Athari za Kushuka kwa Thamani ya Shilingi kwenye Uchumi wa Tanzania

Kupungua kwa thamani ya shilingi ya Tanzania dhidi ya dola ya Marekani kunaweza kuwa na athari kadhaa kwenye uchumi.

Kushuka kwa Thamani kwa Mwezi

Viwango vya Kubadilisha Fedha:

• Aprili 2024: TZS 2,584.69 kwa dola moja ya Marekani
• Mei 2024: TZS 2,599.05 kwa dola moja ya Marekani

Hii inaonyesha kwamba shilingi ilipungua kwa takriban 0.56% kwa mwezi mmoja.

Kushuka kwa Thamani kwa Mwaka

Kiwango cha Kubadilisha Fedha Mwaka Mmoja Uliopita:

• Mei 2023: Takriban TZS 2,328.24 kwa dola moja ya Marekani (imehesabiwa awali)

Hii inaonyesha shilingi ilipungua kwa 11.6% kwa mwaka mmoja.

Athari za Kiuchumi

1. Mfumuko wa Bei:
   • Gharama za Uagizaji: Kadri shilingi inavyopungua thamani, gharama za bidhaa zinazoagizwa nje huongezeka. Kwa mfano, ikiwa bidhaa inagharimu USD 100:
     • Mei 2023: TZS 232,824
     • Mei 2024: TZS 259,905
   • Kuongezeka kwa gharama hizi za uagizaji kunaweza kusababisha bei za juu kwa watumiaji, na kuchangia mfumuko wa bei.
2. Ushindani wa Bidhaa za Nje:
   • Shilingi dhaifu inaweza kufanya bidhaa za Tanzania kuwa nafuu na kushindana zaidi katika masoko ya kimataifa. Kwa mfano, ikiwa bidhaa imeuzwa kwa TZS 1,000,000:
     • Mei 2023: USD 429.57
     • Mei 2024: USD 384.73
   • Kushuka kwa bei hii kwa dola za Marekani kunaweza kuongeza mahitaji ya bidhaa za Tanzania nje ya nchi, na kuongeza mapato ya nje.
3. Deni la Nje:
   • Huduma ya Deni: Ikiwa Tanzania ina deni lililowekwa kwa fedha za kigeni, kulihudumia deni hili kunakuwa ghali zaidi. Kwa mfano, ikiwa nchi ina deni la USD bilioni 1:
     • Mei 2023: TZS 2.328 trilioni
     • Mei 2024: TZS 2.599 trilioni
   • Kuongezeka kwa mzigo huu kunaweza kuathiri bajeti ya serikali na afya ya kifedha.
4. Utalii:
   • Mvuto: Shilingi dhaifu inaweza kufanya Tanzania kuwa kivutio zaidi kwa watalii, kwani fedha zao za kigeni zitakuwa na uwezo mkubwa wa ununuzi. Kwa mfano, USD 1,000:
     • Mei 2023: TZS 2,328,240
     • Mei 2024: TZS 2,599,050
   • Hii inaweza kuongeza mapato ya utalii, na kunufaisha uchumi.
5. Uwekezaji:
   • Uwekezaji wa Kigeni: Kupungua kwa thamani kunaweza kuathiri uwekezaji wa kigeni. Kwa upande mmoja, mali za ndani zinapokuwa nafuu zinaweza kuwavutia wawekezaji wa kigeni wanaotafuta fursa za bei nafuu. Kwa upande mwingine, wasiwasi kuhusu kushuka zaidi kwa thamani unaweza kuzuia uwekezaji kutokana na hasara zinazoweza kutokea kwenye thamani ya fedha.

Hivyo, kupungua kwa thamani ya shilingi ya Tanzania, kama inavyoonyeshwa na kushuka kwa 0.56% kwa mwezi na 11.6% kwa mwaka, kuna athari nyingi za kiuchumi:

• Kuongezeka kwa gharama za uagizaji kunakosababisha mfumuko wa bei.
• Kuimarisha ushindani wa bidhaa za nje kutokana na bei za chini kwa fedha za kigeni.
• Kuongezeka kwa mzigo wa deni la nje.
• Kuongezeka kwa mvuto wa Tanzania kama eneo la utalii.
• Athari mchanganyiko kwenye uwekezaji wa kigeni, kulingana na mitazamo ya wawekezaji kuhusu utulivu wa fedha.

Mambo haya kwa pamoja yanaathiri maendeleo ya uchumi wa Tanzania, na kuathiri maamuzi ya sera na mikakati ya kiuchumi.

The depreciation of the Tanzania shilling against the US dollar can have several implications for the economy.

