Tourism Surge Propels Tanzania's Economic Advancement

Increase in Tourist Numbers:

1. International Tourists:
   • The number of international tourists has increased by 96% from 922,692 in 2021 to 1,808,205 in 2023.
   • This indicates a substantial rise in the influx of foreign tourists visiting the destination.
2. Domestic Tourists:
   • Domestic tourist numbers have surged by 152% from 788,933 in 2021 to 1,985,707 in 2023.
   • The significant increase reflects a growing trend of locals exploring their own country for leisure and travel purposes.

Increase in Tourism Revenue:

1. Revenue from International Tourism:
   • Revenue generated from international tourism has seen a remarkable increase, rising from USD 1.3 billion in 2021 to USD 3.4 billion in 2023.
   • This represents a growth rate of 161%, highlighting the substantial economic impact of international tourists on the local economy.
2. Revenue from Domestic Tourism:
   • Revenue from domestic tourism has also seen a substantial growth, increasing from Shilingi 46.3 billion in 2021 to Shilingi 175.3 billion in 2023.
   • This translates to a growth rate of 279%, indicating a robust expansion in spending by domestic tourists within the country.

Summary:

• The tourism sector has experienced significant growth in both tourist arrivals and revenue streams between 2021 and 2023.
• International tourist arrivals have nearly doubled, while domestic tourist numbers have more than doubled during this period.
• Revenue figures show even more substantial increases, with international tourism revenue increasing by 161% and domestic tourism revenue skyrocketing by 279%.
• These trends underscore a thriving tourism industry, bolstered by both international and domestic demand, contributing significantly to the overall economy through increased spending and economic activity in related sectors.

Tourism growth in Tanzania underscores its pivotal role in driving economic growth and development.

• Contribution to GDP: The significant increase in both international and domestic tourism numbers indicates a robust growth in tourism's contribution to Tanzania's GDP. Tourism is a major economic driver, contributing directly through expenditures on accommodation, food, transportation, and activities, as well as indirectly through job creation and investment in infrastructure.
• Foreign Exchange Earnings: The substantial growth in revenue from international tourism, rising from USD 1.3 billion in 2021 to USD 3.4 billion in 2023, highlights the sector's role in generating foreign exchange earnings for Tanzania. This influx of foreign currency strengthens the country's balance of payments and supports its overall economic stability.
• Employment and Income Generation: Tourism growth typically leads to increased employment opportunities across various sectors such as hospitality, transportation, retail, and entertainment. The rise in domestic tourism numbers also suggests enhanced income generation among local communities involved in providing services and products to tourists.
• Infrastructure and Investment: To accommodate the growing number of tourists, there is often a need for investment in tourism-related infrastructure such as hotels, transportation networks, recreational facilities, and preservation of cultural and natural heritage sites. This infrastructure development not only supports tourism but also spurs broader economic development.
• Multiplier Effect: The growth in tourism has a multiplier effect on other sectors of the economy. Increased tourist spending stimulates demand for goods and services beyond the tourism sector itself, benefiting industries such as agriculture (food supply), manufacturing (souvenirs and crafts), and construction (infrastructure development).
• Socioeconomic Development: Tourism growth can contribute to socioeconomic development by fostering cultural exchange, preserving heritage, and promoting community development through revenue-sharing schemes and community-based tourism initiatives.

The Impact of Rising National Debt and Currency Depreciation on the Citizen's Economic Growth and Stability

Overview of Debt Trends

Tanzania has experienced notable changes in both external and domestic debt over recent years. As of April 2021, Tanzania's external debt was TZS 75.39 billion, increasing to TZS 87.67 billion by March 2023, before slightly declining to TZS 83.80 billion by April 2024. This indicates an overall 11% increase over the year from April 2023 to April 2024. Similarly, domestic debt rose from TZS 27.94 billion in April 2021 to TZS 31.34 billion by March 2023, then decreased slightly to TZS 30.75 billion by April 2024, reflecting a 10% annual increase from April 2023 to April 2024. Consequently, Tanzania's total debt, combining both external and domestic debt, rose from TZS 103.33 billion in April 2021 to TZS 119.01 billion by March 2023 and then decreased to TZS 114.55 billion by April 2024, representing an 11% increase over the year.

Impact on the Tanzania Shilling

The increasing national debt, both external and domestic, has a direct impact on the value of the Tanzania shilling. The consistent rise in debt levels indicates a higher demand for foreign currencies, particularly the US dollar, to service external debt obligations and finance imports. This increased demand exerts pressure on the shilling, leading to its depreciation. For instance, in April 2024, the Tanzania shilling traded at an average rate of TZS 2,584.69 per US dollar, compared to TZS 2,563.07 in March 2024, representing a slight monthly depreciation. Over the year, the shilling depreciated by 11.2%, reflecting broader economic factors and increased demand for foreign currency.

Liquidity Management and Market Dynamics

The Interbank Cash Market (IBCM) and the Interbank Foreign Exchange Market (IFEM) provide insights into the liquidity management and foreign exchange dynamics that influence the shilling's value. In April 2024, the IBCM saw increased transaction volumes, rising from TZS 1,635.2 billion in March to TZS 1,768.4 billion, indicating heightened liquidity activity. Despite declining interest rates, suggesting improved liquidity conditions, the high demand for US dollars in the IFEM persisted, driven by international trade requirements and debt servicing needs.

Central Bank Interventions

To stabilize the foreign exchange market, the Central Bank intervened by selling USD 69.75 million in April 2024. Such interventions are crucial in managing exchange rate volatility and ensuring an adequate supply of foreign currency. Despite these efforts, the sustained high demand for US dollars and the depreciation of the shilling indicate ongoing challenges in the foreign exchange market.

