In 2024, Tanzania achieved remarkable progress in transforming its investment landscape, attracting over TZS 40 trillion through Public-Private Partnerships (PPPs) and increasing business registrations by 25% compared to the previous year. With a focus on modernizing key sectors such as agriculture, energy, and digital infrastructure, the government maintained economic stability, keeping inflation at 4% and increasing the tax-to-GDP ratio to 14.5%. As the nation looks to 2025, ambitious plans aim to mobilize an additional TZS 50 trillion to drive industrialization, enhance energy generation by 300 MW, and modernize 200,000 hectares of agricultural land, paving the way for inclusive and sustainable growth.

Investment Achievements and Focus Areas (2024):

1. Improved Investment Flow:
   • Investment achievements are linked to a growing inflow of capital in key sectors such as agriculture, energy, and infrastructure.
   • Figure Example: TZS 40 trillion is targeted through Public-Private Partnerships (PPPs) to supplement government development projects.
2. Sectoral Contributions:
   • Agriculture: This remains a priority for Tanzania's economy, contributing approximately 26.7% to GDP and employing over 65% of the workforce.
   • Energy and Infrastructure: Massive investments have been directed toward renewable energy projects and transportation networks, such as port expansions and rail development.
   • Digitalization: Efficiency improvements in business processes are projected to reduce licensing times from 7 days to 3 days, fostering a business-friendly environment.

Business Environment Enhancements:

• Ease of Doing Business:
  • Simplified procedures for business registration have increased the number of businesses registered.
  • Figure Example: Business registrations increased by 25% compared to 2023, with over 5,000 new businesses reported in 2024.
• Infrastructure Modernization:
  • TZS 500 billion invested in digital infrastructure to streamline operations and improve service delivery across government institutions.

Economic Targets for 2025:

1. Projected Investment Goals:
   • The government aims to attract an additional TZS 50 trillion in both foreign and local investments, focusing on industrialization and renewable energy adoption.
   • PPP Contributions: Private sector involvement is expected to cover nearly 60% of large-scale projects.
2. Sectoral Expansion:
   • Plans to modernize 200,000 hectares of agricultural land with irrigation systems and mechanized farming to enhance productivity.
   • Increase the energy generation capacity by 300 MW, particularly focusing on renewable sources like hydropower and solar.

Economic Performance and Challenges:

1. Revenue Growth:
   • Revenue collections have increased by 10% in 2024 compared to the previous year, amounting to approximately TZS 25 trillion.
   • Tax-to-GDP ratio improved to 14.5% in 2024, up from 13.9% in 2023.
2. Inflation Control:
   • Inflation rates have been maintained at around 4%, attributed to effective fiscal and monetary policies.

Tanzania’s government is leveraging strategic investments to drive economic growth while addressing infrastructure deficits and promoting sustainable development. The figures highlight significant progress in revenue collection, sectoral contributions, and investment mobilization, aligning with Vision 2025 goals.

Tanzania's progress in improving its business environment, attracting investments, and achieving economic development goals for 2024, while laying out ambitious targets for 2025

1. Progress in Investment Climate

• Tanzania is actively working to attract both domestic and foreign investment by improving the regulatory and business environment.
• Efforts such as faster business registration and investment in infrastructure are showing results, with increasing private sector contributions.
• Figures such as TZS 40 trillion targeted through Public-Private Partnerships (PPPs) illustrate the scale of private-sector involvement in development projects.

2. Key Economic Sectors Driving Growth

• Agriculture is highlighted as a priority sector, with substantial contributions to GDP (around 26.7%) and employment (over 65% of the population).
• Energy and Infrastructure are central to economic transformation, with investments aimed at expanding energy capacity and modernizing transportation systems.
• Digitalization is improving efficiency and transparency, reducing time for processes like business registration and licensing.

3. Goals for 2025

• There is a focus on sustainable and inclusive growth, with a projected investment target of TZS 50 trillion for key sectors such as industrialization, agriculture, and renewable energy.
• Modernizing agriculture through irrigation and mechanization, expanding renewable energy, and enhancing industrial output are key priorities.

4. Economic Metrics and Stability

• Revenue collection and tax-to-GDP ratio improvements reflect better fiscal management. For instance:
  • Tax-to-GDP ratio rose to 14.5% in 2024 from 13.9% in 2023.
  • Revenue collections grew by 10% year-on-year.
• Inflation has been maintained at manageable levels (~4%), indicating effective monetary policies.

5. Commitment to Long-Term Growth

• The government’s strategy focuses on leveraging private investment to reduce the burden on public finances while ensuring impactful development projects.
• There is an emphasis on public-private collaboration to sustain infrastructure projects and foster economic resilience.

Hence, Tanzania’s commitment to fostering a competitive and efficient investment environment to achieve its Vision 2025 goals. It communicates confidence in ongoing reforms and ambitious plans for economic diversification and industrial growth. The specific figures, targets, and sectoral focus underline the government’s strategic planning and performance in driving the economy forward.

Tanzania’s current account balance, a vital indicator of its trade and investment flows, has witnessed significant improvement over the past four decades. From a peak deficit of -17.3% of GDP in 1993, reflecting economic imbalances, Tanzania has made strides to reduce this figure to an estimated -2.5% by 2029. While it outperforms Burundi (-18.9%) and Rwanda (-7.5%), Tanzania's deficit remains higher than Kenya’s (-4%) and Uganda’s (-2.6%). These figures highlight Tanzania’s economic transformation and its growing competitiveness in East Africa’s dynamic economic landscape.

1. Trends in Tanzania's Current Account Balance

• 1980s: Tanzania had moderate deficits, averaging around -4.5% of GDP.
  • High point: -2.0% (1983).
  • Low point: -5.2% (1987 and 1989).
• 1990s: The deficit worsened significantly, peaking at -17.3% in 1993 due to macroeconomic imbalances and external shocks.
• 2000s: The deficit narrowed in early years but widened to -7.7% in 2008, driven by increased imports and investment.
• 2010s: Gradual improvement as deficits reduced, attributed to improved exports, reduced oil imports, and favorable exchange rates.
  • Best year: -2.8% (2018).
  • Worst year: -11.6% (2012).
• 2020s: Continued stability, with deficits around -2.5% projected up to 2029.

