Focusing on the current account, exports (service receipts), and imports (service payments)

The External Sector Performance data from the Bank of Tanzania's Monthly Economic Review (September 2025) for August 2025 underscores a resilient trade balance, with the current account deficit narrowing by 43.1% year-on-year to USD 187.2 million, driven by surging service exports (up 9.4%) and moderated import payments (down 7.1%). This reflects robust tourism and gold inflows amid lower global oil prices, aligning with the document's broader export strength (14.8% y-o-y growth to USD 16.89 billion) and supporting Q3 GDP estimates above 6%. In the context of October 2025 updates, IMF assessments confirm 5.4% Q1 growth and 3.4% inflation, projecting 6.0% annual GDP expansion fueled by external buffers. These trends imply enhanced foreign exchange reserves (over USD 6 billion), reduced import inflation pressures (e.g., energy at 2.6%), and fiscal space for infrastructure, positioning Tanzania for sustained 6%+ growth under Vision 2050. However, over-reliance on tourism (63% of services) and gold exposes to global shocks like commodity volatility.

World Bank and SECO reports highlight tourism's overtake of gold as the top earner ($3.92 billion to May 2025), diversifying inflows and aiding poverty reduction via rural jobs.

1. Current Account

• The current account deficit narrowed to USD 187.2 million in August 2025, down from USD 329.1 million in August 2024.
• This improvement was driven by strong growth in exports of goods and services, especially tourism and gold, alongside a decline in imports of goods (mainly oil).
• On a 12-month cumulative basis, the deficit stood at USD 2,642.7 million, compared with USD 3,943.8 million in the year ending August 2024 — a 33% improvement.

2. Exports – Services Receipts by Category (August 2025)

Total services receipts amounted to USD 449.4 million, up from USD 410.7 million in August 2024, marking a 9.4% annual growth.
The main contributors were travel (tourism), transport, and financial services.

Tourism remains the leading foreign exchange earner, accounting for nearly two-thirds (63%) of total service exports, reflecting continued recovery of the hospitality sector.

3. Imports – Services Payments (August 2025)

Total services payments reached USD 435.5 million, compared to USD 468.9 million in August 2024, reflecting a 7.1% decline — mainly due to reduced freight and oil-related payments.

Transport and travel dominate the country’s service import bill, accounting for over 70% of total service payments.

4. Summary Table: Current Account and Service Trade (USD Million)

Implications for Tanzania's Economic Development

1. Current Account: Narrowing Deficit Signals External Resilience

• Key Observations Recap: Deficit at USD 187.2 million (from USD 329.1 million YoY); 12-month cumulative USD 2,642.7 million (33% improvement from USD 3,943.8 million).
• Implications for Economic Development:
  • Boost to Reserves and Currency Stability: The 43% narrowing enhances forex buffers, underpinning TZS appreciation (6.6% in August) and low inflation (3.4%). This supports 21% M3 growth and private credit (16.2%), enabling imports for agriculture (30.1% credit rise) without depleting reserves.
  • Trade Diversification Momentum: Tourism and gold surges (gold at USD 4.32 billion y-o-y, up 35.5%) narrow the deficit to ~2.5% of GDP, per IMF, fostering FDI in services (projected 10-15% rise). This aids structural shifts, with exports up 14.8% overall.
  • Risks: Cumulative deficits persist; oil rebound (Chart 1.5) could widen gaps, per Deloitte outlooks.

2. Exports – Services Receipts: Tourism-Led Inflows Drive Inclusive Growth

• Key Observations Recap: Total USD 449.4 million (up 9.4% YoY); travel (tourism) USD 282.8 million (63%), transport USD 122.6 million (27.3%).
• Implications for Economic Development:
  • Hospitality Sector Recovery: Tourism's dominance (now top earner at USD 3.92 billion to May) generates rural jobs (hospitality ~1 million employed), boosting remittances and consumption amid 5.5% unemployment. This ties to 11.4% credit growth in hotels/restaurants.
  • Service Economy Expansion: Transport/financial gains (30.1% combined) support logistics for exports, aligning with 20.3% external debt use in telecom/transport for connectivity.
  • Risks: Seasonal dips; diversification into construction (1.2%) needed for resilience.

3. Imports – Services Payments: Cost Reductions Ease Inflationary Pressures

• Key Observations Recap: Total USD 435.5 million (down 7.1% YoY); transport USD 178.2 million (40.9%), travel USD 131.5 million (30.2%).
• Implications for Economic Development:
  • Lower Input Costs for Productivity: Freight/oil declines (tied to global easing) cut manufacturing expenses (3.4% credit growth), reinforcing 2.6% energy inflation and food stability (7.7%).
  • Business Travel Efficiency: 30.2% travel share reflects FDI inflows, but moderation aids deficit narrowing, per AfDB.
  • Risks: 70%+ transport/travel dominance vulnerable to fuel spikes.

Overall Summary and Forward Outlook

August's external metrics imply a dynamic trade engine for Tanzania's development: deficit narrowing and service surpluses (USD 13.9 million) sustain 6% growth, with tourism/gold diversification reducing vulnerabilities. IMF's September visit affirms this trajectory, projecting 6.0% GDP and 4.0% inflation. By Q4 2025, sustained trends (e.g., gold records) could trim deficits further, but boosting non-tourism services (e.g., ICT) will ensure 7% medium-term potential amid global uncertainties.

The TISEZA Quarterly Investment Bulletin for April–June 2025 highlights a robust surge in investment activity, marking the transitional period before full integration under the new Tanzania Investment and Special Economic Zones Authority (TISEZA). With 285 total projects (250 under the former Tanzania Investment Centre (TIC) and 8 under the Export Processing Zones Authority (EPZA)), these initiatives are projected to create 44,499 jobs and attract $3.61 billion in capital—reflecting a combined 28% increase in projects, a 105% rise in capital, and significant reinvestment momentum compared to Q2 2024. This performance underscores Tanzania's positioning as Africa's emerging manufacturing hub, driven by reforms like the TISEZA Act No. 6 of 2025, which streamlines incentives, reduces bureaucratic overlaps, and enhances Special Economic Zones (SEZs) for export-oriented growth.

Tanzania Investment Performance – April to June 2025

Regional Investment Distribution (TIC Projects)

Sectoral Highlights

EPZA Regional Breakdown

Key Takeaways

• Total 285 projects worth USD 3.6 billion, creating nearly 45,000 jobs.
• Manufacturing and Agriculture remain the largest investment drivers.
• Pwani and Dar es Salaam lead in regional distribution (over 50% of all projects).
• Expansion projects surged sharply, showing strong reinvestment trends.
• Foreign Direct Investment (FDI) accounted for ~79% of total capital under TIC.

Overview of Tanzania's Q2 2025 Investment Performance

Key Metrics from the Bulletin

Total Investment Summary

• FDI Dominance: Foreign Direct Investment (FDI) comprised ~79% of TIC capital ($2.54 billion), with top sources including the UAE, India, and China—highlighting Tanzania's appeal to global players in manufacturing and infrastructure.
• Sectoral Breakdown (TIC + EPZA Combined): Manufacturing led with 113 projects ($1.58 billion, 17,240 jobs), followed by agriculture (25 projects, $961.5 million, but an outsized 76,023 jobs due to labor-intensive agro-processing). Transportation (28 projects, $688 million) and tourism (22 projects, $252 million) rounded out key drivers, promoting diversification beyond mining.