Economic Implications

The increase in national debt and the depreciation of the shilling highlight several economic implications for Tanzania:

1. Economic Stability and Growth: While borrowing can stimulate economic growth by financing infrastructure and development projects, excessive debt accumulation can strain public finances, leading to higher debt servicing costs and vulnerability to economic shocks.
2. Foreign Exchange Pressures: The depreciation of the shilling underscores the challenges in managing foreign exchange needs. A weaker shilling increases the cost of imports and external debt servicing, potentially leading to inflationary pressures.
3. Policy and Fiscal Management: Effective debt management and prudent fiscal policies are essential to mitigate risks associated with high debt levels. The government's ability to balance borrowing with sustainable economic growth strategies is crucial for long-term economic stability and resilience.

Economic Effects on the Tanzania Citizen (Mwananchi Mwenye Kipato cha Kawaida) in Growing Their Economy

Inflation and Cost of Living

The depreciation of the Tanzania shilling against major foreign currencies, such as the US dollar, directly impacts the cost of imported goods and services. For the average Tanzania citizen, this translates into higher prices for everyday essentials, such as food, fuel, and medicine, which are often imported. This inflation erodes purchasing power, making it more difficult for individuals to afford basic necessities and maintain their standard of living.

Income and Employment

While increased borrowing can stimulate economic growth through infrastructure projects and development programs, the benefits may not be evenly distributed. Large-scale projects may create jobs and spur economic activity, but the average citizen might not see immediate benefits, especially if these projects are concentrated in urban areas or specific sectors. Additionally, if the government prioritizes debt servicing over social spending, programs that directly benefit low-income citizens, such as education, healthcare, and social services, may face cuts.

Interest Rates and Access to Credit

The overall decline in interbank interest rates, as seen in the IBCM, suggests improved liquidity conditions. For the average citizen, lower interest rates can make borrowing cheaper, potentially increasing access to credit for small businesses and personal loans. However, if inflation rates are high due to the depreciating shilling, the real cost of borrowing may remain burdensome, limiting the positive impact on individual economic activities.

Public Services and Infrastructure

Government borrowing to finance infrastructure and development projects can lead to improved public services and infrastructure. This can have long-term benefits for the average citizen by providing better roads, schools, hospitals, and utilities. Improved infrastructure can enhance productivity and open up new economic opportunities, particularly in rural areas where access to markets and services is limited. However, the efficiency and effectiveness of these investments are crucial; mismanagement or corruption can undermine potential benefits.

Savings and Investments

Depreciation of the shilling can impact savings and investments. For those with savings in local currency, the real value of their savings may decrease, discouraging saving behavior. Conversely, those with investments in assets or foreign currencies may see their wealth grow in local currency terms. Uncertainty and inflation can also discourage long-term investments, affecting overall economic growth and individual financial security.

Social Impact and Inequality

Economic challenges such as rising inflation and high debt levels can exacerbate social inequality. The average citizen, particularly those with lower incomes, may feel the brunt of economic pressures more acutely. As the cost-of-living increases and access to public services potentially diminishes, the gap between the wealthy and the poor can widen, leading to greater social and economic disparities.

2024/25 Budget: A Pathway to Economic Growth and Improved Incomes for Ordinary Tanzanians

The 2024/25 Budget, with a total allocation of TZS 49.35 trillion, aims to foster economic growth and improve incomes for ordinary Tanzanians. Projected GDP growth is set to rise from 5.1% in 2023 to 5.4% in 2024, driven by increased investments in agriculture (26.5% of GDP), construction (13.2%), and mining (9.0%). Key measures include a 10% increase in tax revenue to TZS 29.41 trillion, a 30% allocation for development expenditure on energy and transportation, and targeted support for local industries and agriculture. However, managing a national debt of TZS 91.7 trillion and inflation will be crucial to ensure sustainable benefits for citizens.

GDP Growth:

• Tanzania's real GDP grew by 5.1% in 2023, up from 4.7% in 2022.
• Projected GDP growth for 2024 is 5.4%, driven by public and private investment.
• The Economic Intelligence Unit (EIU) forecasts an average annual GDP growth of 6.3% from 2024, peaking at 6.8% in 2028 due to strong private consumption, growth in the energy sector, and buoyant tourism and mining sectors​​.

Sector Contributions to GDP:

• Agriculture: 26.5%
• Construction: 13.2%
• Mining: 9.0%​​.

Budget Overview:

• The 2024/25 budget is TZS 49.35 trillion, an 11.2% increase from the 2023/24 budget.
• Domestic revenue is expected to account for 70.1% of the total budget, driven by a 10% increase in tax revenue from TZS 26.7 trillion in 2023/24 to TZS 29.41 trillion in 2024/25​.

Recurrent and Development Expenditure:

• Recurrent expenditure will increase by TZS 4.4 trillion (14.6%) in 2024/25, mainly due to higher debt servicing costs and borrowing for infrastructure projects.
• Development expenditure is expected to be 30% of the total budget, focusing on energy and transportation infrastructure projects​​.

National Debt:

• As of April 2024, the total national debt is TZS 91.7 trillion, with TZS 60.95 trillion in external debt and TZS 30.75 trillion in domestic debt.
• The debt-to-GDP ratio for 2024 is projected to be 52.4%​​.

Inflation and Exchange Rates:

• The exchange rate of TZS to USD is expected to be 2,569 in 2024​​.

A comprehensive overview of Tanzania's economic status and projections for the near future.

The 2024/25 budget has several provisions that could positively impact the income and economic situation of ordinary Tanzanian citizens, especially those with low to moderate incomes. The focus on agricultural growth, infrastructure development, and support for local industries are promising signs. However, managing debt and inflation will be crucial to ensure that the benefits are not offset by higher living costs. If implemented effectively, this budget has the potential to improve the economic well-being of Mwananchi mwenye kipato cha kawaida (the average citizen with a regular income).