2. Comparison with Other East African Countries

Burundi:

• Historically struggled with high deficits, peaking at -32.4% (2007) and maintaining double-digit deficits post-2010.
• Structural weaknesses in trade and low export diversification contribute to persistently high deficits.

Kenya:

• Moderate deficits, generally stable compared to other East African countries.
  • Improved during the 1990s, briefly achieving surpluses (e.g., 1993: +8.6%).
  • Post-2000s, deficits ranged from -3% to -9%, indicating sustained import reliance.

Rwanda:

• Moderate deficits until the 2010s, after which they worsened, peaking at -15.3% (2017).
• Improvements observed recently, with deficits projected around -7.5% in 2029.

Uganda:

• Generally low deficits, similar to Kenya in the 1980s and 1990s.
  • Peaked in 2020 at -9.5% due to reduced exports during the COVID-19 pandemic.
  • Projected to recover to a deficit of around -2.6% by 2029.

3. Tanzania's Relative Position

• Stability: Tanzania's current account balance has been more stable than Burundi and Rwanda, with deficits consistently below -12% since 2015.
• Competitiveness: Compared to Kenya and Uganda, Tanzania's deficits are slightly higher but have shown steady improvement.
• Recent Projections: By 2029, Tanzania is projected to maintain a deficit of -2.5%, positioning it among the more stable economies in the region.

4. Regional Patterns

• Burundi and Rwanda: High deficits reflect reliance on aid and low export bases.
• Kenya and Uganda: Moderate deficits indicate better trade management and diversified economies.
• Tanzania: Positioned as a middle-ground performer, with significant improvements driven by better fiscal policies, economic reforms, and investment.

Key Takeaways

• Tanzania’s Current Account Deficits: Have decreased significantly, reflecting economic improvements and fiscal discipline.
• Regional Performance: While Tanzania fares better than Burundi and Rwanda, it trails Kenya and Uganda in reducing deficits.
• Outlook: Tanzania’s consistent policy measures and growing exports could improve its position further.

The current account balance as a percentage of GDP provides critical insights into a country's economic health, particularly regarding trade, savings, and investment. What Tanzania's figures and its comparison to other East African countries tell us

1. Tanzania’s Economic Position

• Persistent Deficits: Tanzania has consistently had a current account deficit, meaning it imports more goods, services, and capital than it exports. This can indicate:
  • Reliance on foreign goods, services, or investment.
  • Challenges in domestic production or export capacity.
• Improvement Over Time: The reduction in deficits, particularly since the 2010s, shows:
  • Economic reforms and better fiscal policies.
  • Growth in exports, especially in sectors like agriculture, minerals, and tourism.
  • Controlled import costs due to diversification of local production.

2. Economic Health and Sustainability

• Investment-Driven Growth: Persistent deficits are not inherently bad if they fund productive investments, as seen in Tanzania's infrastructure projects like ports, railways, and energy. This can:
  • Boost long-term growth.
  • Improve export capacity.
• Risks of High Deficits: Periods of larger deficits, such as in the 1990s and early 2000s, reflect economic vulnerabilities, including:
  • Heavy reliance on foreign aid or debt.
  • Exposure to external shocks like global oil price changes.

3. Regional Competitiveness

• Middle Performer: Tanzania performs better than Burundi and Rwanda, which face chronic trade and fiscal challenges, but lags behind Kenya and Uganda in maintaining lower deficits.
  • Kenya and Uganda: Stronger export bases and better trade balances contribute to their relatively lower deficits.
  • Tanzania: Improvements suggest potential for catching up, especially with its natural resource wealth and ongoing industrialization.

4. Structural Economic Challenges

• Reliance on Imports: Tanzania's imports of machinery, equipment, and fuel often outweigh exports. Addressing this requires:
  • Enhancing domestic manufacturing and industrial sectors.
  • Expanding export markets.
• Trade Composition: Exports remain concentrated in a few sectors (e.g., gold, agricultural products), making the country vulnerable to price fluctuations.

5. Policy Implications

• Strengthening Exports: Policies should focus on:
  • Diversifying export products.
  • Expanding markets, particularly in regional and international trade.
• Reducing Import Dependency: Promoting local industries and value-added production can help manage deficits.
• Sustainable Financing: Ensuring that deficits are used for productive investments rather than consumption to avoid unsustainable debt levels.

Broader Interpretation

• Growth Potential: Tanzania's improving trend signals a positive outlook for economic growth and trade balance stabilization.
• Development Challenges: The country still faces structural barriers to becoming a trade-surplus economy, such as reliance on primary commodity exports and limited industrial capacity.
• Regional Leadership: With continued improvement, Tanzania can leverage its geographic and resource advantages to strengthen its position as a leading East African economy.

Stability at 41.7% of GDP and a Projected Decline to 40.8%

Tanzania's general government gross debt stands at a moderate 41.7% of GDP (2023), showcasing a prudent approach to borrowing compared to regional peers like Kenya (68.6%) and Uganda (51.1%). While many African nations have seen sharp increases in debt levels, Tanzania has maintained stability by prioritizing strategic investments and domestic resource mobilization. The debt is forecasted to peak at 47.3% in 2024 before declining to 40.8% by 2029, underscoring sustainable fiscal management. This stability enhances investor confidence, ensuring that economic growth is not compromised by excessive debt servicing pressures.

Tanzania's General Government Gross Debt (% of GDP)

Tanzania has demonstrated a relatively stable debt trajectory over the years. Below are key figures:

• 2001: 50.8%
• 2005: 46.1% (sharp decline from early 2000s due to HIPC debt relief programs)
• 2010: 27.6% (lowest point in the two-decade period)
• 2015: 39.5%
• 2020: 41.3%
• 2024 (forecasted): 47.3%
• 2029 (forecasted): 40.8%

Comparison with Kenya and Uganda

Kenya

Kenya's debt level has been consistently higher than Tanzania's over the years, reflecting its aggressive borrowing strategy for infrastructure projects:

• 2001: 41.3%
• 2010: 36.7%
• 2015: 45.8%
• 2020: 68.0%
• 2024 (forecasted): 69.9%
• 2029 (forecasted): 66.1%

Key Insights:

• Kenya’s debt increased sharply after 2013, coinciding with major infrastructure investments like the Standard Gauge Railway.
• By 2020, Kenya’s debt was 26.7 percentage points higher than Tanzania's.

