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.

Tanzania’s external sector showcased remarkable strength in November 2024, with the current account deficit narrowing by 35% to USD 2,025.8 million. Exports surged by 14.2% to USD 15,872.9 million, driven by gold and tourism, while imports grew modestly by 2.7%. Foreign exchange reserves increased to USD 5,056.8 million, covering 4.1 months of imports, exceeding benchmarks. This performance highlights Tanzania’s growing global competitiveness and economic resilience, ensuring a stable foundation for sustainable growth.

The external sector demonstrated notable improvements in November 2024, driven by robust export growth, a reduced current account deficit, and strong foreign exchange reserves. These factors underline the resilience and recovery of Tanzania's economy.

1. Current Account Balance

• The current account deficit narrowed significantly by 35% to USD 2,025.8 million in the year ending November 2024, compared to USD 3,115.8 million in the corresponding period in 2023.
• This improvement was attributed to strong export performance and controlled import growth.

2. Exports

• Total Exports: Increased by 14.2% to USD 15,872.9 million in the year ending November 2024, up from USD 13,901.2 million in the same period in 2023.
• Goods Exports:
  • Rose to USD 8,887.1 million, compared to USD 7,771.7 million in 2023.
  • Mineral exports dominated, with gold alone contributing USD 3,320.9 million, accounting for 83.1% of mineral exports and 37.4% of total goods exports.
• Services Exports:
  • Increased to USD 6,985.9 million, up by 14% year-on-year, driven by growth in tourism receipts and transportation earnings.
  • Tourism receipts: Grew by 11.1% to USD 3,681.5 million, supported by increased tourist arrivals (2,106,870 tourists, compared to 1,781,214 in 2023).

3. Imports

• Total Imports: Grew modestly by 2.7% to USD 16,582.7 million, compared to USD 16,142.1 million in 2023.
• Goods Imports: Accounted for 85% of the total import bill, driven by industrial supplies and refined petroleum products.
  • Petroleum imports: Declined by 7% to USD 2,578.5 million, primarily due to favorable price effects.

4. Foreign Exchange Reserves

• Reserves rose to USD 5,056.8 million, up from USD 4,850.8 million in November 2023.
• The reserves were sufficient to cover 4.1 months of projected imports, meeting and exceeding the national benchmark of 4 months.

Key Figures in Summary

Implications:

1. Export-Led Recovery:
   • The substantial growth in exports, particularly from gold and tourism, highlights the resilience of Tanzania's external sector and its role in economic recovery.
2. Sustainable Import Growth:
   • Modest growth in imports, with a decline in petroleum imports, reflects effective management of import bills despite global challenges.
3. Strengthened External Resilience:
   • The increase in foreign exchange reserves and a narrowing current account deficit underscore Tanzania's improved ability to weather external shocks and maintain macroeconomic stability.

The external sector's performance in November 2024 illustrates Tanzania's growing strength in exports, particularly in minerals and tourism, coupled with controlled imports and robust reserve levels. This positions the economy well for sustainable growth and resilience against global uncertainties.

Tanzania's external sector performance in November 2024 highlight several important trends and insights about the country's economic standing and resilience

1. Positive Export Performance Drives Recovery

• The 14.2% growth in total exports (to USD 15,872.9 million) signals Tanzania's increasing competitiveness in global markets, especially in key sectors like gold mining and tourism.
• Tourism receipts grew by 11.1%, supported by higher tourist arrivals, emphasizing the sector's role as a major foreign exchange earner.

2. Controlled Import Growth Reflects Stability

• The 2.7% rise in imports demonstrates Tanzania's ability to manage its import bills effectively, ensuring that the trade deficit does not widen excessively.
• The 7% decline in petroleum imports reflects price advantages and efficient consumption, contributing to reduced external pressure.

3. Narrowed Current Account Deficit Signals Economic Improvement

• The 35% reduction in the current account deficit to USD 2,025.8 million shows improved external balances, supported by strong export earnings and controlled import bills.
• This reduction boosts the country's ability to withstand external shocks and enhances investor confidence.

4. Strengthened Foreign Exchange Reserves Indicate Resilience

• Reserves reached USD 5,056.8 million, covering 4.1 months of imports, exceeding the national benchmark. This signals robust external sector health and the ability to manage future trade or financial shocks.

5. Implications for Economic Stability

• Improved External Balances: Growth in exports coupled with a narrowing deficit reflects Tanzania's strengthening position in international trade.
• Reduced Vulnerability: Higher foreign exchange reserves and a slower pace of depreciation indicate greater resilience to global uncertainties.
• Sectoral Contribution: Gold and tourism emerge as pivotal drivers of the economy, underscoring the importance of further developing these sectors.