Budget Size and Allocation

Total Budget:

• 2023/24: TZS 44.4 trillion
• 2024/25: TZS 49.35 trillion
• Change: Increase of 11.2%

Economic Growth

GDP Growth:

• 2023: 5.1%
• 2024 (Projected): 5.4%
• Future Projections: Average of 6.3% annually, peaking at 6.8% in 2028

The GDP growth is steadily increasing, indicating a positive economic trajectory, supported by strong private consumption, growth in energy, tourism, and mining sectors.

Revenue and Taxation

Tax Revenue:

• 2023/24: TZS 26.7 trillion
• 2024/25: TZS 29.41 trillion
• Change: Increase of 10%

Domestic Revenue Contribution:

• 2024/25: 70.1% of total budget

The significant increase in tax revenue reflects improvements in tax collection efficiency and economic activities, suggesting better fiscal health and capacity to fund public services and infrastructure.

Expenditure

Recurrent Expenditure:

• 2023/24: TZS 30.1 trillion
• 2024/25: TZS 34.5 trillion
• Change: Increase of 14.6%

Development Expenditure:

• 2024/25: 30% of total budget

The increase in recurrent expenditure, largely due to higher debt servicing costs and further borrowing for infrastructure, underscores the need for careful debt management. The emphasis on development expenditure, especially in energy and transportation, aligns with the country's growth objectives.

Sectoral Contributions to GDP

• Agriculture: Remains a significant contributor at 26.5%
• Construction: Accounts for 13.2% of GDP
• Mining: Accounts for 9.0% of GDP

The sectoral contributions highlight the diversified nature of the economy, with agriculture, construction, and mining playing pivotal roles. Continued investments in these sectors are essential for sustained growth.

National Debt

Total National Debt:

• April 2024: TZS 91.7 trillion
• External Debt: TZS 60.95 trillion
• Domestic Debt: TZS 30.75 trillion

Debt to GDP Ratio:

• 2023: 52.4%
• 2024: 52.7%

The debt levels have increased, and the debt-to-GDP ratio remains high. This trend necessitates strategies to enhance debt sustainability, such as boosting revenue generation and managing expenditure.

Exchange Rates and Inflation

Exchange Rate (TZS/USD):

• 2023: 2,383
• 2024: 2,569

The Tanzanian Shilling has depreciated, which could affect import costs and inflation. Efforts to stabilize the currency and manage inflation are critical for economic stability.

Foreign Currency Reserves

Foreign Currency Reserves:

• March 2024: USD 5.3 billion (4.4 months of import cover)

Adequate foreign currency reserves provide a buffer against external shocks and help maintain economic stability.

Summary of Performance

• Growth: The economy shows positive growth trends with increasing GDP growth rates.
• Revenue and Expenditure: There is a notable increase in both revenue and expenditure, reflecting expanding economic activities and government investments.
• Debt: Rising debt levels and a high debt-to-GDP ratio call for prudent fiscal management.
• Currency Stability: The depreciation of the Tanzania Shilling needs to be addressed to control inflation and maintain economic stability.

Positive Indicators for Economic Improvement

1. GDP Growth:
   • The projected GDP growth from 5.1% in 2023 to 5.4% in 2024, and an average annual growth of 6.3% beyond 2024, suggests overall economic expansion. Economic growth typically leads to job creation and higher incomes for the population, including those with lower incomes.
2. Sectoral Growth:
   • Agriculture: Continues to be a significant contributor to GDP (26.5%). Since a large portion of the Tanzanian population relies on agriculture for their livelihood, growth in this sector can directly benefit low-income citizens.
   • Construction and Mining: Growth in these sectors (13.2% and 9.0% of GDP, respectively) can create job opportunities, potentially increasing incomes for workers in these industries.
3. Development Expenditure:
   • With 30% of the total budget allocated to development expenditure focusing on energy and transportation infrastructure, there will likely be more job opportunities in these projects. Improved infrastructure can also lead to better access to markets, education, and healthcare, indirectly benefiting low-income citizens.
4. Tax Revenue Increase:
   • The increase in tax revenue (10% increase from TZS 26.7 trillion in 2023/24 to TZS 29.41 trillion in 2024/25) indicates better fiscal health and capacity for the government to fund public services and social programs that can benefit low-income households.
5. Recurrent Expenditure:
   • Increased recurrent expenditure (14.6% rise) might be directed towards public sector salaries and social services, which could benefit lower-income individuals through better public services and potential increases in public sector wages.

Direct Measures Benefiting Low-Income Citizens

1. Agriculture and Fishing:
   • Introduction of a 2% final withholding tax (WHT) on payments for agricultural produce, fishing, animal, and poultry keeping, and exemptions for certain agricultural activities suggest targeted support for farmers and fishers, who are typically among the lower-income segments.
2. VAT Measures:
   • VAT exemptions for essential items like locally manufactured fertilizer and supply of textile products using locally grown cotton can reduce costs for farmers and local manufacturers, benefiting their income levels.
3. Support for Local Industries:
   • Duty remission and stay of application of import duty rates on various items aim to promote local manufacturing and employment, which could lead to more job opportunities and higher incomes for workers in these industries.

Challenges and Considerations

1. Debt Servicing Costs:
   • The increase in debt servicing costs due to a depreciating shilling and further borrowing for infrastructure projects might strain the budget, potentially limiting the government’s ability to fund additional social programs.
2. Inflation and Currency Depreciation:
   • The depreciation of the Tanzanian Shilling (from TZS 2,303/USD in 2022 to TZS 2,569/USD in 2024) and inflation pressures could erode purchasing power, particularly affecting low-income households. Effective measures to stabilize the currency and control inflation are essential to protect the real income of citizens.