Uganda

Uganda’s debt levels have been consistently lower than Tanzania's until the mid-2010s when it started to rise:

• 2001: 51.4%
• 2010: 18.4%
• 2015: 28.0%
• 2020: 46.3%
• 2024 (forecasted): 51.4%
• 2029 (forecasted): 36.3%

Key Insights:

• Uganda reduced debt significantly in the early 2000s but experienced a resurgence due to investment in energy and oil infrastructure.
• By 2024, Uganda’s debt will exceed Tanzania's, but it is projected to decline sharply afterward.

Regional and Global Context

Sub-Saharan Africa

• 2001: 59.3%
• 2010: 25.4%
• 2020: 56.3%
• 2024 (forecasted): 59.7%

Africa (Region)

• 2001: 63.1%
• 2010: 32.0%
• 2020: 64.6%
• 2024 (forecasted): 66.7%

Key Insights:

• Tanzania’s debt has consistently remained below the regional average.
• The region has seen significant increases in debt levels since 2010, driven by borrowing for development projects and economic shocks like COVID-19.

Tanzania’s Strategic Position

• Debt Sustainability: Tanzania has managed its debt more conservatively than its neighbors, maintaining moderate levels and avoiding spikes seen in Kenya and Uganda.
• Fiscal Discipline: Tanzania's focus on domestic resource mobilization and cautious borrowing supports its fiscal health.
• Future Outlook: While the debt-to-GDP ratio is expected to rise to 47.3% in 2024, it remains sustainable and within international thresholds.

Key Takeaways

1. Tanzania's debt trajectory is stable, peaking at 47.3% in 2024 but projected to decline gradually to 40.8% by 2029.
2. Kenya has significantly higher debt levels, reflecting its infrastructure-driven borrowing strategy.
3. Uganda's debt is rising, projected to exceed Tanzania's by 2024, but it’s forecasted to decline in the long term.
4. Tanzania stands out as fiscally disciplined, with a debt level below Sub-Saharan Africa's and Africa’s regional averages.

The analysis of Tanzania's general government gross debt (% of GDP), compared to its regional peers, tells several key stories about its fiscal management, economic priorities, and potential risks.

1. Fiscal Discipline and Stability

• Tanzania’s debt levels are moderate and have remained relatively stable compared to its neighbors like Kenya and Uganda.
  • This indicates prudent borrowing practices and fiscal discipline.
  • The debt-to-GDP ratio has stayed below international risk thresholds (often cited as 55-60% for emerging economies).
  • Tanzania's focus on mobilizing domestic resources reduces over-reliance on external borrowing.

2. Strategic Approach to Borrowing

• Tanzania has adopted a conservative borrowing strategy, focusing on critical projects while avoiding excessive reliance on external loans.
  • Unlike Kenya, which heavily borrowed for large-scale infrastructure projects like railways and highways, Tanzania’s debt growth has been more measured.
  • This approach ensures that debt servicing does not crowd out essential public investments.

3. Resilience Amid Global Trends

• While Sub-Saharan Africa and global averages for debt-to-GDP ratios have increased sharply since 2010, Tanzania has managed to keep its debt growth moderate.
  • This resilience reflects the country's ability to weather global economic shocks (e.g., COVID-19) and maintain economic growth.
  • Policies promoting self-reliance, such as prioritizing agriculture and industrialization, have helped mitigate external pressures.

4. Comparisons with Kenya and Uganda

Kenya:

• Kenya’s debt-to-GDP ratio is significantly higher, indicating a reliance on borrowing for infrastructure projects and other expenditures.
  • This raises concerns about Kenya’s ability to manage debt sustainably, as evidenced by its rising debt servicing costs.
  • Tanzania’s lower debt reflects its avoidance of similar fiscal risks.

Uganda:

• Uganda’s debt trajectory shows a sharp rise due to investment in energy and oil infrastructure.
  • However, its debt is expected to decline significantly after 2024.
  • Tanzania’s steadier debt management avoids the peaks and troughs seen in Uganda, indicating better planning.

5. Economic Priorities and Challenges

• The moderate debt reflects Tanzania’s focus on long-term economic priorities, such as improving infrastructure, energy access, and agriculture.
• However, the rising trend in debt (forecasted to peak at 47.3% of GDP by 2024) signals emerging challenges, including:
  • Increased borrowing for large projects (e.g., Standard Gauge Railway, Julius Nyerere Hydropower Dam).
  • Servicing debt costs, which could strain public finances if economic growth slows.

6. Tanzania’s Debt Sustainability

• Tanzania's debt remains sustainable, with the trajectory expected to reverse and decline post-2024 (40.8% by 2029).
• Sustainability is supported by:
  • Economic diversification: Reducing dependence on a few sectors (e.g., mining, agriculture).
  • Sound macroeconomic policies: Controlling inflation, fostering stable GDP growth.
  • Infrastructure development: Targeting projects with clear economic returns to boost productivity and revenue generation.

7. Signals to Investors and Stakeholders

• Tanzania’s fiscal stability is an attractive signal to both domestic and international investors.
• It positions Tanzania as a safer investment destination compared to its regional peers.
• However, maintaining this stability will require:
  • Continued transparency in debt management.
  • Focus on revenue generation (tax reforms, enhanced public-private partnerships).
  • Efficient implementation of development projects.

Key Implications for Policy

1. Caution on Future Borrowing: As debt levels approach 50% of GDP, Tanzania must ensure that new borrowing is directed toward high-return projects.
2. Revenue Mobilization: Increasing tax revenue and expanding the tax base are crucial to reducing reliance on borrowing.
3. Debt Management: Transparent reporting and effective repayment strategies are vital for maintaining credibility.

Tanzania’s debt story reflects a measured and sustainable approach to fiscal management, offering lessons for regional peers while highlighting the importance of maintaining growth-oriented policies.