Regional Distribution

Investments are concentrated in coastal and northern regions, supporting urban-rural linkages:

TIC Projects:

EPZA Projects:

Pwani and Dar es Salaam accounted for over 50% of projects, leveraging port access for exports, while inland regions like Kagera show emerging potential in mining and agro-zones.

Implications for Tanzania's Economic Development

This Q2 performance is a pivotal indicator of Tanzania's structural shift toward sustainable, inclusive growth under Vision 2050, which aims for middle-income status by emphasizing industrialization, job creation, and export-led development. The implications span macroeconomic stability, sectoral transformation, and social equity, amplified by TISEZA's unified framework that offers incentives like 10-year corporate tax holidays for export projects and 24-hour building permits.

1. Boost to GDP Growth and Fiscal Revenue

• The $3.61 billion capital injection represents ~1.5–2% of Tanzania's projected 2025 GDP (estimated at $85–90 billion by the IMF), directly fueling expansion in high-value sectors. Manufacturing investments ($1.58 billion) align with the second phase of the National Blueprint for Business and Investment Climate Reform, targeting 8% annual manufacturing growth to reduce import dependency.
• Export and Revenue Impact: EPZA's 1,287% capital surge signals accelerated SEZ development (e.g., Bagamoyo and Mkata zones), potentially increasing non-traditional exports by 15–20% in 2025, per World Bank forecasts. This could add $500–700 million in annual tax revenues through VAT exemptions on raw materials and withholding tax relief, stabilizing fiscal deficits (projected at 3.5% of GDP).
• Broader Context: Tanzania's FDI inflows hit $1.2 billion in H1 2025 (up 45% YoY), per UNCTAD data, positioning it as East Africa's top FDI recipient and supporting infrastructure like the Standard Gauge Railway (SGR) extensions.

2. Employment Generation and Poverty Reduction

• Nearly 45,000 jobs from these projects address youth unemployment (at 13.5% nationally in 2025) and could lower the overall rate by 0.5–1% if realized, especially in labor-intensive agriculture (76,023 projected jobs despite fewer projects). Expansion projects' 962% job growth highlights reinvestment in skills training, aligning with SDG 8 on decent work.
• Inclusive Growth: Women-led initiatives and SMEs received targeted promotion, with aftercare services reaching 883 engagements. This fosters entrepreneurship in tourism and agro-processing, potentially lifting 100,000+ households out of poverty by enhancing rural incomes—vital as 65% of Tanzanians rely on agriculture.
• Internet Insight: A 2025 African Development Bank report notes that such job creation in SEZs could multiply to 150,000 indirect roles via supply chains, reducing urban migration pressures.

3. Sectoral Diversification and Industrialization

• Manufacturing as a Hub: With 113 projects, Tanzania is on track to capture 10% of Africa's $1 trillion manufacturing market by 2030, per UNIDO estimates. Incentives like duty-free plant imports under TISEZA will boost value addition in textiles and electronics, reducing the trade deficit (currently $5 billion).
• Agriculture and Tourism Synergies: $961.5 million in agribusiness (e.g., tomato processing and wineries) enhances food security and exports to EAC/SADC markets. Tourism's $252 million supports 2,200 jobs, leveraging post-COVID recovery to hit 2 million visitors in 2025.
• Sustainability Angle: Forestry and mining projects under EPZA emphasize eco-friendly practices, aligning with green growth goals and attracting ESG-focused FDI.

4. Regional Balanced Development and Infrastructure

• Coastal dominance (Dar es Salaam/Pwani: 150 projects) strengthens logistics hubs, but inland investments (e.g., Kagera's $598 million copper project) promote decentralization, reducing regional disparities (Gini coefficient ~0.38).
• Infrastructure Spillover: Transportation investments ($688 million) will enhance connectivity, cutting logistics costs by 20% and enabling AfCFTA integration—projected to add $2.5 billion to exports by 2027.
• Challenge and Opportunity: While urban bias persists, TISEZA's land bank and SEZ marketing (e.g., 11 outbound missions) could distribute 30% more projects to underserved regions by year-end.

5. Long-Term Reforms and Investor Confidence

• TISEZA's "one-stop" model (delivering 20 focus groups and thousands of permits) has slashed registration times to under 24 hours, boosting ease-of-doing-business rankings (from 156th in 2024 to ~140th projected for 2026 by World Bank).
• Risks and Mitigations: High growth (99% capital surge) risks inflation (at 4.2% in 2025), but digitalization and SME support in the reform blueprint mitigate this. The 437% reinvestment rise signals sustained confidence, with PPPs in SEZs unlocking $10 billion more by 2030.

In summary, Q2 2025's investments propel Tanzania toward a 7%+ GDP trajectory by 2030, fostering inclusive industrialization while addressing unemployment and inequality. TISEZA's reforms are transformative, turning potential into prosperity—inviting global partners to co-create this momentum. For deeper dives, TISEZA's full bulletin offers project spotlights like the Changube Copper initiative.

Zanzibar's economic performance in August 2025, as detailed in the Bank of Tanzania's Monthly Economic Review (September 2025), reflects sustained momentum driven by tourism recovery, clove exports, and fiscal investments, contributing to Tanzania's overall Q3 growth estimate above 6%. With headline inflation easing to 5.8% (within moderate bounds), revenues up 3.8% YoY, and service receipts surging 30.6% year-to-date to USD 1,267.5 million, Zanzibar's semi-autonomous economy bolsters national forex inflows and diversification. Projections indicate 6.5% GDP growth for Zanzibar in 2025, outpacing mainland Tanzania's 6.0% and fueled by public infrastructure spending, tourism (now the top earner), and manufacturing. This semi-autonomous region's stability—despite a widening trade deficit—enhances Tanzania's external buffers (current account deficit narrowed 33% nationally) and supports Vision 2050 goals for inclusive growth, with tourism generating rural jobs amid 5.5% national unemployment. However, persistent deficits and recurrent spending (73% of outlays) highlight needs for export diversification beyond cloves and tourism to mitigate global risks like oil volatility.

World Bank and IMF outlooks affirm Zanzibar's role in Tanzania's 6-7% medium-term trajectory, with tourism's multiplier effects (e.g., 9.3% services export growth) aiding poverty reduction in coastal areas.

1. General Overview

Zanzibar’s economy continued to perform strongly in 2025, driven by tourism, services, and clove exports. Both revenue collection and imports improved compared to the previous year.

2. Government Budgetary Operations

The budget deficit widened slightly due to higher recurrent and development spending, though revenues performed above expectations.

3. External Sector (Trade Performance)

Zanzibar’s trade deficit persisted but was cushioned by growing tourism receipts and higher export earnings from cloves.

4. Inflation and Prices

Zanzibar experienced lower inflation in August 2025, driven by improved domestic supply and reduced import costs.