Key Takeaways

1. Economic Resilience: The narrowing current account deficit and growing reserves underline Tanzania's improving external stability.
2. Export Diversification Potential: While gold and tourism dominate, there is potential to expand other export sectors for sustained growth.
3. Global Competitiveness: The performance of key exports reflects Tanzania's ability to leverage favorable global conditions and enhance its economic footprint.

Conclusion

The external sector performance in November 2024 tells a story of recovery, resilience, and growth. Tanzania is strengthening its global economic position through robust exports, effective import management, and growing foreign exchange reserves, laying a strong foundation for sustainable economic progress.

Supporting Economic Stability and Growth

Tanzania's lending and deposit interest rates in November 2024 reflected a stable financial environment conducive to economic growth. The overall lending rate remained unchanged at 15.67%, ensuring consistent borrowing costs, while the negotiated lending rate slightly eased to 12.77%, benefiting prime borrowers. On the other hand, deposit rates experienced a modest decline, with the overall deposit rate at 8.18% and the negotiated deposit rate at 10.14%, signaling sufficient liquidity in the banking system. The narrowing short-term interest spread to 5.93 percentage points highlights improved efficiency and competition in the banking sector, fostering a more supportive financial landscape.

Interest Rates Overview: Lending and Deposit Rates

The report highlights stable trends in both lending and deposit interest rates for November 2024, with slight variations compared to previous months. These rates indicate the cost of borrowing and the return on savings within the Tanzanian financial system.

1. Lending Interest Rates

• Overall Lending Rate: Remained unchanged at 15.67%, reflecting stability in the cost of credit for borrowers.
• Negotiated Lending Rate: Marginally decreased to 12.77% from 12.93% in October 2024.
  • Negotiated rates are typically offered to large borrowers or prime customers, highlighting some relaxation in credit terms for preferred clients.

2. Deposit Interest Rates

• Overall Deposit Rate: Declined slightly to 8.18%, down from 8.25% in October 2024.
• Negotiated Deposit Rate: Dropped to 10.14%, compared to 10.27% in October.
  • This reflects a slight reduction in returns offered by banks to attract savings.

3. Interest Rate Spread

• The spread between lending and deposit rates provides insight into banking profitability and efficiency.
  • The short-term interest spread narrowed to 5.93 percentage points in November 2024, compared to 6.47 percentage points in the same period of 2023.
  • This narrowing suggests increased competition among banks or improved cost efficiencies in financial intermediation.

Key Figures in Summary

Interpretation

The stable lending rates suggest consistent credit availability for businesses and individuals, crucial for economic activity. The slight decline in deposit rates may reflect ample liquidity in the banking system, reducing the need for banks to aggressively attract deposits. The narrowing interest rate spread is a positive development, indicating potential benefits for borrowers through lower borrowing costs and increased banking competition.

The information on lending and deposit interest rates reveals several insights into Tanzania's financial and economic environment

1. Stable Lending Rates Indicate Credit Availability

• The unchanged overall lending rate of 15.67% reflects a consistent cost of borrowing, ensuring businesses and individuals have access to credit for economic activities.
• The slight drop in the negotiated lending rate to 12.77% highlights increased flexibility for prime borrowers, likely supporting key sectors and large-scale investments.

2. Declining Deposit Rates Reflect Ample Liquidity

• The reduction in the overall deposit rate to 8.18% suggests that banks are less aggressive in attracting deposits. This is likely due to sufficient liquidity in the banking system.
• The decrease in the negotiated deposit rate to 10.14% aligns with this trend, further indicating that banks have access to alternative funding sources or are managing their liquidity efficiently.

3. Narrowing Interest Rate Spread Points to Efficiency

• The narrowing of the short-term interest spread to 5.93 percentage points from 6.47% in 2023 indicates:
  • Improved competition among banks, potentially lowering borrowing costs for consumers.
  • Greater efficiency in financial intermediation, which benefits the broader economy.

4. Economic Implications

• For Borrowers: Stable and slightly reduced borrowing rates make credit accessible and affordable, encouraging investment and consumption, particularly in key sectors like agriculture and SMEs.
• For Savers: Lower deposit rates might discourage savings, but they reflect a stable banking environment where liquidity pressures are minimal.
• For the Banking Sector: A narrowing spread suggests competitive pressures or operational improvements that can foster a healthier financial system.

Overall Insight

The interest rate trends reveal a balanced approach to monetary and financial stability in Tanzania. By keeping borrowing costs stable and deposit rates manageable, the Bank of Tanzania supports sustained economic growth while maintaining a well-functioning banking system. This is particularly important in an economy experiencing strong credit demand and seasonal cash flow pressures.