A Sign of Economic Stability

In November 2024, the Tanzania shilling exhibited notable appreciation, trading at an average of TZS 2,659.03 per USD, up by 2.3% from October's TZS 2,719.91. This improvement reflects enhanced foreign exchange inflows from sectors like tourism and exports, alongside effective monetary policies. The annual depreciation rate also slowed to 6.3% from 9% the previous month, indicating strengthening financial stability. With the Interbank Foreign Exchange Market turnover surging to USD 186.7 million, the shilling's performance highlights a resilient economy poised for sustained growth.

Financial Stability: Performance of the Tanzania Shilling in November 2024

The Tanzania shilling demonstrated signs of stability and appreciation during November 2024, supported by improved foreign exchange inflows and effective monetary policy measures.

1. Exchange Rate Performance

• The average exchange rate of the Tanzania shilling against the US dollar was TZS 2,659.03 per USD, marking a 2.3% appreciation from TZS 2,719.91 per USD recorded in October 2024.
• On an annual basis, the pace of depreciation slowed significantly to 6.3% in November 2024, compared to 9% in October 2024.

2. Foreign Exchange Market Activity

• The Interbank Foreign Exchange Market (IFEM) turnover rose sharply to USD 186.7 million, compared to USD 50.7 million in October 2024 and USD 13.1 million in November 2023.
• The Bank of Tanzania purchased USD 23 million in November 2024, significantly higher than the USD 4.5 million purchased in October, contributing to stabilizing the shilling.

3. Drivers of Stability and Appreciation

• Improved Foreign Exchange Inflows:
  • Increased earnings from key sectors such as tourism and cash crop exports (e.g., cashew nuts, tobacco, and minerals) strengthened foreign currency availability.
• Policy Effectiveness:
  • The Bank of Tanzania's tight monetary policy stance and enforcement of regulations (e.g., restricting foreign exchange use for domestic transactions) bolstered the shilling's performance.
• Global Economic Conditions:
  • Favorable international capital market conditions, driven by policy rate cuts globally, eased financial pressures on the domestic economy.

Key Figures in Summary

Implication:

• The appreciation of the Tanzania shilling reflects financial stability, supported by strong foreign inflows and effective monetary policy.
• The reduced annual depreciation rate (6.3%) highlights improving external conditions, mitigating pressures from previous years.
• The significant increase in IFEM activity (from USD 13.1 million in November 2023 to USD 186.7 million in November 2024) indicates robust participation in the foreign exchange market, ensuring liquidity and stability.

Conclusion

The Tanzania shilling's performance in November 2024 underscores its strengthening position, driven by sound economic fundamentals, improved foreign inflows, and prudent monetary policies. This stability enhances confidence in Tanzania's economic outlook, fostering a conducive environment for trade and investment.

A Strategic Approach to Fiscal Stability

Tanzania’s domestic debt, totaling TZS 33.6 trillion in November 2024, reflects a strategic focus on long-term financing through Treasury Bonds, which account for 78.2% of the debt portfolio. With a diverse creditor base led by commercial banks (28.8%), pension funds (26.9%), and the Bank of Tanzania (21%), the government balances long-term commitments with short-term liquidity needs. This approach minimizes exchange rate risks and supports fiscal stability, underscoring the importance of sustainable debt management for economic growth.

1. Overview of Domestic Debt

As of November 2024, Tanzania’s domestic debt stock amounted to TZS 33,569.2 billion, reflecting an increase of TZS 546 billion from the previous month. This growth was primarily driven by the issuance of new Treasury bonds and bills.

2. Government Domestic Debt by Borrowing Instruments

The distribution of government domestic debt by instruments in November 2024 is as follows:

Key Observations:

• Treasury Bonds (78.2%) dominate the debt portfolio, reflecting a preference for long-term financing.
• Non-securitized debt, mainly overdraft facilities (15.2%), complements government borrowing for short-term needs.

3. Government Domestic Debt by Creditor Category

The breakdown of creditors for domestic debt as of November 2024 is as follows:

Key Observations:

• Commercial Banks (28.8%) are the largest creditors, reflecting their significant role in financing government operations.
• Pension Funds (26.9%) and Bank of Tanzania (21.0%) also play major roles in providing stable financing to the government.

4. Summary of Figures

Insights:

1. Long-Term Borrowing: The dominance of Treasury Bonds reflects a strategy to stabilize financing over longer horizons.
2. Creditor Diversification: The government relies on a balanced mix of creditors, led by commercial banks and pension funds, ensuring stable domestic funding.
3. Short-Term Financing Needs: Overdrafts and Treasury Bills address immediate liquidity needs, complementing long-term instruments.

Tanzania’s domestic debt portfolio appears strategically managed, emphasizing long-term stability while maintaining access to short-term funds​

The details about Tanzania's domestic debt provide valuable insights into the government’s fiscal strategy and borrowing practices

1. Reliance on Long-Term Borrowing Instruments

• The dominance of Treasury Bonds (78.2%) shows the government’s preference for long-term financing, which spreads repayment obligations over an extended period and minimizes refinancing risks.
• The smaller share of Treasury Bills (6.0%) indicates limited use of short-term borrowing, reducing the pressure of frequent rollovers.

Implication: This strategy reflects a focus on financial stability and sustainable debt management, avoiding excessive short-term debt accumulation.

2. Diverse Creditor Base

• Commercial Banks (28.8%) are the largest creditors, demonstrating the banking sector’s significant role in government financing.
• Pension Funds (26.9%) and the Bank of Tanzania (21.0%) also contribute substantially, providing stable, long-term financing.
• The involvement of insurance companies and special funds (7.1%), along with others (16.2%), indicates broader participation, reducing dependency on any single creditor group.

Implication: A diversified creditor base enhances resilience to shocks, ensuring continued access to domestic financing even during economic uncertainties.

3. Use of Non-Securitized Debt

• Non-securitized debt, primarily overdraft facilities (15.2%), supports the government’s short-term liquidity needs. These facilities complement long-term instruments like Treasury Bonds, ensuring flexibility in managing cash flows.

Implication: The government balances long-term commitments with immediate fiscal needs, reflecting a pragmatic approach to debt management.

4. Domestic Financing Reduces Exchange Rate Risks

• Unlike external debt, domestic borrowing eliminates exposure to exchange rate fluctuations, making it a safer option in times of currency volatility.
• The reliance on domestic debt also reflects efforts to utilize internal financial markets, promoting local economic growth.