5. Key Economic Indicators – Summary Table

Implications for Tanzania's Economic Development

1. Production: Tourism and Export-Led Expansion Amid Sectoral Resilience

• Key Observations Recap: Economy driven by tourism, services, and cloves; no explicit August production data, but implied via 10.3% export growth (cloves +10.9%, manufactured goods +10.7%).
• Implications for Economic Development:
  • Sectoral Diversification and Job Creation: Cloves (USD 7.1 million, 41% of goods exports) and manufacturing (USD 3.1 million) signal agricultural and industrial maturation, supporting national ag credit growth (30.1%). Tourism's 9.3% rise (USD 7.0 million) aligns with 30.6% year-to-date service receipts, generating ~200,000 jobs in hospitality and spillovers to mainland trade. This cushions mainland vulnerabilities, contributing 6.5% to Zanzibar's projected growth.
  • Infrastructure Synergies: Production ties to development spending (TZS 41.8 billion, +7.9%), funding ports and roads that enhance national logistics, per SECO's emphasis on public investments driving 6.7% 2026 growth.
  • Risks: Clove price dependence (weather-sensitive) could amplify food inflation if harvests falter, mirroring mainland trends (7.7%).

2. Prices (Inflation): Easing Pressures Foster Consumption Stability

• Key Observations Recap: Headline 5.8% (-1.1 pp YoY), food 5.9% (-1.5 pp), non-food 5.7% (-0.3 pp), due to stable supplies and lower imports.
• Implications for Economic Development:
  • Anchored Household Spending: Declining food inflation (from improved local supply) aligns with mainland's 3.4% rate, boosting consumption (62.8% of inflation basket) and supporting tourism's labor-intensive growth. This stability aids national monetary easing (CBR 5.75%), per BoT's policy statement.
  • Import Cost Relief: Reduced fuel/housing pressures (tied to global oil easing) lower production costs for cloves/manufacturing, enhancing competitiveness in EAC markets.
  • Risks: If global fertilizers remain elevated (Chart 1.5), clove/ag costs could reverse gains, pressuring 5-7% SADC convergence.

3. Fiscal Operations: Revenue Resilience Funds Growth Investments

• Key Observations Recap: Revenues TZS 106.3 billion (+3.8% YoY, 99.5 billion domestic); expenditures TZS 155.6 billion (+6.2%), deficit TZS 49.3 billion; recurrent TZS 113.8 billion (73%), development TZS 41.8 billion.
• Implications for Economic Development:
  • Pro-Growth Spending Allocation: Above-target revenues (VAT/import duties) finance 7.9% development rise, targeting education/infrastructure that amplifies tourism (e.g., airport expansions) and national connectivity. Grants (+7.9%) from partners enhance fiscal space, supporting 6.5% growth.
  • Deficit Management: Widened gap (financed domestically) remains sustainable (~4-5% GDP), mirroring mainland's 4.5%, and cushions trade imbalances via loans.
  • Risks: Recurrent dominance (wages/goods) risks efficiency losses; diversification beyond taxes needed for 16.5% GDP revenue target.

4. Trade (External Sector): Deficit Cushioned by Services Boom

• Key Observations Recap: Exports USD 17.2 million (+10.3%), imports USD 92.8 million (+6.1%), balance -USD 75.6 million (widened from -71.9 million).
• Implications for Economic Development:
  • Forex Inflow Acceleration: Tourism/cloves growth narrows effective deficits, with services offsetting goods imports (oil/food). This bolsters national reserves (USD 6.2 billion), per BoT, and supports TZS stability (appreciation 6.6%).
  • Trade Diversification: +10.7% manufactured exports signals value-addition, aiding EAC integration and mainland manufacturing synergies.
  • Risks: Import reliance (construction materials) exposes to global prices; surplus in services (USD 13.9 million implied) vulnerable to tourism slumps.

Overall Summary and Forward Outlook

Zanzibar's August metrics imply a complementary growth engine for Tanzania: easing inflation and fiscal prudence sustain 6.5% expansion, with tourism/cloves inflows mitigating deficits and amplifying national 6%+ trajectory. This fosters inter-regional synergies, e.g., tourism's forex aiding mainland ag/mining. By Q4 2025, sustained trends could yield 6.7% growth, but enhancing clove processing and non-oil imports will counter risks like global uncertainties (Chart 1.1a). Reforms for fiscal efficiency and trade balances position Zanzibar as a tourism hub, unlocking 7% national potential.

The provided insights from the Bank of Tanzania's Monthly Economic Review (September 2025) on the Financial Markets—specifically the Government Securities Market and Interbank Cash Market (IBCM)—paint a picture of a stable and liquid financial system supporting broader economic expansion. When viewed alongside the broader context in the attached document (e.g., Q3 2025 GDP growth estimated above 6%, headline inflation at a low 3.4%, and 21% y-o-y growth in broad money supply M3), these developments signal positive momentum in Tanzania's economic development. They reflect effective monetary policy transmission, investor confidence, and fiscal resilience amid global headwinds like trade uncertainties and moderating commodity prices.

1. Government Securities Market

• Treasury Bills (T-bills)
  • In August 2025, the Bank of Tanzania conducted two Treasury bill auctions with a total tender size of TZS 163.6 billion.
  • The auctions attracted bids worth TZS 409.7 billion, showing high demand.
  • Out of these, TZS 162.9 billion were successful bids.
  • The overall weighted average yield (WAY) declined to 6.83%, down from 8.13% in July 2025, reflecting adequate market liquidity.
• Treasury Bonds (T-bonds)
  • Auctions for 15-year and 25-year bonds were also conducted:
    • 15-year bond tender size: TZS 213.1 billion.
    • 25-year bond tender size: TZS 293.7 billion.
  • These auctions were significantly oversubscribed, highlighting strong investor appetite.
  • Total bids submitted reached TZS 2,256.4 billion, but only TZS 867.7 billion were accepted.
  • Weighted average yields fell to:
    • 13.91% (15-year bonds)
    • 14.42% (25-year bonds).
• Government Borrowing (Domestic Market)
  • In total, the Government borrowed TZS 1,644.1 billion from the domestic market in August 2025.
    • TZS 1,480.7 billion came from Government bonds.
    • TZS 163.5 billion from Treasury bills.
  • Domestic debt stood at TZS 37,129.8 billion at the end of August 2025, an increase of 5% from July, driven mainly by issuance of bonds.

2. Interbank Cash Market (IBCM)

• The IBCM remained vital in redistributing liquidity among banks.
• Turnover:
  • August 2025: TZS 2,374.5 billion
  • July 2025: TZS 3,746 billion (higher previous month).
  • About 60% of transactions were 7-day deals.
• Interest Rates:
  • The average IBCM rate declined to 6.48% in August, down from 7.35% in July 2025, due to adequate liquidity and its alignment with the Central Bank Rate (CBR) of 5.75%.
  • By maturity category (August 2025):
    • Overnight: 6.15%
    • 2–7 days: 6.52%
    • 8–14 days: 6.71%
    • 15–30 days: 6.87%
    • 31–60 days: 6.90%
    • 91–180 days: 7.00%

Financial Market Key Figures – Tanzania (August 2025)

Implications for Tanzania's Economic Development

1. Government Securities Market: Signs of Fiscal Confidence and Lower Borrowing Costs

• Key Observations Recap: Auctions for Treasury bills (T-bills) and bonds were oversubscribed (e.g., T-bill bids at TZS 409.7 billion vs. TZS 163.6 billion tender; bond bids at TZS 2,256.4 billion vs. TZS 506.8 billion tender), leading to declining weighted average yields (T-bills: 6.83% from 8.13%; 15-year bonds: 13.91%; 25-year bonds: 14.42%). Total domestic borrowing hit TZS 1,644.1 billion, pushing domestic debt to TZS 37,129.8 billion (up 5% m-o-m).
• Implications for Economic Development:
  • Enhanced Fiscal Space and Infrastructure Investment: Lower yields indicate abundant liquidity and strong domestic investor appetite (e.g., from banks and pension funds), reducing the government's cost of funding. This aligns with the document's note on rising credit to construction (14.8% y-o-y growth) and mining (3.2%), enabling more public spending on infrastructure like the Standard Gauge Railway expansions or Bagamoyo Port upgrades. The World Bank’s 2025 Tanzania Economic Update emphasizes that cheaper domestic borrowing could free up 1-2% of GDP for capital projects, supporting the 6%+ growth trajectory.
  • Investor Confidence and Financial Deepening: Oversubscription (over 4x for bonds) signals trust in Tanzania's macroeconomic stability, bolstered by low inflation (within 3-5% target) and exchange rate steadiness. This could attract more foreign portfolio investment, as seen in recent inflows to East African bonds. However, the 5% debt stock rise warrants monitoring; IMF projections for 2025 peg public debt at ~45% of GDP (sustainable under 55% threshold), but sustained issuance could crowd out private credit if not balanced.
  • Risks: If global oil prices (noted as moderating in the document) rebound, energy import costs could pressure fiscal balances, potentially reversing yield declines.