Monthly Depreciation

Exchange Rates:

• April 2024: TZS 2,584.69 per US dollar
• May 2024: TZS 2,599.05 per US dollar

This indicates the shilling depreciated by approximately 0.56% in one month.

Annual Depreciation

Exchange Rate One Year Ago:

• May 2023: Approximately TZS 2,328.24 per US dollar (calculated previously)

This shows the shilling depreciated by 11.6% over one year.

Economic Implications

1. Inflation:
   • Import Costs: As the shilling depreciates, the cost of imported goods increases. For example, if a product costs USD 100:
     • May 2023: TZS 232,824
     • May 2024: TZS 259,905
   • This increase in import costs can lead to higher prices for consumers, contributing to inflation.
2. Export Competitiveness:
   • A weaker shilling can make Tanzania exports cheaper and more competitive in international markets. For instance, if a product is priced at TZS 1,000,000:
     • May 2023: USD 429.57
     • May 2024: USD 384.73
   • This price reduction in USD terms can boost demand for Tanzania products abroad, potentially increasing export revenue.
3. Foreign Debt:
   • Debt Servicing: If Tanzania has foreign-denominated debt, servicing this debt becomes more expensive. For example, if the country has USD 1 billion in debt:
     • May 2023: TZS 2.328 trillion
     • May 2024: TZS 2.599 trillion
   • This increased burden can strain the government’s budget and fiscal health.
4. Tourism:
   • Attractiveness: A weaker shilling can make Tanzania a more attractive destination for tourists, as their foreign currency will have greater purchasing power. For instance, USD 1,000:
     • May 2023: TZS 2,328,240
     • May 2024: TZS 2,599,050
   • This can lead to increased tourism revenue, benefiting the economy.
5. Investment:
   • Foreign Investment: Depreciation can impact foreign investment. On one hand, cheaper local assets may attract foreign investors looking for bargains. On the other hand, uncertainty about further depreciation might deter investment due to potential losses in currency value.

Hence, the depreciation of the Tanzania shilling, evidenced by the 0.56% monthly and 11.6% annual decline, has multifaceted economic implications:

• Higher import costs leading to inflation.
• Improved export competitiveness due to lower prices in foreign currency terms.
• Increased burden of foreign-denominated debt.
• Enhanced attractiveness of Tanzania as a tourist destination.
• Mixed effects on foreign investment, depending on investor perceptions of currency stability.

These factors collectively impact Tanzania's economic development, influencing policy decisions and economic strategies.

The increase in Tanzania's national debt, particularly external debt, has a significant relationship with the depreciation of the Tanzania shilling. This relationship has various economic implications, including higher debt servicing costs, potential inflationary pressures, and impacts on economic growth and investment. Managing these factors is crucial for maintaining economic stability and fostering sustainable development.

National Debt Increase

• Current Debt Level: The national debt of Tanzania was USD 43,119.8 million at the end of May 2024, with an increase driven mainly by a rise in external debt, which accounts for 72.4 percent of the total debt.
• External Debt: External debt stock increased by 1 percent month-on-month to USD 31,212.4 million at the end of May 2024.

Depreciation of the Tanzania Shilling

• Shilling Depreciation: The Tanzania shilling depreciated by 11.6 percent against the US dollar over the year, with an average exchange rate of TZS 2,599.05 per US dollar in May 2024 compared to TZS 2,584.69 per US dollar in the preceding month.

Economic Relationship

1. Debt and Currency Value:
   • Increased Debt: Higher national debt, especially external debt, increases the demand for foreign currency as the country needs to service its debt in foreign currencies. This can lead to depreciation of the local currency if the demand for foreign currency exceeds supply.
   • Investor Confidence: Rising debt levels can negatively affect investor confidence, leading to reduced foreign investment and capital outflows, which can further weaken the local currency.
2. Debt Servicing Costs:
   • Higher Costs: As the shilling depreciates, the cost of servicing external debt in foreign currency terms increases. This can lead to higher fiscal deficits as more local currency is needed to meet debt obligations, potentially leading to more borrowing and a vicious cycle of debt and depreciation.
   • Fiscal Pressure: Increased debt servicing costs can strain the government’s budget, diverting funds from essential development projects and social services.

Economic Implications

1. Inflation:
   • Imported Inflation: Depreciation of the shilling makes imports more expensive, leading to higher prices for imported goods and services. This can contribute to overall inflation in the economy, eroding purchasing power and increasing the cost of living for Tanzanian.
   • Cost-Push Inflation: Higher import costs can lead to cost-push inflation, where businesses pass on the higher costs of imported inputs to consumers.
2. Economic Growth:
   • Investment Impact: A weaker currency and higher debt levels can discourage foreign and domestic investment due to increased uncertainty and higher costs of doing business.
   • Export Competitiveness: On the positive side, a weaker shilling can make Tanzania exports cheaper and more competitive internationally, potentially boosting export revenues and helping to offset some of the negative impacts.
3. Balance of Payments:
   • Widening Deficit: Depreciation can exacerbate the current account deficit if the increase in the cost of imports outweighs the gains from increased export competitiveness.
   • Reserves Depletion: To stabilize the currency, the central bank may use foreign exchange reserves, which can deplete the reserves and further undermine economic stability.