Implication: The emphasis on domestic debt aligns with sound fiscal management, leveraging local resources while avoiding external currency risks.

5. Debt Sustainability and Fiscal Discipline

• The steady growth of domestic debt (an increase of TZS 546 billion in November 2024) suggests an ongoing need to finance government operations and development projects.
• While the reliance on Treasury Bonds indicates fiscal discipline, rising debt levels demand productive use of borrowed funds to ensure economic returns.

Conclusion:
Tanzania’s domestic debt strategy emphasizes long-term stability, diversified financing, and fiscal flexibility. However, as debt levels grow, effective utilization of funds for development and maintaining debt sustainability will be critical to avoiding financial strain in the future.

Strategic Investments and Fiscal Challenges

Tanzania’s external debt, totaling USD 33.1 billion in November 2024, highlights a focus on infrastructure, social services, and energy projects, with the central government holding 76.8% of the debt. Multilateral creditors account for the majority, offering favorable terms, while commercial borrowing poses higher costs. Despite aligning debt use with development goals, currency risks and rising debt servicing obligations underscore the importance of prudent debt management and sustainable financing strategies.

1. External Debt Overview

As of November 2024, Tanzania's total external debt stock stood at USD 33,137.7 million, representing 72.1% of the country’s total national debt. This reflects a slight decrease of 0.6% compared to October 2024 due to debt service payments exceeding new disbursements.

2. External Debt Stock by Borrower

The distribution of external debt stock by borrower categories highlights the dominance of central government borrowing:

• Central Government: USD 25,433.6 million (76.8% of external debt).
• Private Sector: USD 7,700.3 million (23.2% of external debt).
• Public Corporations: USD 3.8 million (negligible share).

3. Distributed Outstanding Debt by Use of Funds

The allocation of external debt shows how the borrowed funds are utilized across various sectors:

• Transportation and Telecommunications: 21.4% (key investments in infrastructure).
• Social Welfare and Education: 20.4% (focus on improving public services).
• Energy and Mining: 15.0% (supporting energy production and mining activities).
• Balance of Payments (BoP) and Budget Support: 18.4%.
• Other sectors include:
  • Agriculture: 5.2%.
  • Finance and Insurance: 4.1%.
  • Real Estate and Construction: 4.7%.

4. Distributed Outstanding Debt by Creditor Composition

The distribution of external debt by creditor category as of November 2024 is as follows:

• Multilateral Institutions: USD 18,055.7 million (54.5%) – These include international financial institutions such as the World Bank and IMF.
• Commercial Creditors: USD 11,854.9 million (35.8%).
• Export Credit Agencies: USD 1,799.1 million (5.4%).
• Bilateral Creditors: USD 1,428.0 million (4.3%).

5. Currency Composition of External Debt

Tanzania’s external debt is mainly denominated in the following currencies:

• United States Dollar (USD): 68.2%.
• Euro: 16.2%.
• Chinese Yuan: 6.1%.
• Others: 9.6%.

Summary of Key Figures:

These figures reflect Tanzania’s strategy to invest heavily in infrastructure and social services while maintaining reliance on multilateral and commercial creditors for financial support​

The analysis of Tanzania's external debt and its distribution with important insights into the country's borrowing strategies and development priorities

1. High Reliance on Central Government Borrowing

• The central government accounts for the majority (76.8%) of external debt, indicating that the government is the primary entity responsible for securing and utilizing external financing.
• This reliance reflects the government’s role in funding large-scale projects, particularly in infrastructure and social development, which are critical for long-term growth.

Implication: The burden of repayment largely falls on public finances, emphasizing the need for sound debt management and productive use of borrowed funds.

2. Sectoral Distribution Aligns with Development Goals

• Significant portions of the debt are allocated to:
  • Transportation and Telecommunications (21.4%) to improve connectivity and trade.
  • Social Welfare and Education (20.4%) to enhance human capital.
  • Energy and Mining (15%) to address energy needs and exploit natural resources.
• The allocation highlights the government’s focus on infrastructure-driven growth and poverty reduction through investments in public services.

Implication: The focus on infrastructure and social services suggests a long-term strategy to stimulate economic growth and improve the standard of living.

3. Dominance of Multilateral Creditors

• With 54.5% of external debt owed to multilateral institutions, Tanzania benefits from concessional loans, which typically have lower interest rates and longer repayment periods.
• The reliance on commercial creditors (35.8%), however, reflects a shift toward costlier financing, possibly due to limited access to concessional funding.

Implication: While multilateral debt offers favorable terms, increasing commercial debt could raise debt servicing costs, adding pressure on public finances.

4. Currency Composition Risks

• The dominance of the US dollar (68.2%) in the debt portfolio exposes Tanzania to exchange rate risks. A depreciation of the Tanzanian shilling against the dollar could significantly increase repayment costs.
• Diversification into other currencies like the Euro and Chinese Yuan mitigates this risk to some extent but remains insufficient.

Implication: Exchange rate volatility poses a challenge, requiring careful monitoring and hedging strategies.

5. Debt Management and Sustainability Concerns

• Although the funds are directed toward productive sectors, the growing stock of external debt demands effective management to ensure it does not surpass sustainable levels.
• Increasing reliance on debt-financed projects must yield returns sufficient to cover repayment obligations.

Conclusion:
Tanzania’s external debt strategy reflects a focus on long-term development, prioritizing infrastructure, social services, and energy projects. However, the reliance on central government borrowing and commercial creditors, coupled with exchange rate risks, underscores the need for prudent debt management, enhanced domestic revenue mobilization, and productive utilization of borrowed funds.

Tanzania has maintained stable inflation rates, averaging around 3% from December 2023 to December 2024, with minor increases to 3.1% during mid-2024. This consistency, compared to higher rates in neighboring countries like Kenya (8%) and Uganda (7.5%), underscores Tanzania's strong economic management. The 2025 forecast predicts continued stability, with inflation rates ranging between 3.05% and 3.97%, creating a favorable environment for investment and economic growth.