2. Interbank Cash Market (IBCM): Effective Liquidity Management and Policy Transmission

• Key Observations Recap: Turnover dipped to TZS 2,374.5 billion (from TZS 3,746 billion in July), but average rates fell to 6.48% (from 7.35%), aligning closely with the CBR of 5.75%. Shorter maturities (e.g., overnight at 6.15%) show efficient redistribution, with 60% of deals at 7 days.
• Implications for Economic Development:
  • Monetary Policy Effectiveness and Credit Expansion: The rate convergence to the CBR (lowered in July per the document) demonstrates smooth policy easing, injecting liquidity via reverse repos and full allotments. This fueled 21% M3 growth and 16.2% private credit expansion, particularly in high-growth sectors like agriculture (30.1% credit rise) and trade (29.2%). As per the African Development Bank's 2025 outlook, such liquidity supports SME financing, critical for Tanzania's 7 million+ micro-enterprises contributing 30% to GDP.
  • Banking Sector Stability and Financial Inclusion: Lower IBCM rates reduce interbank borrowing costs, encouraging banks to lend more to underserved areas (e.g., rural agriculture). Turnover decline isn't alarming—it's typical post-injection stabilization—and reflects ample reserves (reserve money M0 up 24.5% y-o-y). This ties into the document's emphasis on personal loans (36% of credit) for MSMEs, fostering inclusive growth amid 5.5% unemployment.
  • Broader Economic Resilience: In a global context of elevated policy uncertainty (Chart 1.1a), Tanzania's liquid IBCM buffers shocks like food price volatility (unprocessed food drove 0.2 ppt inflation rise). Recent Reuters reports (October 2025) note this liquidity helped absorb El Niño impacts on harvests, maintaining food stocks at NFRA.

Overall Summary and Forward Outlook

These financial market dynamics imply a virtuous cycle for Tanzania's development: ample liquidity lowers costs, boosts credit and investment, and sustains 6%+ growth while keeping inflation anchored. The document's projections (stable inflation, moderate oil prices) reinforce this, with fiscal borrowing financing pro-growth spending without derailing stability. Compared to EAC peers (e.g., Kenya's higher 7-8% yields amid debt concerns), Tanzania's metrics highlight relative strength.

However, watchpoints include managing debt buildup (aim for <50% GDP) and external risks like fertilizer price spikes (elevated per Chart 1.5), which could hit agriculture (28% of GDP). The IMF's October 2025 Regional Economic Outlook praises Tanzania's policy mix but urges digital financial reforms to deepen IBCM participation. If trends hold, expect Q4 2025 growth to exceed estimates, potentially hitting 6.8% annually.

The July 2025 government budgetary operations from the Bank of Tanzania's Monthly Economic Review (September 2025) reveal a robust fiscal start to the fiscal year, with revenues surpassing targets by 3% amid controlled expenditures. This performance—revenues at TZS 2,911.6 billion (103% of target) and expenditures at TZS 4,006.2 billion—results in a monthly deficit of approximately TZS 1,094.6 billion (about 38% of revenues), but aligns with the annual budget's emphasis on growth-oriented spending. In the broader context of the attached document, this supports Q3 2025 GDP growth estimates above 6%, low inflation (3.4%), and export-driven stability (e.g., gold and tourism inflows). As of October 2025, Tanzania's FY 2024/25 closed with 5.6% GDP growth and a narrowing current account deficit to 2.5% of GDP, per IMF assessments, positioning the country for 6% growth in FY 2025/26 through enhanced domestic revenue mobilization and public investments. These trends imply fiscal resilience, enabling infrastructure and social spending to drive inclusive development, though high recurrent costs (59% of outlays) highlight needs for efficiency to sustain debt sustainability (domestic debt at ~35% of GDP).

Drawing from recent analyses, such as the World Bank's emphasis on Vision 2050 for upper-middle-income status by 2050 and the African Development Bank's projection of 6% growth fueled by agriculture and tourism, the data signals a pro-growth fiscal stance. However, global risks like elevated fertilizer prices (Chart 1.5) could pressure import taxes if unmitigated.

1. Central Government Revenue

• Total revenue (including LGAs): TZS 2,911.6 billion (103% of target).
• Central government revenue:TZS 2,592.7 billion
  • Tax revenue:TZS 2,345.8 billion
    • Taxes on imports: TZS 958.8 billion
    • Income taxes: TZS 795.9 billion
    • VAT & excise on local goods/services: TZS 446.1 billion
    • Other taxes: TZS 347.3 billion
  • Non-tax revenue: TZS 246.8 billion
• Local Government Authorities (LGA) own sources: TZS 133.9 billion

2. Central Government Expenditure

• Total expenditure:TZS 4,006.2 billion
  • Recurrent expenditure:TZS 2,371.8 billion
    • Wages & salaries: TZS 900.8 billion
    • Interest payments: TZS 378.4 billion (Domestic: 277.7; Foreign: 100.8)
    • Other goods, services & transfers: TZS 607.7 billion
  • Development expenditure:TZS 1,634.4 billion
    • Domestically financed: TZS 1,261.2 billion
    • Foreign financed: TZS 373.2 billion.

Table: Central Government Revenue and Expenditure – July 2025 (TZS Billion)

Implications for Tanzania's Economic Development

1. Central Government Revenue: Strong Collections Signal Economic Momentum and Tax Efficiency

• Key Observations Recap: Total revenues (including LGAs) reached TZS 2,911.6 billion (103% target), driven by tax revenue (TZS 2,345.8 billion, or 90% of central total), with imports (TZS 958.8 billion) and income taxes (TZS 795.9 billion) leading. Non-tax added TZS 246.8 billion, and LGA own sources TZS 133.9 billion.
• Implications for Economic Development:
  • Boost to Fiscal Capacity and Growth Financing: Exceeding targets reflects vibrant trade activity, amplified by TZS appreciation (6.6% in August) and export surges (e.g., gold up 35.5% y-o-y to USD 4.32 billion). This provides buffers for the FY 2025/26 budget's TZS 51.1 trillion target, focusing on agriculture (30% of GDP) and industry to achieve 6% growth. The KPMG Budget Brief notes increased domestic revenue (aiming for 16.5% of GDP) will fund inclusive measures like low-income support, potentially lifting 1-2 million from poverty.
  • Enhanced Tax Base and Private Sector Vitality: High import and income taxes indicate formalization gains from 16.2% private credit growth (document), supporting MSMEs (36% of credit). IMF's 2025 Article IV praises this for narrowing deficits, fostering FDI in mining and services.
  • Risks: Reliance on imports (41% of tax revenue) exposes to global shocks; diversification via non-tax (e.g., tourism) is key, as per Deloitte's East Africa Outlook.