Tanzania's Fiscal Landscape: Balancing Efficiency, Growth, and Revenue Challenges in 2024

In April 2024, Tanzania's government budget performance showed significant variances between actual expenditures and estimated figures across various categories, reflecting both successes and challenges in financial management.

Government Expenditure:

1. Wages and Salaries: Actual expenditure in 2024 amounted to 839.3 billion TZS, which was 11% lower than the budget estimate of 947.9 billion TZS. This reduction suggests effective cost management in personnel expenses.
2. Interest Costs: The government spent 471.7 billion TZS on interest, exceeding the estimated 347.4 billion TZS by 36%. This increase indicates higher than anticipated borrowing costs, possibly due to prevailing economic conditions or debt restructuring.
3. Development Expenditure: Planned development spending was 880.7 billion TZS, but actual expenditure was only 597.5 billion TZS, marking a significant 32% shortfall. This underspend may impact infrastructure and socio-economic development projects.
4. Other Recurrent Expenditure: Actual spending on other recurrent expenses amounted to 571.7 billion TZS, 33% less than the budgeted 856.2 billion TZS. This decrease suggests prudent financial management but could also imply reduced funding in critical operational areas.

Government Revenues:

1. Taxes on Imports: Revenue from import taxes reached 718.1 billion TZS, slightly lower than the estimated 732.1 billion TZS, representing a 2% decrease. This indicates stability in import activities but slightly lower-than-expected revenue collection.
2. Income Tax: The government collected 575 billion TZS in income tax, which was 7% less than the budgeted 617.1 billion TZS. This shortfall may reflect economic factors affecting income levels or tax compliance issues.
3. Tax on Local Goods and Services: Revenue from local goods and services taxes amounted to 411.9 billion TZS, 12% less than the estimated 467.1 billion TZS. This decrease could be due to changes in consumer behavior or economic activities impacting tax collection.
4. Other Tax and Non-Tax Revenues: Other tax revenues were 116.5 billion TZS, down 8% from the estimated 126.9 billion TZS. Non-tax revenues saw a significant decline to 214.6 billion TZS, which was 47% lower than the expected 407.1 billion TZS. These declines indicate challenges in revenue generation outside traditional tax sources.

Deficit: The overall budget deficit was 35% lower than anticipated, indicating some success in managing expenditures relative to revenues despite the revenue shortfalls in certain tax categories. This deficit reduction could suggest efforts to control spending or unexpected revenue streams contributing positively to the budget balance.

Tanzania's government budget for April 2024 reflects mixed outcomes with notable underspending in development and recurrent expenditures alongside challenges in meeting revenue targets, particularly in non-tax revenues. Effective management of wage costs and a lower-than-expected deficit show areas of financial prudence, while increased interest costs highlight ongoing fiscal challenges.

Tanzania's government budget performance for April 2024 and the country's fiscal management and economic conditions:

1. Financial Discipline: The lower-than-expected expenditures on wages and salaries, as well as other recurrent expenses, suggest a degree of financial discipline and efficient cost management within the government. This can be seen as a positive indicator of prudent fiscal policy.
2. Challenges in Development Spending: The significant underspending on development projects compared to budgeted amounts indicates potential delays or constraints in implementing infrastructure and socio-economic development initiatives. This could impact long-term growth and public service delivery.
3. Rising Interest Costs: The higher-than-anticipated interest costs highlight the financial burden of debt servicing, which may strain budgetary allocations for other critical expenditures. This underscores the importance of managing public debt and exploring avenues for reducing borrowing costs.
4. Revenue Shortfalls: Across various tax categories, there were notable shortfalls compared to budget estimates. This reflects challenges in revenue collection, potentially influenced by economic conditions, tax compliance issues, or changes in consumer behavior affecting taxable transactions.
5. Deficit Management: Despite revenue challenges, the overall budget deficit was lower than anticipated. This suggests efforts to control spending and manage fiscal imbalances effectively, possibly through expenditure adjustments or alternative revenue sources.
6. Economic Context: The data hints at broader economic conditions impacting government finances, such as economic growth rates, inflation, and external economic factors influencing trade and revenue generation.

The detailed evaluation of Tanzania's government budget performance for April 2024 provides a snapshot of both achievements and areas needing attention in fiscal management. It highlights strengths in cost control and deficit reduction alongside challenges in revenue mobilization and development expenditure execution. Addressing these challenges effectively is crucial for sustaining economic stability and fostering inclusive growth in the country.

Tanzania's Debt Landscape: Balancing External and Domestic Borrowing

External Debt

• 21-Apr: TZS 75,390,711.00 million
• Mar-23: TZS 87,667,894.00 million
• Apr-24: TZS 83,799,672.00 million
• 1 Month Change: Decreased by 4% (from Mar-24 to Apr-24)
• 1 Year Change: Increased by 11% (from Apr-23 to Apr-24)

Tanzania's external debt stood at TZS 75.39 billion in April 2021, increased to TZS 87.67 billion by March 2023, and slightly decreased to TZS 83.80 billion by April 2024. This represents a 4% decrease in just one month but shows an 11% increase over the year from April 2023 to April 2024, indicating fluctuating trends in external borrowing.

Domestic Debt

• 21-Apr: TZS 27,937,600.00 million
• Mar-23: TZS 31,339,300.00 million
• Apr-24: TZS 30,753,800.00 million
• 1 Month Change: Decreased by 2% (from Mar-24 to Apr-24)
• 1 Year Change: Increased by 10% (from Apr-23 to Apr-24)

Tanzania's domestic debt was TZS 27.94 billion in April 2021, rose to TZS 31.34 billion by March 2023, and then decreased slightly to TZS 30.75 billion by April 2024. There was a 2% decrease in domestic debt over the course of one month but a 10% increase over the year, indicating steady growth in internal borrowing.