In November 2024, the Bank of Tanzania maintained a cautious yet supportive monetary policy to ensure economic stability. With a 7-day Interbank Cash Market (IBCM) rate averaging 8.29%, slightly above the Central Bank Rate (CBR) of 6%, the policy aimed to balance liquidity amid high seasonal cash demands for crop purchases. The extended broad money supply (M3) grew by 13.6%, driven by foreign asset growth, while private sector credit expanded by 15.3%, highlighting strong economic activity, particularly in agriculture and SME financing. This measured approach reflects the Bank’s commitment to fostering sustainable growth and financial stability.

Policy Implementation

• The Bank of Tanzania maintained a 7-day Interbank Cash Market (IBCM) rate within a corridor of ±200 basis points around the Central Bank Rate (CBR), set at 6%.
• The 7-day IBCM rate averaged 8.29%, slightly above the CBR corridor, due to low liquidity in the banking sector influenced by seasonal cash demands for crop purchases.

Liquidity Management

• Reverse repurchase agreements (reverse repos) decreased to TZS 2,578.5 billion, from TZS 2,887.9 billion in October 2024.
• Lombard facility usage also declined to TZS 3,870.4 billion from TZS 5,601.1 billion in October.

Money Supply

• Extended broad money supply (M3) grew by 13.6%, driven by foreign asset increases in the banking sector.
• Private sector credit expanded by 15.3%, a slight deceleration from 17% in October and 18.3% in November 2023.

Figures

1. Interest Rates:
   • IBCM 7-day rate: Averaged 8.29% in November 2024.
   • Central Bank Rate (CBR): Set at 6%.
2. Monetary Transactions:
   • Reverse repos: TZS 2,578.5 billion.
   • Lombard facility: TZS 3,870.4 billion.
3. Money Supply Components:
   • M3: TZS 49,510.7 billion, growing at 13.6% annually.
   • Private Sector Credit: Grew at 15.3%.
4. Credit Allocation:
   • Significant growth in agriculture (41.9%), personal loans (19.2%), and building & construction (16.6%).

The monetary policy report highlights the Bank of Tanzania's actions and the state of monetary indicators in November 2024, offering insights into the economic environment

Policy Stance

1. Monetary Tightening:
   • The slightly elevated 7-day Interbank Cash Market (IBCM) rate (8.29%) compared to the Central Bank Rate (CBR) (6%) suggests tightened liquidity conditions. This reflects the seasonal cash demand for crop purchases, especially after a bumper harvest.
2. Controlled Liquidity Management:
   • The use of reverse repos and the Lombard facility to manage liquidity declined, indicating an improvement in banking sector liquidity.

Economic Activity Reflected Through Money Supply

1. Money Supply Growth (M3):
   • The 13.6% growth in M3 is healthy and suggests adequate liquidity in the economy to support economic activities.
   • The growth was driven primarily by foreign currency deposits, reflecting the importance of foreign inflows.
2. Private Sector Credit Growth:
   • A 15.3% expansion in private-sector credit shows strong credit demand and confidence in economic activities. However, the slight decline from previous months (17% in October) hints at moderating credit expansion.
3. Sectoral Focus:
   • The highest credit growth in agriculture (41.9%) signals robust demand for financing in the sector, likely tied to crop purchases and investment in production.
   • Personal loans dominate total credit (38.7%), reflecting their importance in consumption and SME financing.

Key Implications

1. Economic Resilience:
   • Despite seasonal liquidity pressures, the monetary system is effectively balanced, ensuring adequate support for economic activities without overheating.
2. Agriculture as a Driver:
   • The strong focus on agriculture financing suggests the sector's critical role in the economy, especially during harvest periods.
3. Sustainable Credit Growth:
   • Moderate private sector credit growth ensures economic expansion without excessive risks of inflation or non-performing loans.
4. Foreign Influence:
   • The prominence of foreign currency deposits highlights Tanzania's reliance on international trade, tourism, and remittances for liquidity.

Policy Outlook

The report suggests the Bank of Tanzania is maintaining a cautious yet supportive monetary stance, balancing liquidity to promote growth while containing inflationary pressures. The focus on agriculture and personal loans supports essential sectors of the economy.

Challenges and Opportunities

Tanzania, as a key player among East African low-income countries, faces significant hurdles in achieving middle-income status. While progress in areas like agriculture and infrastructure development has been modest, the nation’s untapped potential in industrialization, tourism, and regional trade offers avenues for growth. By addressing challenges such as low productivity, poverty reduction, and governance reforms, Tanzania can emulate the successes of regional peers like Ethiopia and Rwanda to accelerate its economic transformation.