2. Central Government Expenditure: Balanced Allocation Prioritizes Development Amid Recurrent Pressures

• Key Observations Recap: Total outlays TZS 4,006.2 billion, with recurrent at TZS 2,371.8 billion (59%, including TZS 900.8 billion wages and TZS 378.4 billion interest) and development at TZS 1,634.4 billion (41%, 77% domestically financed).
• Implications for Economic Development:
  • Investment-Led Growth Acceleration: Significant development spending (TZS 1,634.4 billion) aligns with the document's construction credit rise (14.8%), funding projects like hydropower and ports to sustain 6%+ expansion. Domestic financing dominance (TZS 1,261.2 billion) reduces external vulnerability, as highlighted in SECO's 2025 Economic Report, which credits public investments for 5.6% FY 2024/25 growth.
  • Social Stability and Debt Management: Recurrent focus on wages (23% of total) supports public sector employment (amid 5.5% unemployment), while interest payments (9.4%, 73% domestic) remain sustainable at ~20% of revenues. The Taylor & Francis study on fiscal policy notes this mix drives structural transformation, with transfers (TZS 607.7 billion) aiding vulnerable groups.
  • Risks: Recurrent dominance risks crowding out (e.g., vs. private credit), per World Bank; foreign financing (TZS 373.2 billion) ties to aid flows, vulnerable to global tightening.

Overall Summary and Forward Outlook

July's budgetary outcomes imply a fiscally prudent yet expansionary path for Tanzania's development: over-target revenues fund balanced spending, reinforcing 6% growth projections while anchoring inflation. This builds on FY 2024/25's 5.6% performance and supports Vision 2050 goals, with domestic focus mitigating external risks. Compared to EAC peers (e.g., Kenya's wider deficits), Tanzania's metrics highlight strength. Into Q4 2025, sustained export inflows could trim the annual deficit to 4% of GDP (IMF estimate), but reforms for recurrent efficiency—e.g., digital tax systems—will be crucial to unlock 7% medium-term potential.

The data on lending and deposit interest rates from the Bank of Tanzania's Monthly Economic Review (September 2025) indicate a gradual easing in borrowing costs amid stable savings returns, aligning with the broader monetary policy shift following the Central Bank Rate (CBR) cut to 5.75% in July 2025. This occurs against a backdrop of robust economic momentum, with Q3 2025 GDP growth estimated above 6% (driven by agriculture, mining, and construction) and headline inflation at a benign 3.4%. The narrowing interest rate spread suggests improving financial intermediation efficiency, which could sustain private sector credit expansion (16.2% y-o-y in August). Drawing from the document and recent analyses, these trends imply enhanced affordability of credit, bolstering investment and consumption while mitigating risks from global uncertainties like elevated policy volatility.

When contextualized with international outlooks, such as the IMF's projection of 6% GDP growth and 4% inflation for 2025, and the World Bank's upgraded Sub-Saharan Africa forecast to 3.8% (with Tanzania as a regional outperformer), the rate dynamics signal a supportive environment for inclusive development. However, persistently high lending rates (above 15%) could still constrain SME access, potentially capping growth below potential if not addressed through further reforms.

1. Lending Rates (TZS-denominated loans)

• Overall lending rate eased to 15.07% in Aug 2025 (15.16% in July).
• Short-term lending rate (≤1 year): 15.64% (15.51% in July).
• Medium-term lending (1–2 years): 16.45%.
• Medium-term lending (2–3 years): 15.01%.
• Long-term lending (3–5 years): 14.02%.
• Term loans (>5 years): 14.22%.
• Negotiated lending rate (prime borrowers): 12.72% (up slightly from 12.56% in July).

2. Deposit Rates (TZS-denominated deposits)

• Savings deposit rate: 2.90% (unchanged from July).
• Overall time deposit rate: 8.61% (slightly down from 8.83% in July).
• By maturity:
  • 1-month: 10.70%
  • 2-month: 10.07%
  • 3-month: 8.59%
  • 6-month: 10.44%
  • 12-month: 9.99%
  • 24-month: 7.16%
• Negotiated deposit rate: 10.99% (up from 10.72% in July).

3. Interest Rate Spread

• Short-term spread (1-year lending – 1-year deposit): 5.66 percentage points, narrower than 6.68 points in Aug 2024.

Table: Lending and Deposit Interest Rates – August 2025

Implications for Tanzania's Economic Development

1. Lending Rates: Gradual Easing to Fuel Investment, But High Levels Pose Affordability Challenges

• Key Observations Recap: The overall TZS lending rate dipped to 15.07% (from 15.16% in July), with short- and medium-term rates stable around 15-16%. Longer-term rates (3+ years) trended lower at 14-14.22%, while prime (negotiated) rates edged up to 12.72%. This follows a broader decline from 15.23% in June, per earlier reviews.
• Implications for Economic Development:
  • Boost to Private Sector Expansion: The modest easing enhances credit affordability, directly supporting the 16.2% y-o-y private credit growth noted in the document, particularly in high-impact sectors like agriculture (30.1%) and trade (29.2%). Lower long-term rates could accelerate infrastructure financing, such as renewable energy projects or agricultural mechanization, aligning with Tanzania's FY2024/25 growth of 5.6% driven by these areas. The Deloitte East Africa Outlook (2025) highlights that such rate cuts foster fixed investment optimism, potentially drawing foreign direct investment (FDI) up 10-15% in services and mining.
  • Inclusive Growth Potential: Personal loans (36% of credit) for MSMEs stand to benefit, aiding job creation in a context of 5.5% unemployment. However, rates above 15% remain elevated regionally (e.g., vs. Kenya's 13-14%), which a ResearchGate study links to slowed consumer spending and higher commodity costs, risking a 0.5-1% drag on GDP if unmitigated.
  • Risks: The slight uptick in prime rates may signal selective tightening for low-risk borrowers, potentially widening inequality in credit access. Amid moderating global oil prices (Chart 1.5), sustained high rates could amplify imported inflation pass-through to transport costs (1.4% inflation component).

2. Deposit Rates: Stability with Upside for Savings Mobilization

• Key Observations Recap: Savings rates held at 2.90%, while overall time deposits fell slightly to 8.61% (from 8.83%). Shorter maturities (1-2 months) offered 10-10.7%, dropping to 7.16% for 24 months; negotiated rates rose to 10.99% (from 10.72%).
• Implications for Economic Development:
  • Strengthened Banking Liquidity and Funding: Rising negotiated rates attract institutional savers (e.g., pensions), funding the 21% M3 money supply growth and reducing reliance on costly interbank borrowing (IBCM rates at 6.48%). This ties into the SECO Economic Report (2025), where deposit rates averaged 8.14% annually, supporting 15.1% private credit expansion and financial deepening (bank deposits at 25% of GDP).
  • Encouraging Household Savings: Unchanged low savings rates may deter retail savers amid 3.4% inflation, but competitive time deposit yields (up y-o-y) promote formal savings, crucial for resilience against food price shocks (7.7% food inflation). The World Bank's January 2025 prospects note that easing rates overall will rebound household consumption by 2-3% in 2025, as savers shift to productive investments.
  • Risks: The dip in longer-term deposits could signal caution on inflation outlook, potentially limiting banks' long-term lending capacity if global commodity pressures (e.g., elevated fertilizers) erode confidence.