Total Debts

• 21-Apr: TZS 103,328,311.00 million
• Mar-23: TZS 119,007,194.00 million
• Apr-24: TZS 114,553,472.00 million
• 1 Month Change: Decreased by 4% (from Mar-24 to Apr-24)
• 1 Year Change: Increased by 11% (from Apr-23 to Apr-24)

The total debt of Tanzania, combining both external and domestic components, was TZS 103.33 billion in April 2021, increased to TZS 119.01 billion by March 2023, and decreased slightly to TZS 114.55 billion by April 2024. This reflects a 4% decrease in total debt over one month but an 11% increase over the year, highlighting significant changes in Tanzania's overall debt landscape.

Tanzania economic perspective on debt levels and implications:

Tanzania's proactive approach to financing development and stimulating economic growth through borrowing, it also underscores the importance of sustainable debt management and prudent fiscal policies to ensure long-term economic stability and resilience.

1. Debt Composition and Trends: The breakdown between external and domestic debt reveals how Tanzania finances its development and budgetary needs. External debt, which increased by 11% over the year, indicates reliance on foreign borrowing to fund infrastructure projects and economic initiatives. On the other hand, domestic debt, despite a slight decrease month-over-month, saw a significant 10% increase over the year, suggesting robust borrowing within the country to support various sectors.
2. Impact on Fiscal Policy: The fluctuations in debt levels reflect the government's fiscal policy and its response to economic conditions. A decrease in total debt over one month could indicate efforts to manage debt burdens or possibly a slowdown in borrowing activities. However, the year-over-year increase in total debt suggests ongoing investments and expenditure commitments to stimulate economic growth and development.
3. Economic Stability and Risk Management: Managing debt levels is crucial for economic stability. While borrowing can fuel growth, excessive debt accumulation can strain public finances, leading to potential risks such as higher debt servicing costs and vulnerability to economic shocks. Tanzania's government needs to balance borrowing with sustainable economic growth strategies to mitigate these risks effectively.
4. Investment in Development: The increase in both external and domestic debt over the year highlights Tanzania's efforts to invest in infrastructure, education, healthcare, and other developmental sectors. This investment is essential for long-term economic growth, job creation, and improving living standards. However, it requires prudent debt management and efficient use of borrowed funds to maximize developmental outcomes.
5. Global and Regional Economic Context: Tanzania's debt dynamics are also influenced by global and regional economic trends, including interest rates, global financial conditions, and regional economic integration efforts. Monitoring these external factors helps policymakers navigate borrowing decisions and manage economic risks effectively.

Shilling Depreciation: April 2024 Analysis

The Tanzania shilling (TZS) experienced notable depreciation against the US dollar in April 2024. This trend is critical for understanding the economic conditions and pressures facing Tanzania's foreign exchange market.

Key Points:

1. Monthly Exchange Rate:
   • In April 2024, the shilling traded at an average rate of TZS 2,584.69 per US dollar.
   • This represents a depreciation compared to the previous month (March 2024), when the average exchange rate was TZS 2,563.07 per US dollar.
2. Monthly Depreciation:
   • The shilling depreciated by approximately 0.84% from March 2024 to April 2024. This is calculated as:

Depreciation Rate= ((2,584.69−2,563.07)/2,563.07)100≈0.84%

3. Annual Exchange Rate Change:

• On an annual basis, the shilling experienced an 11.2% depreciation against the US dollar.
• This indicates a significant weakening of the shilling over the past year, suggesting sustained pressures on the currency.

Contributing Factors to Depreciation:

1. High Foreign Currency Demand:
   • The increased demand for US dollars, driven by global economic dynamics such as trade requirements, debt servicing, and capital flows, contributed to the depreciation of the Tanzanian shilling. This heightened demand typically puts pressure on the local currency's exchange rate.
2. Central Bank Intervention:
   • Despite efforts by the Central Bank to stabilize the foreign exchange market through interventions, such as selling USD 69.75 million in April 2024, the shilling still faced depreciation pressures. These interventions aim to manage volatility and ensure adequate supply of foreign currency, but sustained demand can outweigh such efforts.
3. Economic Implications:
   • The depreciation of the shilling has several economic implications:
     • Import Costs: Imports become more expensive, potentially leading to higher prices for imported goods and inflationary pressures.
     • Debt Servicing: If denominated in foreign currency, servicing external debt becomes more costly for businesses and the government.
     • Investor Sentiment: Continuous depreciation may impact investor confidence in the stability of the local currency and overall economic environment.
4. Longer-Term Trends:
   • The annual depreciation rate of 11.2% underscores broader challenges facing Tanzania's foreign exchange market over the past year. This trend suggests ongoing structural issues or external economic pressures that affect the shilling's value against major foreign currencies like the US dollar.

Hence, the depreciation of the Tanzania shilling in April 2024 highlights the complex interplay of economic factors impacting the country's foreign exchange market. Despite Central Bank interventions to stabilize the currency, sustained high demand for US dollars and other global economic dynamics have exerted downward pressure on the shilling's value. Monitoring exchange rate trends and understanding the underlying factors driving currency movements remain crucial for policymakers, businesses, and investors in Tanzania.

Liquidity Management and Foreign Exchange Dynamics in Tanzania: April 2024 Insights

Interbank Cash Market (IBCM)

The Interbank Cash Market (IBCM) is a platform where banks engage in short-term lending and borrowing to manage their shilling liquidity positions effectively. This market helps banks to ensure they have adequate liquidity to meet their daily operational needs and regulatory requirements.

