Agriculture is growing slowly (3.5%), meaning rural incomes and food security could be affected.

2. Inflation is Rising (4.3%), Driven by Higher Food and Transport Costs

• Inflation increased to 4.3% in January 2025, from 4.0% in December 2024.
• Food prices (+5.6%) and transport costs (+4.8%) were the main drivers.

What It Means:

⚠ The rising cost of living could reduce household purchasing power.
✅ Inflation remains manageable but needs monitoring to prevent further increases.

3. Trade Deficit Widening as Imports Outpace Exports

• Total exports reached USD 134.2 million (+2.9%), driven by clove exports (USD 46.8 million) and seaweed (USD 12.1 million).
• Imports rose to USD 521.6 million (+4.5%), mainly due to higher fuel and construction material imports.
• Trade deficit widened to USD 387.4 million, increasing Zanzibar’s reliance on foreign currency inflows.

What It Means:

⚠ Zanzibar depends heavily on imports, making the economy vulnerable to global price fluctuations.
✅ Growing exports of cloves and seaweed help offset some trade losses.

4. Government Revenue is Growing, But Deficit Remains

• Total revenue collection rose to TZS 115.6 billion (+5.2%), supported by higher tax collection (85.3% of revenue).
• Total expenditure stood at TZS 137.9 billion, leaving a budget deficit of TZS 22.3 billion.

What It Means:

✅ Tax revenues are improving, reducing reliance on external aid.
⚠ The government continues to spend more than it collects, requiring better budget management.

Overall Economic Implications

🔹 Positive Signs:
✅ Strong economic growth (6.2%) shows resilience and investment expansion.
✅ Tourism and construction remain key drivers of Zanzibar’s economy.
✅ Revenue collection is improving, supporting government operations.

🔸 Challenges:
⚠ Inflation is rising, increasing living costs for households.
⚠ Imports are outpacing exports, widening the trade deficit.
⚠ Government spending exceeds revenue, requiring fiscal adjustments.

Strong Revenue Growth and Controlled Deficit

Tanzania’s government revenue collection exceeded expectations, reaching TZS 3,877.4 billion in January 2025, surpassing the target by 8.6%. Tax revenue stood at TZS 3,153.0 billion, driven by strong income tax collections (TZS 1,573.8 billion) and taxes on imports (TZS 962.2 billion). Government expenditure totaled TZS 3,806.3 billion, with TZS 2,413.0 billion allocated to recurrent spending and TZS 1,393.3 billion for development projects. The budget deficit remained low at TZS 30 billion, financed through domestic borrowing, reflecting fiscal discipline and sustainable spending.

1. Central Government Revenues

Strong Revenue Collection, Surpassing Monthly Target

• Total government revenue in January 2025: TZS 3,877.4 billion, which exceeded the target by 8.6%.
• Revenue collected by the Central Government: TZS 3,755.6 billion (96.9% of total revenue).
• Tax revenue: TZS 3,153.0 billion, surpassing the target by 1.7%, driven by improvements in tax administration and compliance.

Breakdown of Major Revenue Sources (January 2025)

What It Means:

• Revenue collection is improving, supported by higher tax compliance and administrative measures.
• Tax revenue remains the dominant source, while non-tax revenue (TZS 602.6 billion) also plays a key role.
• Income tax collections were strong, reflecting business growth and improved earnings in the economy.

2. Central Government Expenditure

Spending Aligned with Revenue Growth

• Total government expenditure in January 2025: TZS 3,806.3 billion
• Recurrent expenditure: TZS 2,413.0 billion
• Development expenditure: TZS 1,393.3 billion, focused on infrastructure and social services.

Breakdown of Major Expenditures (January 2025)

What It Means:

• Recurrent spending remains high, mainly on wages and salaries (TZS 936.4 billion) and interest payments (TZS 467.2 billion).
• Development spending (TZS 1,393.3 billion) shows continued investment in infrastructure and key sectors.
• Lower interest payments suggest improved debt management or lower borrowing costs.

3. Budget Deficit and Financing

Lower Budget Deficit Reflects Fiscal Discipline

• Total budget deficit (after grants): TZS 30 billion
• Deficit financing sources: Domestic borrowing

What It Means:

• The government is keeping the budget deficit under control, avoiding excessive borrowing.
• Financing through domestic borrowing suggests reliance on Treasury bonds and bills rather than external loans.
• Lower deficit means reduced fiscal pressure, which could help stabilize debt levels.

Summary of Key Trends

Implications for Tanzania’s Economy

🔹 Positive Signs:
✅ Revenue collection exceeded targets, showing better tax compliance and economic growth.
✅ The budget deficit remains low, indicating fiscal discipline.
✅ Lower interest payments suggest improved debt management.

🔸 Challenges:
⚠ Development spending slightly declined, which could impact long-term infrastructure projects.
⚠ Continued reliance on domestic borrowing may crowd out private sector investments.

Key Insights from Tanzania’s Government Budget Performance (January 2025)

1. Strong Revenue Collection Indicates a Growing Economy

• Total revenue exceeded the target by 8.6% (TZS 3,877.4 billion), showing stronger tax compliance and improved business activity.
• Income tax (TZS 1,573.8 billion) led revenue collection, meaning companies and individuals are earning more, contributing to tax growth.
• Taxes on imports (TZS 962.2 billion) were strong, reflecting stable trade activity despite global economic challenges.

What it Means:

✅ The economy is expanding, with businesses generating higher taxable income.
✅ Tax enforcement and compliance measures are working, leading to consistent revenue growth.
⚠ However, lower taxes on local goods and services suggest weaker domestic demand.

2. Balanced Spending: Government Focuses on Wages & Development

• Total expenditure stood at TZS 3,806.3 billion, with a balance between recurrent spending (TZS 2,413.0 billion) and development projects (TZS 1,393.3 billion).
• Wages & salaries (TZS 936.4 billion) remained high, ensuring stable public sector employment.
• Development spending (TZS 1,393.3 billion) declined slightly, which may slow infrastructure growth.

What it Means:

✅ Public sector jobs are secure, maintaining government service delivery.
✅ Continued investment in infrastructure and social services, though at a slightly lower level.
⚠ Reduced development spending could slow long-term economic expansion.

3. Lower Budget Deficit Suggests Fiscal Discipline

• Budget deficit was just TZS 30 billion, much lower than in previous periods.
• The government relied on domestic borrowing, reducing dependence on external loans.

What it Means:

✅ The government is controlling borrowing, reducing fiscal pressure.
✅ Lower deficit means lower risk of inflation from excessive government spending.
⚠ Heavy reliance on domestic borrowing may reduce credit availability for businesses.

Overall Economic Implications

🔹 Positive Signs:
✅ Revenue collection is strong, reflecting economic stability and improved tax administration.
✅ The budget deficit is low, meaning less pressure on government debt.
✅ Government spending is balanced, with a focus on both wages and infrastructure.

🔸 Challenges:
⚠ Lower domestic tax collection signals weak consumer demand.
⚠ Reduced development spending could affect long-term growth.
⚠ Domestic borrowing could limit credit for private businesses.

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

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.

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

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.

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.

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.

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​