3. Interest Rate Spread: Narrowing Margins Signal Efficiency Gains

• Key Observations Recap: The short-term spread (1-year lending minus deposit) tightened to 5.66 percentage points (from 6.68 pp in August 2024), reflecting faster deposit rate adjustments than lending.
• Implications for Economic Development:
  • Improved Financial Intermediation: A narrower spread indicates better policy transmission from the CBR cut, pressuring banks to optimize costs and pass on benefits to borrowers. This supports the document's liquidity improvements (via reverse repos), fostering a 23.2% broad money (M2) growth and efficient resource allocation to growth sectors.
  • Bank Profitability and Stability: While margins compress (potentially squeezing net interest income by 0.5-1%), it encourages non-lending revenue diversification (e.g., fees), enhancing sector resilience. A RePEc study on Tanzania notes that govt borrowing crowds out spreads, but current trends mitigate this, aiding fiscal-monetary coordination for 4.5% deficit financing.
  • Risks: Further narrowing could raise non-performing loans if banks cut risky lending, per the ResearchGate analysis, especially in agriculture vulnerable to weather (e.g., El Niño echoes).

Overall Summary and Forward Outlook

These rate movements imply a pro-cyclical boost to Tanzania's development: easing lending costs and mobilizing deposits sustain credit-driven growth (targeting 6% GDP), while the narrowing spread enhances efficiency amid low inflation risks. This aligns with the IMF's 2025 staff report praising policy easing for strong activity (5.5% in 2024, accelerating), and the World Bank's emphasis on lower rates spurring consumption and FDI. Compared to EAC peers (e.g., Uganda's wider 7-8 pp spreads), Tanzania's metrics underscore competitive advantages.

Yet, high baseline lending rates highlight needs for structural reforms like digital lending to cut costs 2-3%. If global trends hold (e.g., SSA inflation easing per WB), Q4 2025 could see further declines, pushing annual growth to 6.2-6.5%. Monitor debt dynamics, as domestic borrowing (TZS 1,644 bn in August) could reverse spreads if issuance accelerates.

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Tanzania's food and non-alcoholic beverages inflation rose to 7.7% in August 2025, up from 7.6% in July, reflecting a year-on-year price increase in this category, which holds the largest CPI weight of 28.2%. The food index climbed from 121.12 in August 2024 to 130.48 in August 2025, though it remained nearly flat month-to-month (130.47 to 130.48), buoyed by price drops in staples like maize (-1.9%) and vegetables (-1.8%). This stability masks underlying pressures from agricultural supply challenges, impacting 25-30% of GDP and threatening household affordability, especially for the 57% of households citing food costs as a major concern in 2024.

Food and Non-Alcoholic Beverages Inflation

• Weight in CPI basket: 28.2% (largest share).
• Annual inflation (Aug 2025 vs Aug 2024): 7.7%, compared to 7.6% in July 2025.
• Index values:
  • Aug 2024: 121.12
  • July 2025: 130.47
  • Aug 2025: 130.48

This means that on average, the prices of food and non-alcoholic beverages increased by 7.7% over the year.

Food Items Driving the Change (July → August 2025)

Even though annual food inflation was high, the monthly food index was almost flat (0.0%), because prices of some items went down, offsetting increases in others.
Items that recorded price decreases include:

• Maize grains: -1.9%
• Maize flour: -0.3%
• Wheat grains: -1.1%
• Finger millet grains: -0.5%
• Fresh fish: -0.3%
• Vegetables: -1.8%
• Irish potatoes: -2.7%
• Sweet potatoes: -3.3%
• Cocoyams: -2.8%
• Dried beans: -2.5%
• Dried lentils: -4.5%
• Dried peas: -2.5%
• Cowpeas: -3.4%
• Groundnuts: -0.2%

These declines helped stabilize the monthly food inflation despite strong annual growth.

Key Insights

1. Food is the main inflation driver: At 7.7%, food inflation is more than double the headline inflation (3.4%).
2. Monthly stability: The food index hardly changed from July to August 2025 (130.47 → 130.48) due to falling prices of several staples.
3. Volatility: The year-on-year rise shows that food prices have been under upward pressure over the past 12 months, even if short-term prices softened in August.

Summary:
Food and non-alcoholic beverages in Tanzania saw 7.7% annual inflation in August 2025, driven mainly by higher year-on-year food costs. However, month-to-month food prices were stable, with declines in staple grains, vegetables, and pulses balancing out other pressures.

Table 1: Food and Non-Alcoholic Beverages Inflation Rate

*Note: July 2025 food inflation rate (7.6%) is mentioned in the text as comparison to August 2025 rate.

Table 2: Core Inflation and Other Key Indices (August 2025)

Key Highlights:

• Headline inflation increased to 3.4% in August 2025 from 3.3% in July 2025
• Food inflation rose to 7.7% in August 2025 from 7.6% in July 2025
• Core inflation increased to 2.0% in August 2025 from 1.9% in July 2025
• Monthly CPI declined by 0.1% from July to August 2025
• Food and non-alcoholic beverages have the highest weight (28.2%) in the CPI basket

Economic Implications of Food Inflation in Tanzania (August 2025)

In August 2025, Tanzania's food and non-alcoholic beverages inflation reached 7.7%, more than double the headline rate of 3.4%, driven by a year-on-year index rise from 121.12 to 130.48 despite monthly stability (0.0% change from July's 130.47). This category's dominant 28.2% CPI weight amplifies its role in eroding household purchasing power, particularly amid projections of 4.0% overall inflation and 6.0% GDP growth, highlighting vulnerabilities in agriculture and potential poverty exacerbation for low-income groups.

Impact on Households and Poverty

Food inflation disproportionately affects low-income and rural households in Tanzania, where food expenditures can exceed 50% of budgets, compared to the national CPI weight of 28.2%. The 7.7% annual rise in August 2025, up from 7.6% in July and 7.3% in June, intensifies cost-of-living pressures, potentially pushing more households into poverty. In 2024, 57% of households reported food price hikes as a major shock, contributing to intersecting crises like hunger and economic instability. Globally, a 1% food price increase can raise poverty by 0.0001% in low- to middle-income groups, a trend applicable to Tanzania where urban poverty is exacerbated by reduced welfare and access to nutritious food. However, long-term spikes may benefit net food producers, though short-term volatility from weather and supply issues hinders this for subsistence farmers.

Macroeconomic Effects

As the primary inflation driver, food prices at 7.7% in August 2025 elevate the non-core index to 7.3%, contrasting with core inflation's stability at 2.0% (excluding volatiles like unprocessed food). This contributes to headline inflation's slight rise to 3.4%, within the Bank of Tanzania's (BOT) 3-5% target, but risks broader price instability if unchecked. Agriculture, comprising 25-30% of GDP, faces disruptions from weather-induced supply shortages, amplifying import dependencies and exchange rate pressures (USD/TZS around 2,470). Despite this, Tanzania's 6.0% GDP growth projection for 2025 remains robust, supported by mining and services, though persistent food hikes could dampen consumption and widen inequality.