Key Highlights from April 2024:

1. Increased Transaction Volume:
   • Total transaction value in the IBCM rose to TZS 1,768.4 billion in April 2024, up from TZS 1,635.2 billion in March 2024. This indicates a significant increase in interbank activity, suggesting higher liquidity movement within the banking sector.
2. Dominance of 7-Day Transactions:
   • Transactions with a 7-day maturity were the most prevalent, accounting for about 49.2% of the total market turnover. This preference highlights banks' reliance on short-term instruments to manage liquidity.
3. Decreasing Interest Rates:
   • The overall interest rate in the IBCM showed a decreasing trend for three consecutive months. In April 2024, the rate eased to 7.02%, down from 7.10% in March 2024 and 7.20% in February 2024. This gradual decline indicates a lower cost of borrowing in the interbank market, reflecting improved liquidity conditions or reduced demand for borrowing.

Interbank Foreign Exchange Market (IFEM)

The Interbank Foreign Exchange Market (IFEM) involves the trading of foreign currencies among banks, with a significant focus on meeting the demand for foreign exchange, particularly the US dollar.

Key Highlights from April 2024:

1. High Liquidity Demand for US Dollars:
   • There was a sustained high demand for US dollars in the IFEM, driven by global economic dynamics. Factors such as international trade requirements, remittances, and foreign investment flows typically influence this demand.
2. Central Bank Intervention:
   • To address the high demand, the Central Bank intervened by selling USD 69.75 million in the IFEM, while banks sold an additional USD 2.3 million. Such interventions are aimed at stabilizing the exchange rate and managing liquidity in the foreign exchange market.
3. Exchange Rate Movements:
   • The Tanzania shilling (TZS) traded at an average rate of TZS 2,584.69 per US dollar in April 2024, compared to TZS 2,563.07 per US dollar in March 2024. This represents a slight depreciation of the shilling against the dollar on a monthly basis.
4. Annual Depreciation:
   • On a year-over-year basis, the shilling depreciated by 11.2%, reflecting broader economic factors and possibly indicating increased demand for foreign currency or pressures on the local currency.

Summary

• The IBCM saw an increase in transaction volumes and a preference for short-term (7-day) borrowing, with a continuing decline in interest rates indicating better liquidity conditions.
• The IFEM experienced high demand for US dollars, prompting significant intervention by the Central Bank to stabilize the market. The shilling's depreciation both monthly and annually reflects ongoing challenges in the foreign exchange market.

Interbank Cash Market (IBCM) Insights

1. Increased Liquidity Activity:
   • The rise in transaction volumes from TZS 1,635.2 billion in March to TZS 1,768.4 billion in April suggests heightened activity in the interbank market. This could be due to various factors such as increased economic activity, greater need for liquidity management among banks, or adjustments in response to regulatory requirements.
2. Preference for Short-Term Borrowing:
   • The dominance of 7-day transactions, constituting about 49.2% of the total market turnover, indicates banks' preference for short-term liquidity solutions. This suggests a cautious approach by banks, likely aiming to maintain flexibility in managing their liquidity positions.
3. Declining Interest Rates:
   • The continuous decrease in the overall IBCM interest rate over three months, reaching 7.02% in April, reflects improving liquidity conditions or reduced borrowing pressures within the banking sector. This trend can be indicative of an overall easing of monetary conditions or effective liquidity management by the central bank.

Interbank Foreign Exchange Market (IFEM) Insights

1. High Demand for Foreign Currency:
   • The sustained high demand for US dollars points to significant foreign exchange needs, driven by global economic dynamics. This demand could stem from factors such as trade payments, debt servicing, or capital outflows.
2. Central Bank Intervention:
   • The Central Bank's intervention by selling USD 69.75 million shows its active role in stabilizing the foreign exchange market. Such interventions are necessary to manage exchange rate volatility and ensure adequate supply of foreign currency.
3. Shilling Depreciation:
   • The average exchange rate of TZS 2,584.69 per US dollar in April, compared to TZS 2,563.07 in March, indicates a slight monthly depreciation. An annual depreciation of 11.2% suggests ongoing pressure on the Tanzania shilling, which could be due to factors such as trade imbalances, inflationary pressures, or reduced foreign investment.

Economic Implications

1. Economic Activity and Stability:
   • The increased interbank transactions and declining interest rates in the IBCM suggest a stable and possibly expanding banking sector with improved liquidity conditions. This can be a positive sign for economic stability and growth.
2. Foreign Exchange Challenges:
   • The high demand for US dollars and the depreciation of the shilling indicate challenges in the foreign exchange market. This situation may reflect broader economic issues such as trade deficits, capital flight, or external debt obligations.
3. Policy and Market Responses:
   • The Central Bank's interventions in the IFEM and the observed trends in the IBCM highlight the importance of active monetary policy and market operations in managing liquidity and exchange rate stability.

Trends and Implications of Interest Rate Changes in Tanzania

Overview

Interest rates in Tanzania have shown notable changes over the period from April 2023 to April 2024. Both lending and deposit rates have exhibited varying trends, contributing to a narrowing interest rate spread, indicating a potential reduction in credit risk and borrowing costs.

Lending Rates

1. Overall Lending Rate:
   • The average lending rate decreased slightly from 15.91% in April 2023 to 15.42% in April 2024.
   • There was a general downtrend in the lending rate, despite some fluctuations, with a peak of 16.02% in June 2023.
2. Short-term Lending Rate (up to 1 year):
   • Started at 16.55% in April 2023 and decreased to 15.93% in April 2024.
   • The rate saw a peak of 17.10% in June 2023 before a steady decline.
3. Negotiated Lending Rate:
   • Negotiated rates showed minimal fluctuations, staying around 14%, with a slight increase to 13.95% in April 2024 from 13.65% in April 2023.