Figures 

• Debt Stock: USD 43,119.8 million (May 2024)
• External Debt: USD 31,212.4 million (May 2024)
• Shilling Exchange Rate: TZS 2,599.05 per USD (May 2024)
• Depreciation: 11.6 percent annually

Global Economic Situation

• Growth and Inflation: Global growth has improved, driven by better-than-expected performance in advanced and emerging economies. Inflation is declining but remains above pre-pandemic levels due to eased policy tightening by central banks and moderating energy and food prices.

Domestic Economic Performance

1. Inflation
   • Headline Inflation: Remained within the target of 5 percent, at 3.1 percent in May 2024. Core inflation was at 3.6 percent.
   • Food Inflation: Decreased to 1.6 percent from 8.5 percent a year earlier, indicating food adequacy in markets despite rising transportation costs.
   • Energy, Fuel, and Utilities: Inflation increased to 9.8 percent in May 2024 from 9.3 percent in April 2024 due to higher prices of wood charcoal, firewood, and domestic pump prices.
2. Money and Credit
   • Money Supply: Extended broad money supply (M3) grew by 12.2 percent in May 2024, driven by private sector credit.
   • Credit to Private Sector: Growth was at 16.5 percent in May 2024, with agriculture, manufacturing, and building and construction sectors showing the highest growth.
3. Interest Rates
   • Lending Rates: Overall lending rate decreased to 15.23 percent in May 2024 from 15.42 percent in April 2024. The negotiated lending rate decreased to 12.68 percent from 13.95 percent.
   • Deposit Rates: Overall deposit rate increased to 8.05 percent from 7.44 percent, indicating a narrowing interest spread.
4. Financial Markets
   • Government Securities: Treasury bills and bonds auctions were oversubscribed, with the weighted average yield for Treasury bills easing to 7.86 percent from 10.33 percent. The yield for 15-year Treasury bonds increased to 15.16 percent from 13.66 percent in February 2024.
   • Interbank Cash Market: Total value of transactions in May 2024 was TZS 1,581.2 billion, with the overall IBCM interest rate increasing to 7.34 percent from 7.02 percent.
   • Interbank Foreign Exchange Market: Improved with USD 10.3 million traded in May 2024 compared to USD 2.3 million in April 2024. The shilling depreciated by 11.6 percent annually.
5. Government Budgetary Operations
   • Revenue and Expenditure: Domestic revenue for April 2024 was TZS 2,119 billion, equivalent to 94.1 percent of the target. Government expenditure was TZS 2,480.4 billion, focusing on priority spending with TZS 1,882.8 billion for recurrent expenditure and TZS 597.5 billion for development expenditure.
6. Debt Developments
   • National Debt: Total debt stock was USD 43,119.8 million at the end of May 2024, with external debt accounting for 72.4 percent. External debt increased by 1 percent month-on-month to USD 31,212.4 million.

Economic Performance in Zanzibar

• Inflation: Inflation remained within targets.
• Government Budgetary Operations: Focused on maintaining fiscal stability.
• External Sector Performance: Continued positive trends in trade and tourism.

These key economic indicators highlight the current economic conditions and trends in Tanzania, indicating a stable inflation environment, growing money supply, improving financial market activities, and manageable debt levels. The government’s budgetary operations focus on revenue collection and expenditure control, with an emphasis on development projects and fiscal stability.

The key economic indicators from the document suggest several aspects of Tanzania's economic development

The indicators point to a generally positive trajectory for Tanzania's economic development, characterized by stable inflation, growing money supply and credit, effective fiscal management, and a manageable debt situation. The emphasis on agriculture, infrastructure development, and financial market stability aligns with sustainable economic growth and development goals. Continued focus on these areas, coupled with measures to enhance the business environment and investment climate, will be crucial for maintaining and accelerating this growth trajectory.

1. Stable Inflation Environment

• Low Inflation: The headline inflation rate is maintained within the country’s target of 5 percent, standing at 3.1 percent in May 2024. This stability indicates effective fiscal and monetary policies, ensuring price stability and protecting the purchasing power of consumers.
• Controlled Food Prices: The significant reduction in food inflation from 8.5 percent to 1.6 percent over a year reflects an adequate supply of food, suggesting improvements in agricultural productivity and distribution.