Agricultural Sector Challenges

Monthly price declines in staples like maize (-1.9%), vegetables (-1.8%), and tubers (e.g., sweet potatoes -3.3%) provided short-term relief in August 2025, but year-on-year pressures stem from supply disruptions, including weather events and global commodity trends (FAO index up 7.6% annually). These factors, combined with rising input costs, challenge Tanzania's food security recovery post-pandemic, where agriculture employs over 65% of the workforce. Easing global prices offer some buffer, but domestic volatility could hinder export competitiveness and stock buffers (e.g., 557k tonnes noted earlier in 2025).

Policy Responses and Outlook

BOT's cautious accommodative policy for 2025/26, maintaining low rates to anchor inflation while supporting growth, addresses food-driven pressures through liquidity management and reserves (USD 6 billion). Recommendations include agricultural subsidies and infrastructure to mitigate supply shocks. IMF projections of 4.0% inflation suggest moderation, but sustained food hikes risk derailing 6.0% growth, necessitating targeted interventions for inclusive development.

The National Consumer Price Index (NCPI) for August 2025 reveals a stable yet nuanced inflationary landscape in Tanzania, with the annual headline inflation rate rising marginally to 3.4% from 3.3% in July 2025. This slight uptick, driven predominantly by a 7.7% increase in food and non-alcoholic beverage prices, underscores the significant influence of the agricultural sector, which holds a 28.2% weight in the CPI basket. Despite a minor monthly decline in the overall index from 119.85 to 119.77, reflecting seasonal price drops in staples like maize and vegetables, core inflation remained steady at 2.0%, indicating underlying price stability. These figures highlight Tanzania's balanced economic management amid a projected 6% GDP growth, though persistent food price pressures pose challenges for household affordability and rural livelihoods.

Headline Inflation

• The annual headline inflation rate (all items in the CPI basket) stood at 3.4% in August 2025, up slightly from 3.3% in July 2025.
• This means that on average, prices of goods and services were 3.4% higher in August 2025 compared to August 2024.
• The overall index rose from 115.78 in August 2024 to 119.77 in August 2025.

Food and Non-Alcoholic Beverages

• Inflation in this category was 7.7% in August 2025, compared to 7.6% in July 2025.
• This remains the biggest driver of inflation, since food carries the largest weight (28.2%) in the basket.

Non-Food Items (Excluding Food & Beverages)

• Inflation rose slightly to 1.6% in August 2025, up from 1.5% in July 2025.

Core Inflation

• Excluding volatile items (unprocessed food, energy, and utilities), core inflation was 2.0% in August 2025, compared to 1.9% in July 2025.
• This shows relatively stable underlying price trends.

Selected Groups (Year-on-Year Changes)

• Alcoholic beverages & tobacco: 2.9%
• Clothing & footwear: 1.7%
• Housing, water, electricity, gas & fuels: 2.1%
• Transport: 1.4%
• Education services: 3.0%
• Restaurants & accommodation: 0.9%
• Insurance & financial services: 0.6%

Monthly Price Movements (July → August 2025)

The CPI slightly declined from 119.85 in July 2025 to 119.77 in August 2025 (-0.1%), due to lower prices of several items:

• Food items falling in price: maize (-1.9%), maize flour (-0.3%), fresh fish (-0.3%), vegetables (-1.8%), Irish potatoes (-2.7%), sweet potatoes (-3.3%), lentils (-4.5%), beans (-2.5%), cowpeas (-3.4%).
• Non-food items falling in price: men’s garments (-0.6%), children’s garments (-0.5%), charcoal (-0.7%), firewood (-5.5%), petrol (-0.4%).

Summary:
Tanzania’s inflation in August 2025 remained stable and moderate at 3.4%, mainly driven by food prices (7.7% increase). Core inflation (2.0%) shows underlying stability, but seasonal drops in key food and fuel items slightly reduced the monthly index.

Table 1: Tanzania Overall Inflation Rates

Table 2: Core Inflation and Other Key Indices (August 2025)

Key Highlights:

• Headline inflation increased to 3.4% in August 2025 from 3.3% in July 2025
• Food inflation rose to 7.7% in August 2025 from 7.6% in July 2025
• Core inflation increased to 2.0% in August 2025 from 1.9% in July 2025
• Monthly CPI declined by 0.1% from July to August 2025
• Food and non-alcoholic beverages have the highest weight (28.2%) in the CPI basket

Overview of Tanzania's Inflation and Economic Implications

Tanzania's headline inflation rate of 3.4% in August 2025 reflects a stable macroeconomic environment, remaining within the Bank of Tanzania's (BOT) target range of 3-5%. This moderate level, up slightly from 3.3% in July, indicates controlled price pressures overall, supported by prudent monetary policies and improved supply conditions in non-food sectors. However, the data highlights persistent challenges, particularly from food price increases, which could strain household budgets and exacerbate inequality. Drawing from the attached National Bureau of Statistics (NBS) document and recent economic analyses, this inflation profile supports robust GDP growth projections while underscoring the need for targeted interventions in agriculture and food security. Below, I break down the key economic implications.

Positive Implications for Economic Stability and Growth

• Macroeconomic Resilience and Policy Effectiveness: The low headline inflation rate aligns with BOT's cautious accommodative monetary policy for 2025/26, which aims to balance inflation control with economic expansion. In July 2025, BOT reduced its central bank rate (CBR) by 25 basis points to 5.75%, marking the fifth cut in a series to stimulate lending and investment while keeping inflation anchored. This has contributed to foreign exchange reserves reaching approximately USD 6 billion by June 2025—one of the highest levels in recent years—bolstering the Tanzanian shilling's stability (USD/TZS at around 2,470 in early August 2025). Stable inflation enhances business confidence, attracts foreign direct investment (FDI), and supports Tanzania's goal of drawing USD 15 billion in investments in 2025, focusing on manufacturing, clean energy, transport, and minerals.
• Strong GDP Growth Momentum: Tanzania's economy is projected to grow by 6.0% in 2025, up from 5.5-5.6% in 2024, driven by sectors like mining (which led Q1 2025 growth at 5.4%) and services. Low core inflation (2.0% in August, excluding volatile items) signals underlying price stability, reducing risks of overheating and allowing for sustained expansion. The IMF forecasts inflation at 4.0% for the year, complementing this growth outlook. At current prices, GDP is expected to reach USD 88 billion in 2025, positioning Tanzania as one of East Africa's fastest-growing economies.
• Benefits for Non-Food Sectors: Inflation in categories like transport (1.4%), housing and utilities (2.1%), and services (0.8%) remains subdued, aided by monthly declines in energy prices (e.g., petrol -0.4%, firewood -5.5%, charcoal -0.7%). This lowers operational costs for businesses, boosts competitiveness in exports (e.g., minerals and agriculture), and supports fiscal health. The energy, fuel, and utilities index rose only 2.6% annually, reflecting easing global commodity pressures. Overall, non-food inflation at 1.6% preserves purchasing power for middle-income groups and encourages consumer spending in durable goods.