Tanzania’s Position Relative to East Africa and LICs

1. Economic Growth:
   • Per capita GDP growth in LICs, including Tanzania, has been slow. Median growth for LICs was just 1.5% (2000-09), dropping further to 1.3% (2010-19), and 0.1% (2020-24)​.
   • Among East African countries, Ethiopia and Rwanda outpaced others, with annual per capita growth rates of 6.5% and 4.6%, respectively, over the same periods​.
2. Poverty Reduction:
   • LICs, including many in East Africa, saw a decline in extreme poverty by 17 percentage points since 2000, slower compared to middle-income transitions​.
   • In Tanzania, agriculture and services remain key sectors but lag in productivity compared to industrialized sectors​.
3. Structural Transformation:
   • The share of agriculture in employment remains high across LICs, averaging 28% of GDP, higher than in transitioning middle-income nations, which show more balanced outputs between agriculture, industry, and services​.
4. Productivity and Employment:
   • Agricultural productivity in LICs grew slower than in other sectors, while service and industrial sectors showed more dynamism in countries like Kenya and Uganda, highlighting Tanzania's potential for improvement​.

Key Regional Comparisons

• Ethiopia and Rwanda have experienced robust structural changes driven by policy reforms and investment in industrialization, making them standout performers in East Africa.
• Kenya's growth is supported by better trade openness and service sector expansions​.
• Tanzania's economic prospects are tied closely to its agricultural productivity and untapped potential in industrialization and tourism.

Recommendations for Tanzania

• Sectoral Reforms:
  • Accelerate industrial development to reduce the over-reliance on agriculture.
  • Improve governance to attract more investments and integrate regional trade opportunities.
• Poverty and Productivity:
  • Invest in agricultural modernization to boost productivity and reduce poverty more effectively.
  • Leverage youthful demographics for labor-intensive sectors.

The challenges and opportunities facing low-income countries (LICs), including Tanzania, and provides a context for understanding its position within East Africa and globally.

1. Economic Position of LICs:

• LICs are struggling to achieve middle-income status, with slow economic growth and high levels of poverty.
• Tanzania, as an LIC, shares similar challenges with other East African nations, such as reliance on agriculture, limited industrialization, and weak institutional frameworks.

2. East Africa’s Economic Standouts:

• Ethiopia and Rwanda demonstrate strong growth due to structural reforms, investment in infrastructure, and industrial policies.
• Kenya benefits from a more diversified economy, trade openness, and vibrant services sector.
• Tanzania, while progressing, lags behind these countries in structural transformation and industrial growth.

3. Challenges for Tanzania:

• Low Productivity in Agriculture: Agriculture accounts for a large share of GDP but remains low in productivity, limiting income growth.
• Limited Industrialization: Tanzania has not transitioned enough labor and output into higher productivity sectors like manufacturing.
• Poverty Stagnation: Extreme poverty reduction has slowed, with a significant portion of the population still living on less than $2.15 a day.

4. Opportunities for Tanzania:

• Demographics: A youthful population can drive economic growth if educated and employed productively.
• Natural Resources: Abundant resources, such as minerals and tourism potential, can fuel growth if managed effectively.
• Regional Integration: Leveraging East African Community (EAC) trade and infrastructure projects can enhance competitiveness and market access.

5. Lessons from East Africa:

• Ethiopia and Rwanda: Investments in industrial parks, export-oriented policies, and agricultural modernization have spurred growth.
• Kenya: A strong private sector and focus on trade services have boosted economic resilience.
• Tanzania’s Potential: By learning from these successes, Tanzania can prioritize:
  • Infrastructure development.
  • Agricultural productivity reforms.
  • Policies to attract foreign investment and foster industrialization.

6. Policy Recommendations:

• Investment in Human Capital: Enhance education and healthcare to build a productive workforce.
• Structural Reforms: Simplify business regulations, improve governance, and foster public-private partnerships (PPPs).
• Climate Adaptation: Address vulnerabilities to climate shocks by investing in resilient infrastructure and sustainable practices.

7. Global Context:

• LICs like Tanzania face external pressures such as declining global trade growth, high debt burdens, and geopolitical tensions.
• International assistance (e.g., concessional financing and debt relief) is critical for Tanzania to sustain investments in growth and poverty reduction.

Implications for Tanzania:

Tanzania has significant growth potential but must address critical bottlenecks in governance, productivity, and industrialization. Learning from regional peers and leveraging its demographic and resource advantages could fast-track its transition to middle-income status. This requires strategic investments, effective policies, and stronger regional and global integration.