Tanzania's Inflation Rate: A Detailed Analysis

1. Current Trends (2023-2024):

The inflation rate in Tanzania has remained relatively stable. Below are the key observations and figures:

• 2023 (December): The inflation rate was 3%, reflecting stable prices.
• 2024:
  • From January to March 2024, the rate held steady at 3%.
  • Slight increases occurred from April to June 2024, where the rate rose to 3.1% due to seasonal and market factors.
  • The latter half of 2024 saw fluctuations between 3% and 3.1%, closing the year at 3.1% in December.

The minor changes suggest a well-managed inflation environment with limited external shocks.

2. Factors Influencing Inflation in Tanzania:

• Food Prices: As food has a significant weight in Tanzania's Consumer Price Index (CPI), fluctuations in harvest seasons directly impact inflation.
• Fuel Costs: Changes in global oil prices affect transportation and energy costs, which can trickle into overall inflation.
• Exchange Rates: The Tanzanian Shilling's stability has contributed to controlled imported inflation.
• Monetary Policy: The Bank of Tanzania's efforts to maintain inflation within its medium-term target of 3-5% have been successful.

3. Historical Comparison:

Tanzania has maintained a low and stable inflation rate compared to other Sub-Saharan African countries, where double-digit inflation is common in some economies. For example:

• Kenya's Inflation (2024): Averaged 8%.
• Uganda's Inflation (2024): Averaged 7.5%.

4. Forecast for 2025 (January-December):

Using historical data and current trends, the projected inflation rates for 2025 are:

5. Key Observations for 2025:

• Seasonal Fluctuations: Minor variations occur due to predictable economic cycles, like agricultural harvests and fiscal policy adjustments.
• Controlled Environment: Inflation is expected to remain within the central bank's target range of 3-5%.

6. Long-Term Outlook:

Tanzania's consistent inflation management strengthens investor confidence and supports economic growth. Continued focus on:

• Enhancing agricultural productivity.
• Stabilizing fuel and food imports.
• Maintaining prudent monetary policy.

The analysis of Tanzania's inflation rates tells us the following key issues

1. Stability in Inflation

• Low and Stable Rates: Tanzania has maintained a stable inflation rate around 3%, indicating effective monetary and fiscal policies. This stability benefits:
  • Consumers: Stable prices mean predictable costs for essential goods like food and fuel.
  • Businesses: Low inflation reduces uncertainty, encouraging investments.
  • Investors: A controlled inflation rate is attractive for both domestic and foreign investments.

2. Factors Driving Stability

• Effective Policy Measures:
  • The Bank of Tanzania keeps inflation within its target range of 3-5%, ensuring economic predictability.
• Controlled Costs of Essentials:
  • Food prices are a major driver of inflation, and stable agricultural production helps prevent sharp price increases.
  • Fuel and energy prices, though influenced by global markets, are managed to reduce local volatility.
• Stable Exchange Rates: This reduces imported inflation for goods and services sourced from outside Tanzania.

3. Regional Context

• Compared to neighbors like Kenya (8% inflation) and Uganda (7.5%), Tanzania's inflation rate is among the lowest in the region. This highlights:
  • Resilience to external shocks, such as rising global commodity prices.
  • Effective management of domestic supply chains to prevent price spikes.

4. Implications for 2025

• Slight Seasonal Variations: Forecasted rates for 2025 (3.05%-3.95%) suggest minor fluctuations influenced by agricultural harvests, demand cycles, and market adjustments.
• Inflation Stability Supports Growth:
  • Promotes economic confidence for businesses and investors.
  • Reduces the cost of living, aiding poverty reduction and consumer spending.

5. Long-Term Economic Significance

• Predictability: Low inflation signals strong governance and macroeconomic stability, which are critical for attracting long-term investments.
• Economic Growth Potential: With stable prices, Tanzania can focus on accelerating growth in sectors like manufacturing, services, and agriculture without major inflationary pressures.

Tanzania’s inflation rates tell a story of economic discipline, resilience, and opportunity for sustained growth, with careful policy adjustments ensuring continued stability.

Balancing Growth and Sustainability

Tanzania’s government budgetary operations in October 2024 highlight steady progress in revenue collection, achieving 94.9% of the target, driven by robust tax revenues from imports and domestic goods. Expenditures prioritized recurrent needs and development projects, reflecting the government’s commitment to balancing economic growth and fiscal sustainability. Despite minor shortfalls in revenue and a high share of recurrent expenditure, fiscal policies remain focused on strengthening infrastructure and long-term development.

Central Government Revenues:

1. Total Revenue Collection (October 2024):
   • Amounted to TZS 2,773.4 billion, achieving 94.9% of the monthly target.
   • Central government revenues accounted for 96% of total collections, amounting to TZS 2,662.1 billion.
   • Tax revenue contributed TZS 2,238.4 billion, marginally missing the target by 0.7%.
   • Taxes on imports and local goods and services performed above their targets, laying a strong foundation for revenue growth.
2. Breakdown of Revenue Categories (October 2024 Actuals):
   • Taxes on imports: TZS 992.9 billion.
   • Income tax: TZS 581.7 billion.
   • Taxes on local goods and services: TZS 550.3 billion.
   • Other taxes: TZS 179.2 billion.
   • Non-tax revenue: TZS 358.0 billion.

Central Government Expenditures:

1. Total Expenditure (October 2024):
   • Reached TZS 3,402.8 billion.
   • Recurrent expenditure: TZS 2,176 billion focused on wages, salaries, and operational costs.
   • Development expenditure: TZS 1,226.8 billion allocated to infrastructure, social programs, and other key development initiatives.
2. Breakdown of Expenditure Categories (October 2024 Actuals):
   • Wages and salaries: TZS 825.4 billion.
   • Interest costs: TZS 445.1 billion.
   • Other recurrent expenditures: TZS 494.4 billion.
   • Development expenditure: TZS 1,226.8 billion, with priority on infrastructure projects.

Observations:

• The government maintained fiscal consolidation efforts by aligning expenditures with available resources.
• Tax revenue performance highlights the government's efforts to improve efficiency in revenue collection.
• Development expenditure emphasizes a strong focus on economic growth and infrastructure investment.