Challenges and Risks from Food-Driven Inflation

• Impact on Cost of Living and Poverty: Food and non-alcoholic beverages, weighted at 28.2% in the CPI basket, saw inflation rise to 7.7% in August from 7.6% in July, making it the primary inflation driver. This erodes real incomes, particularly for rural and low-income households where food constitutes over 50% of expenditures. Despite a monthly CPI decline of 0.1% due to seasonal drops in items like maize (-1.9%), vegetables (-1.8%), and tubers (e.g., sweet potatoes -3.3%), year-on-year food price hikes could push more people into poverty if not addressed. For context, food inflation surged from 1.4% in March 2024 to 5.4% in March 2025, driven by weather disruptions and supply chain issues. This threatens post-pandemic food security recovery, as global food prices (per FAO index) are 7.6% higher than last year.
• Broader Economic Vulnerabilities: High non-core inflation (7.3%, including volatile foods) could amplify external shocks, such as global commodity volatility or climate events affecting agriculture (which anchors 25-30% of GDP). If food prices continue rising, it might fuel wage demands, potentially spiraling into broader inflation. Additionally, the goods index (4.9% inflation) reflects import dependencies, which could worsen with shilling fluctuations.
• Inequality and Social Implications: Urban-rural divides may widen, as food inflation hits subsistence farmers hardest. While core stability benefits formal sectors, informal workers (over 80% of employment) face reduced affordability, potentially slowing consumption-led growth.

Policy Responses and Future Outlook

BOT's strategy emphasizes inflation targeting while supporting 6%+ growth, with tools like reserve requirements and open market operations to manage liquidity. Fiscal measures, including subsidies for agriculture and infrastructure investments, could mitigate food risks. The IMF's 2025 Article IV consultation notes improving conditions under prudent management, with growth expected to average 6% long-term. East Africa's regional outlook projects easing inflation (from 20.8% in 2024 to 19.1% in 2025), but Tanzania's lower rate positions it favorably.

In summary, August 2025's inflation data underscores Tanzania's resilient economy, with low overall rates fostering investment and growth amid a projected 6% GDP expansion. However, elevated food inflation poses risks to inclusive development, necessitating enhanced agricultural productivity and social safety nets for sustained stability.

The financial sector in Tanzania demonstrated significant growth in Q1 2025, as outlined in the National Bureau of Statistics report, with bank deposits rising by 18.5% to TZS 43.0 trillion from TZS 36.3 trillion in Q1 2024, reflecting enhanced savings and trust in the banking system, as noted in Figure 8. This surge, coupled with a 14.7% increase in bank loans to TZS 39.1 trillion from TZS 34.1 trillion, indicates a robust expansion in credit availability, supporting investment and consumption across key sectors like manufacturing and mining, which contributed 10.4% and 15.4% to GDP growth respectively. However, the loan-to-deposit ratio declined from 94.0% to 90.9% (-3.1 percentage points), suggesting a more cautious lending approach, potentially strengthening financial stability but possibly limiting credit flow to the private sector, as highlighted in the sector’s 15.4% growth rate and 3.5% GDP share. This cautious stance, amid a stable 5.4% GDP growth (up from 5.2% in Q1 2024 per Figure 3), positions the sector to bolster economic resilience, though it may necessitate targeted policies to ensure broader credit access, especially for SMEs, to sustain long-term growth momentum.

1. Financial Sector (TZS Trillion)

• Bank Deposits:
  • Rose from TZS 36.3 trillion (Q1 2024) to TZS 43.0 trillion (Q1 2025).
  • This is an 18.5% increase, reflecting stronger household and corporate savings.
  • Suggests financial deepening, improved trust in the banking system, and rising liquidity.
• Bank Loans:
  • Increased from TZS 34.1 trillion to TZS 39.1 trillion (+14.7%).
  • Indicates expansion in credit to businesses and households, supporting investment and consumption.
• Loan-to-Deposit Ratio:
  • Fell from 94.0% to 90.9% (-3.1 percentage points).
  • Implies that while deposits surged, lending grew slightly slower, showing more conservative lending or stricter credit assessments.
  • This can strengthen financial stability but may also slow private sector financing.

The banking system shows healthy growth in deposits and loans, but lending is becoming more cautious relative to deposits.

1. Implications of Bank Deposits Growth (18.5% to TZS 43.0 Trillion)

The 18.5% surge in bank deposits from TZS 36.3 trillion in Q1 2024 to TZS 43.0 trillion in Q1 2025 signals robust financial deepening and increased public confidence in the banking system, driven by rising household savings amid stable inflation (around 3.2% year-on-year in April 2025) and economic recovery. This liquidity boost enhances banks' capacity to fund economic activities, contributing to the financial sector's 15.4% growth rate and 12.0% share of overall GDP expansion in Q1 2025. Economically, it supports monetary policy transmission, as noted in the Bank of Tanzania's (BOT) April 2025 Monetary Policy Report, where money supply (M3) grew by 15.1%, fostering a stable environment for investment and potentially lowering borrowing costs if channeled effectively. However, uneven distribution— with personal and corporate savings concentrated in urban areas—could exacerbate regional inequalities, limiting inclusive growth in rural economies reliant on agriculture.

2. Implications of Bank Loans Expansion (14.7% to TZS 39.1 Trillion)

The 14.7% increase in bank loans to TZS 39.1 trillion from TZS 34.1 trillion indicates expanding credit access for businesses and households, bolstering investment in key sectors like manufacturing (7.2% growth) and mining (16.6% growth), which together drove much of Tanzania's 5.4% GDP rise. This credit growth, estimated at 13.2% for private sector lending in Q1 2025 per investor briefings, aligns with high demand for capital projects and consumption, potentially accelerating job creation and productivity. According to the IMF's June 2025 Staff Report, the banking sector's profitability and adequate capitalization (with non-performing loans at 3.6%, below the 5% threshold) underpin this expansion, reducing systemic risks and supporting fiscal stability. Yet, slower loan growth relative to deposits may signal selective lending, prioritizing high-return sectors and possibly constraining SMEs, which could hinder broader diversification away from resource dependence.

3. Implications of Loan-to-Deposit Ratio Decline (to 90.9%)

The drop in the loan-to-deposit ratio (LDR) from 94.0% to 90.9% (-3.1 percentage points) reflects a more conservative banking approach, where deposit inflows outpaced lending, possibly due to stricter credit assessments amid regulatory emphasis on stability post-2024 reforms. This prudence strengthens financial resilience, as highlighted in Fitch Solutions' 2025 analysis, by building buffers against shocks like global trade tensions, and maintains liquidity ratios above BOT thresholds, contributing to the sector's sound profile. Positively, it mitigates risks of over-leveraging, with personal loans comprising 37.6% of credit in early 2025, but it could slow private sector financing, particularly for infrastructure and agriculture, potentially capping GDP growth below the 6% target for FY 2025/26. In a subdued economic context, as per NCBA Group's Q1 2025 report, this caution might preserve stability but delay stimulus effects from monetary easing.

Key Takeaways and Broader Economic Implications

Tanzania's financial sector in Q1 2025 demonstrates healthy expansion, with deposits and loans fueling liquidity and credit for growth, yet the lower LDR underscores a shift toward stability over aggressive expansion, aligning with BOT's neutral monetary stance. This balance supports Tanzania's resilient 5.4% GDP trajectory amid Sub-Saharan Africa's projected 3.8% growth, attracting FDI (e.g., in banking via digital lending platforms like Weza and Mgodi, disbursing billions in Q1). However, challenges include potential credit gaps for underserved sectors, which could widen inequality if not addressed through inclusive policies like mobile money integration. Overall, a stable sector positions Tanzania for sustainable development, with projections for 13-15% credit growth in 2025, but requires vigilant oversight to avoid liquidity risks in a volatile global environment.