Deposit Rates

1. Savings Deposit Rate:
   • Increased from 1.60% in April 2023 to 2.79% in April 2024.
   • There was a noticeable jump from 1.69% in September 2023 to 2.60% in December 2023, followed by a gradual increase.
2. Overall Time Deposit Rate:
   • Rose from 6.79% in April 2023 to 7.44% in April 2024.
   • The rate peaked at 7.45% in December 2023.
3. 12-months Deposit Rate:
   • Increased from 7.70% in April 2023 to 8.21% in April 2024.
   • There was a significant rise to 8.98% in September 2023, which then decreased slightly.
4. Negotiated Deposit Rate:
   • Averaged around 9.33% in April 2024, starting from 9.46% in April 2023.
   • This rate saw some fluctuations but remained relatively stable, peaking at 9.59% in March 2024.

Interest Spread

• The spread between short-term interest rates (up to 1 year) decreased from 8.84 percentage points in April 2023 to 7.72 percentage points in April 2024.
• This narrowing spread indicates a reduction in the cost of borrowing and a decrease in credit risk within the market.

Monthly Interest Rate

The trend in the interest rates indicates a gradual easing of lending rates and an increase in deposit rates, which has led to a narrower spread between the two. This is a positive sign for the economy, suggesting improved market confidence and lower borrowing costs.

Economic Implications

1. Easing of Lending Rates:
   • The slight decrease in overall lending rates from 15.91% to 15.42% suggests that borrowing has become marginally cheaper over the year. This can stimulate economic activity as businesses and individuals find it more affordable to take out loans for investment and consumption.
2. Stable Negotiated Lending Rates:
   • The relatively stable negotiated lending rates around 14% indicate that banks' willingness to offer customized loan terms to certain borrowers has not changed significantly. This stability might reflect a consistent credit risk assessment and demand for loans among borrowers who negotiate terms.
3. Increase in Deposit Rates:
   • The rise in deposit rates, particularly the overall time deposit rate from 6.79% to 7.44% and the 12-month deposit rate from 7.70% to 8.21%, suggests that banks are competing more aggressively to attract deposits. Higher deposit rates can encourage savings, which can then be used by banks to fund more loans.
4. Narrowing Interest Spread:
   • The narrowing of the short-term interest spread from 8.84 percentage points to 7.72 percentage points indicates a reduction in the difference between what banks charge for loans and what they pay on deposits. This can signify several things:
     • Reduced Credit Risk: As the spread narrows, it may indicate that the perceived risk of lending has decreased, allowing banks to charge lower premiums on loans.
     • Competitive Market: Increased competition among banks could be driving both loan and deposit rates closer together, benefiting consumers with lower loan costs and higher returns on savings.
     • Economic Stability: A narrowing spread often reflects a more stable economic environment where the risk of defaults is lower.
5. Fluctuations in Rates:
   • The data show fluctuations in both lending and deposit rates over the months. These fluctuations can be influenced by various factors such as monetary policy changes, inflation expectations, and shifts in supply and demand for loans and deposits.

Interpretation for Different Stakeholders

1. For Borrowers:
   • The decrease in lending rates means lower borrowing costs, making it more attractive for businesses to invest in expansion and for consumers to finance large purchases.
2. For Savers:
   • Higher deposit rates, especially for time deposits, provide better returns on savings. This can incentivize saving over spending, potentially affecting consumer spending patterns.
3. For Banks:
   • The narrowing spread can squeeze profit margins, pushing banks to find efficiencies or new revenue sources. However, the stable and improving rates also suggest a healthier loan portfolio with lower default risks.
4. For Policymakers:
   • The overall trends might reflect the effectiveness of monetary policies aimed at stimulating economic growth while maintaining financial stability. Policymakers can use this data to adjust interest rates, reserve requirements, and other tools to maintain or improve economic conditions.
5. For Investors:
   • Understanding the trends in interest rates can help investors make informed decisions about where to allocate their resources, whether in banking stocks, bonds, or other financial instruments sensitive to interest rate changes.

Tanzania's GNI per Capita in the East African Context

Gross National Income (GNI) per Capita:
GNI per capita is a crucial economic indicator representing the average income of a country's residents. It is calculated by dividing the total national income by the population. For Tanzania, the GNI per capita is an important measure of economic performance and social well-being.

Current Status in Tanzania:
As per the World Bank's income classification, Tanzania falls under the low-income economies with a GNI per capita of $1,200. This indicates that there is significant room for economic growth and improvement in living standards.

Implications of High GNI per Capita:
Achieving a higher GNI per capita is essential for Tanzania's growth and prosperity for several reasons:

1. Reduced Poverty:
   A higher GNI per capita typically signifies that more income is being generated per person. This increased income can help reduce poverty levels, enabling individuals and families to afford better housing, nutrition, healthcare, and education. These factors are crucial for breaking the poverty cycle and improving overall quality of life.
2. Higher Living Standards:
   As residents earn more, their standard of living improves. This includes better access to essential services and amenities, leading to improved health and educational outcomes. Higher income levels also enable individuals to invest in better housing and consumer goods, further enhancing their quality of life.
3. Better Healthcare and Education:
   Increased income allows for more significant investment in healthcare and education. Improved healthcare services can reduce disease prevalence and increase life expectancy, while better educational opportunities can lead to a more skilled workforce, driving further economic growth.
4. Social Development:
   High GNI per capita supports broader social development objectives. It facilitates the implementation of social welfare programs, infrastructure development, and the delivery of basic services to all residents. This helps create a more inclusive society where everyone has the opportunity to prosper.
5. Sustainable Growth:
   Higher income levels contribute to sustainable economic growth. With more resources available, the government and private sector can invest in sustainable practices and technologies, promoting long-term economic stability and environmental sustainability.