The information on Government Budgetary Operations reflects several key aspects of Tanzania's fiscal management and economic priorities

1. Revenue Performance:

• The central government achieved 94.9% of its revenue target, indicating effective revenue collection strategies but highlighting room for improvement in achieving full targets.
• Taxes on imports and local goods/services performing above target suggests robust trade activity and economic activity within the domestic market.
• The reliance on tax revenue (over 80% of total revenue) demonstrates the importance of a growing tax base and enhanced compliance.

Takeaway: The government is making progress in revenue mobilization, but minor shortfalls indicate challenges in achieving ambitious targets or unpredictable economic factors.

2. Expenditure Trends:

• Recurrent Expenditure: The high share of recurrent costs (64% of total spending) underscores significant commitments to salaries, interest payments, and operational costs.
• Development Expenditure: Allocating 36% to development projects reflects a deliberate focus on infrastructure and long-term economic growth.

Takeaway: While development spending shows a commitment to future growth, the dominance of recurrent spending limits flexibility for additional investments in key areas.

3. Fiscal Balance:

• The data implies that the government may be operating with a fiscal deficit, given that expenditures exceed revenue. This suggests reliance on borrowing or other financing mechanisms.

Takeaway: Fiscal consolidation efforts must continue to strike a balance between stimulating growth through spending and maintaining sustainable debt levels.

4. Policy and Economic Insights:

• The strong performance in taxes on imports and domestic goods indicates improving economic activity and consumption.
• The focus on development expenditure aligns with the government’s goal of infrastructure-led growth and poverty reduction.

Broader Implication: The government’s fiscal policies aim to balance short-term obligations with long-term development, but consistent revenue growth and effective expenditure management are critical to avoid over-reliance on borrowing.

Overall, the data illustrates a government striving to grow its economy and invest in the future while managing the constraints of its budget and obligations. This underlines the importance of continued reforms in tax administration, spending efficiency, and fostering private-sector-driven growth.

Stability and Growth in Focus

Zanzibar's economy demonstrated resilience in November 2024, with headline inflation dropping to 4.5%, reflecting stable food prices and currency strength. Government revenues reached TZS 180 billion, with tax collections surpassing targets by 8.2%, while development spending accounted for 52% of total expenditures. A current account surplus of USD 500.7 million, driven by strong tourism and export performance, highlights the region’s economic potential. Despite a fiscal deficit of TZS 3.3 billion, Zanzibar continues to prioritize growth through strategic investments and fiscal discipline.

Economic Performance in Zanzibar (November 2024)

1. Inflation Trends

• Headline Inflation: Decreased to 4.5% in November 2024, from 5.8% in October 2024 and 6.3% in November 2023.
  • The decline was driven by slower increases in food prices and an appreciating Tanzanian shilling, which reduced import costs.
• Food Inflation: Dropped to 6.6% in November 2024, down from 8.2% in October 2024 and 10.9% in November 2023.
• Non-Food Inflation: Stood at 3%, a reduction from 4.1% in October 2024 and stable compared to November 2023.

2. Government Budgetary Operations

Revenues and Grants:

• Total government revenue and grants reached TZS 180 billion, with:
  • Domestic Revenue: TZS 138.2 billion (94.6% of target).
  • Grants: TZS 41.7 billion.
  • Tax Revenue: TZS 124.2 billion, exceeding the target by 8.2%, due to improved tax enforcement and compliance.
  • Non-Tax Revenue: TZS 14 billion (44.7% of the target).

Expenditure:

• Total expenditure amounted to TZS 155.4 billion:
  • Recurrent Expenditure: TZS 74.8 billion, allocated to wages, salaries, and operational costs.
  • Development Expenditure: TZS 80.6 billion, primarily funded by domestic sources (TZS 62.7 billion) and supplemented by foreign financing.

Fiscal Deficit:

• Zanzibar recorded a fiscal deficit of TZS 3.3 billion, which was financed through external borrowing.

3. External Sector Performance

• Current Account Balance: Surplus of USD 500.7 million for the year ending November 2024, up from USD 360.3 million in November 2023.
• Exports of Goods and Services:
  • Improved performance, especially in tourism, contributed significantly to the surplus.
• Imports of Goods and Services:
  • Decreased, further supporting the positive current account position.

Key Insights:

1. Declining Inflation: Reflects stability in food prices and effective currency management, benefiting households and businesses alike.
2. Revenue Mobilization Success: Tax revenue exceeded targets, showcasing improved enforcement and taxpayer compliance.
3. Development Priorities: Significant allocation to development spending underlines a commitment to infrastructure and socio-economic growth.
4. Trade and Tourism Boost: Strong performance in the external sector, particularly in tourism, highlights Zanzibar’s growing economic potential.

The analysis of Zanzibar's economic performance with several important insights into the region's fiscal and economic health

1. Declining Inflation Reflects Economic Stability

• The drop in headline inflation to 4.5% indicates stable prices for essential goods, benefiting consumers.
• The reduction in food inflation to 6.6% reflects improved food supply and a stronger currency, reducing import costs.

Implication: Zanzibar’s inflation trends signal effective price control mechanisms, stable economic conditions, and reduced pressure on household purchasing power.

2. Strong Revenue Mobilization

• Tax revenue exceeding targets by 8.2% highlights the government’s improved enforcement and taxpayer compliance.
• However, the shortfall in non-tax revenue (44.7% of the target) suggests areas for improvement in diversifying revenue sources.

Implication: Zanzibar’s fiscal system demonstrates strengths in tax mobilization but needs to enhance efficiency in collecting non-tax revenues to reduce reliance on external financing.

3. Prioritization of Development Spending

• Development expenditure accounted for more than half (52%) of total spending, with domestic financing (TZS 62.7 billion) playing a significant role.
• Investments in infrastructure and social programs align with long-term growth objectives.

Implication: The focus on development spending reflects a commitment to building infrastructure and improving public services, but the reliance on domestic and foreign funding underscores the need for effective project management to ensure returns.

4. Improved External Sector Performance

• The current account surplus of USD 500.7 million reflects strong export performance, especially in tourism and reduced imports.
• Growth in tourism receipts underscores the sector’s vital role in Zanzibar’s economy, driven by increased tourist arrivals.

Implication: The external sector performance highlights Zanzibar’s success in leveraging its comparative advantages, particularly in tourism, while maintaining control over imports.

5. Fiscal Deficit and Financing

• The fiscal deficit of TZS 3.3 billion demonstrates the challenges of balancing revenues and expenditures.
• Financing through external borrowing requires careful management to avoid over-reliance and maintain debt sustainability.

Implication: Zanzibar’s fiscal health is stable but demands continued efforts in expanding domestic revenue and prudent debt management.

Conclusion:

Zanzibar’s economic performance reflects positive trends in inflation control, revenue mobilization, and trade, driven by tourism and development spending. However, the reliance on external borrowing and the underperformance of non-tax revenue highlight the need for diversified revenue sources, enhanced fiscal discipline, and productive investments to sustain long-term economic growth.

Tanzania's financial markets in November 2024 demonstrated resilience and stability, reflecting sound macroeconomic management. Government securities attracted strong interest in long-term bonds, with yields rising to 15.93% for 25-year bonds, signaling investor confidence in the economy. The interbank cash market maintained balanced liquidity, with a modest overall rate of 8.06%. Meanwhile, the foreign exchange market saw a significant increase in activity, with turnover reaching USD 186.7 million and the Tanzanian shilling appreciating by 2.3% against the US dollar. These trends underscore a stable financial environment conducive to sustained growth and investment.

Details on Financial Markets in November 2024

1. Government Securities Market

The government securities market showed mixed performance in November 2024, with strong interest in long-term maturities. Key details include:

• Treasury Bills:
  • Two auctions were conducted, with a combined tender size of TZS 253.3 billion.
  • Total bids received: TZS 211.7 billion (undersubscribed).
  • Successful bids: TZS 154.8 billion.
  • Weighted average yield (WAY): 12.68%, up from 11.55% in October 2024.
• Treasury Bonds:
  • Two auctions for 20-year and 25-year Treasury bonds were conducted.
  • Combined tender size: TZS 391 billion.
  • Total bids received: TZS 560.7 billion (oversubscribed).
  • Successful bids: TZS 487.5 billion.
  • Weighted average yields:
    • 20-year bond: 15.64%.
    • 25-year bond: 15.93%.

2. Interbank Cash Market (IBCM)

The Interbank Cash Market facilitated shilling liquidity distribution among banks. Highlights include:

• Total Transactions:
  • November 2024: TZS 1,651 billion.
  • October 2024: TZS 2,093.7 billion (indicating reduced market activity).
• Transaction Composition:
  • Overnight transactions accounted for 19.2% of total turnover.
  • 7-day transactions contributed 35.2% of total turnover.
• Interest Rates:
  • The overall IBCM rate: 8.06%, slightly up from 8.04% in October 2024.

3. Interbank Foreign Exchange Market (IFEM)

The foreign exchange market experienced significant activity, reflecting improved liquidity and favorable economic conditions. Key figures:

• Market Turnover:
  • November 2024: USD 186.7 million, a sharp increase from USD 50.7 million in October 2024 and USD 13.1 million in November 2023.
• Bank of Tanzania Participation:
  • Purchases: USD 23 million, compared to USD 4.5 million in October 2024.
• Exchange Rate Performance:
  • Average exchange rate: TZS 2,659.03 per USD, reflecting a 2.3% appreciation from TZS 2,719.91 per USD in October 2024.
  • Annual depreciation slowed to 6.3%, down from 9% in October 2024.

Summary of Figures

Key Insights

1. Government Securities Market: Increased investor appetite for long-term bonds due to stable macroeconomic conditions. Treasury bill auctions faced undersubscription, likely due to lower yields.
2. Interbank Cash Market: A slight decline in activity and marginal rate increase reflects balanced liquidity management among banks.
3. Foreign Exchange Market: Strong activity, with a notable improvement in foreign exchange liquidity and a steady appreciation of the Tanzanian shilling.

The financial market report provides important insights into Tanzania's economic and financial conditions in November 2024

1. Government Securities Market

• Investor Confidence in Long-Term Stability:
  • The oversubscription of 20-year and 25-year Treasury bonds, coupled with increased yields (15.64% and 15.93%, respectively), indicates strong investor confidence in Tanzania's long-term economic stability and macroeconomic policies.
  • The undersubscription of Treasury bills suggests reduced demand for shorter-term investments, possibly due to the relatively lower yields or a preference for more stable, long-term returns.

2. Interbank Cash Market (IBCM)

• Efficient Liquidity Management Among Banks:
  • The decrease in transactions to TZS 1,651 billion (from TZS 2,093.7 billion) reflects reduced borrowing needs in the banking system, potentially due to improved liquidity conditions.
  • The slight increase in the overall IBCM interest rate (8.06% from 8.04%) suggests that liquidity is well-regulated without excessive pressure on interbank lending costs.

3. Interbank Foreign Exchange Market (IFEM)

• Improved Foreign Exchange Liquidity:
  • A sharp increase in market turnover to USD 186.7 million (compared to USD 50.7 million in October 2024 and USD 13.1 million in November 2023) signals robust foreign currency inflows, likely driven by strong tourism performance, cash crop exports, and other international activities.
  • The appreciation of the Tanzanian shilling (2.3% against the USD) reflects improved economic fundamentals, reduced foreign exchange pressures, and confidence in monetary policy management.

What It Tells Us About the Economy

1. Stable Financial Environment:
   • The strong demand for long-term bonds and stable interbank rates indicate a well-functioning financial system with investor confidence and efficient liquidity distribution.
2. Economic Resilience and Foreign Inflows:
   • The surge in foreign exchange market activity and shilling appreciation highlight Tanzania's growing strength in foreign exchange-generating sectors such as tourism and exports.
3. Policy Effectiveness:
   • The financial market trends demonstrate that monetary policy is effectively maintaining balance and fostering stability without excessive inflation or liquidity stress.
4. Opportunities and Risks:
   • The preference for long-term securities over short-term ones and improved foreign exchange conditions present opportunities for investment and growth. However, any global economic shocks or local fiscal pressures could disrupt these favorable trends.

Overall Interpretation

The financial market data shows that Tanzania's economy is on a stable and sustainable path, with growing investor confidence, improved foreign exchange conditions, and efficient liquidity management. These trends are supportive of continued economic recovery and growth.