Role of Coordinated Efforts:
To achieve and sustain a high GNI per capita, coordinated efforts from various stakeholders are essential:

• Government:
  The government plays a pivotal role in creating a conducive environment for economic growth. This includes implementing policies that promote investment, innovation, and fair trade. Additionally, public investments in infrastructure, education, and healthcare are critical.
• Corporate Sector:
  The private sector drives economic activity through job creation, innovation, and productivity improvements. Companies can contribute to higher GNI per capita by expanding their operations, investing in new technologies, and providing fair wages.
• Foreign Partners:
  International cooperation and foreign investment are vital for Tanzania's economic growth. Foreign partners can provide financial resources, technical expertise, and market access, helping to accelerate development.

Tanzania can work towards achieving a higher GNI per capita, ultimately fostering a more prosperous and equitable society.

According to the World Development Report 2024, Tanzania's GNI per capita is $1,200, placing it in the lower-middle-income category. Comparing Tanzania to its East African neighbors, we see the following:

• Kenya: GNI per capita is $2,170
• Uganda: GNI per capita is $930
• Rwanda: GNI per capita is $930
• Ethiopia: GNI per capita is $1,020

This data reveals that Tanzania's GNI per capita is higher than Uganda and Rwanda but lower than Kenya.

1. Kenya has the highest GNI per capita among these East African countries, indicating better average income levels and potentially higher living standards.
2. Tanzania follows Kenya but has a GNI per capita lower than half of Kenya's, reflecting significant room for economic improvement.
3. Uganda and Rwanda have similar GNI per capita values, both lower than Tanzania, indicating more significant economic challenges in these countries compared to Tanzania.

Implications for Tanzania Economy

1. Economic Growth: Efforts to increase GNI per capita can lead to reduced poverty, improved living standards, better healthcare and education, and overall social development.
2. Government and Policy: Coordinated efforts from the Tanzanian government, corporate sector, and international partners are crucial for economic growth and sustaining high GNI per capita.
3. Development Focus: Investment in infrastructure, social welfare programs, and basic services will be essential in leveraging Tanzania's position relative to its neighbors to foster more inclusive and sustainable growth.

Hence, Tanzania, while better positioned than Uganda and Rwanda, has significant potential for growth to match or surpass Kenya's economic metrics, requiring focused development strategies and coordinated efforts.

References:

• World Bank, World Development Report 2024: “Economic Growth in Middle-Income Countries will explore the challenges of economic growth in middle-income countries”.
• World Bank's income classification and GNI per capita data for Tanzania.

Dar es Salaam's Startup Ecosystem: Driving Tanzania’s Innovation and Economic Growth

In the 2024 Global Startup Ecosystem Index, Dar es Salaam, Tanzania is highlighted as a notable ecosystem, especially in the context of African and East African cities for startups. Dar es Salaam is ranked 490th globally with a score of 0.507. In the previous year, Dar es Salaam, Tanzania, was ranked 536th globally in the Startup Ecosystem Index​. This positioning reflects positive momentum within Tanzania's startup ecosystem, indicating growth and potential in this region.

Positions of Dar es Salaam and other East African cities in the Startup Ecosystem Index for the years 2023 and 2024:

• Dar es Salaam, Tanzania: Improved by 46 positions, indicating significant progress and positive momentum in the startup ecosystem.
• Nairobi, Kenya: Improved by 15 positions, maintaining its strong position as a leading startup hub in East Africa.
• Kampala, Uganda: Improved by 10 positions, showing steady growth in its startup ecosystem.
• Addis Ababa, Ethiopia: Improved by 30 positions, reflecting considerable advancement and increasing recognition in the global startup landscape.

Dar es Salaam's improvement is notable compared to other East African cities, highlighting its growing importance and potential as a startup hub in the region.

The report also places Dar es Salaam among the top cities from unranked countries that have shown significant improvement. Specifically, Dar es Salaam leads along with other cities like Luanda and Tashkent, which are within the top 600 globally. This ranking underscores the city's increasing relevance and attractiveness for startup activities within Africa and East Africa.

In terms of the broader regional context, Dar es Salaam's ranking shows it is on an upward trajectory, potentially becoming a more significant hub for innovation and entrepreneurship in the coming years.

The Global Startup Ecosystem Index 2024 provides insights into Tanzania's entrepreneurship and economic development, particularly focusing on Dar es Salaam:

1. Global and Regional Ranking: Dar es Salaam is ranked 490th globally and is one of the top cities from unranked countries showing significant momentum. This reflects the city’s growing prominence in the global startup landscape.
2. Economic Development: The report highlights Tanzania’s positive trajectory in entrepreneurship, driven by various initiatives and an improving business environment. This progress is indicative of broader economic development efforts within the country. The momentum in Dar es Salaam is a sign of increasing economic activities and a favorable climate for innovation and startups.
3. Support for Startups: The city benefits from a range of supportive measures aimed at fostering entrepreneurship. These include public and private sector initiatives, international partnerships, and efforts to create a conducive environment for startups. This supportive ecosystem is crucial for sustained economic growth and the development of a robust entrepreneurial culture.
4. Entrepreneurial Ecosystem: Dar es Salaam's rise in the rankings demonstrates the city's potential to become a significant startup hub in East Africa. The city’s ecosystem is characterized by a mix of local talent, emerging tech industries, and increasing access to funding and resources for startups.

Hence, Dar es Salaam's positioning in the Global Startup Ecosystem Index underscores Tanzania's commitment to fostering entrepreneurship and economic development, positioning the city as a key player in the regional and global startup ecosystem.

Source: Global Startup Ecosystem Index 2024