2. Positive Money and Credit Growth

• Growth in Money Supply: The 12.2 percent growth in extended broad money supply (M3) signals a healthy demand for money driven by economic activities. This growth is essential for supporting business operations and investments.
• Private Sector Credit Expansion: The 16.5 percent growth in credit to the private sector, particularly in agriculture, manufacturing, and construction, demonstrates confidence in these sectors and their potential to drive economic growth. The focus on agriculture is crucial for an agrarian economy like Tanzania.

3. Improving Financial Market Conditions

• Government Securities: Oversubscription in Treasury bills and bonds auctions indicates strong investor confidence in government securities, providing the government with necessary funds for development projects.
• Interbank Market Stability: Active interbank cash market transactions and a stable interbank interest rate suggest liquidity stability in the banking sector, fostering a reliable financial environment for businesses.

4. Government Budgetary Operations and Fiscal Management

• Revenue Collection: The government’s ability to collect 94.1 percent of its revenue target highlights effective tax policies and administrative measures. This revenue is essential for funding public services and infrastructure.
• Expenditure Control: The streamlined government expenditure, focusing on priority spending, indicates prudent fiscal management. The allocation of significant funds to development expenditure reflects a commitment to long-term economic growth.

5. Manageable Debt Levels

• Sustainable Debt Stock: The national debt stock, with a marginal increase, and external debt being managed effectively, suggests that Tanzania is maintaining debt at sustainable levels. Effective debt management is critical for avoiding fiscal crises and ensuring economic stability.

6. Sectoral Developments

• Agricultural Sector: The focus on agriculture through increased credit and improved food supply is vital for an economy where a large portion of the population depends on agriculture for livelihood.
• Tourism and Trade: Improved receipts from tourism and agricultural exports contribute positively to the external sector performance, supporting foreign exchange reserves and economic stability.

External Debt

In May 2021, Tanzania's external debt stood at 75,367,435.00 million TZS. By April 2023, this figure increased to 81,239,648.00 million TZS, marking significant growth over nearly two years. However, by May 2024, external debt slightly decreased to 78,967,372.00 million TZS, reflecting a 3% decline over the past month but a 5% increase over the previous year.

• May 2021: 75,367,435.00 million TZS
• April 2023: 81,239,648.00 million TZS
• May 2024: 78,967,372.00 million TZS
  • 1 Month Change: -3% (decrease from April 2023 to May 2024)
  • 1 Year Change: +5% (increase from May 2023 to May 2024)

Domestic Debt

On the domestic debt front, the figures also show growth over time but at a more modest pace. In May 2021, domestic debt was recorded at 28,339,200.00 million TZS. By April 2023, it had risen to 31,339,300.00 million TZS, and by May 2024, it slightly decreased to 30,969,400.00 million TZS. This represents a 1% decrease over the past month but a notable 9% increase over the past year.

• May 2021: 28,339,200.00 million TZS
• April 2023: 31,339,300.00 million TZS
• May 2024: 30,969,400.00 million TZS
  • 1 Month Change: -1% (decrease from April 2023 to May 2024)
  • 1 Year Change: +9% (increase from May 2023 to May 2024)

Total Debts

When combining both external and domestic debts, the total debts for Tanzania have been substantial. In May 2021, the total debts amounted to 103,706,635.00 million TZS. This figure increased to 112,578,948.00 million TZS by April 2023. By May 2024, the total debts had slightly decreased to 109,936,772.00 million TZS, indicating a 2% decline over the last month but a 6% increase compared to the previous year.

• May 2021: 103,706,635.00 million TZS
• April 2023: 112,578,948.00 million TZS
• May 2024: 109,936,772.00 million TZS
  • 1 Month Change: -2% (decrease from April 2023 to May 2024)
  • 1 Year Change: +6% (increase from May 2023 to May 2024)

Key Observations

• External debt shows a slight decline over the past month but has increased over the year.
• Domestic debt has slightly decreased in the past month but shows significant growth over the year.
• Total debts have decreased slightly in the last month but have increased overall over the past year.

Tanzania's debts over the specified periods

Tanzania is experiencing a gradual increase in its debt levels over the years, with short-term measures in place to manage or reduce debts temporarily. The overall trend of increasing debt highlights the importance of sustainable debt management strategies to ensure economic stability and growth.

1. Overall Debt Increase: The total debt of Tanzania has generally increased from May 2021 to May 2024. Despite slight monthly fluctuations, the overall trend shows a significant rise in debt levels over the three-year period.
2. Monthly Changes:
   • In the last month (from April 2023 to May 2024), there is a slight decrease in both external and domestic debts, resulting in a 2% reduction in total debts. This suggests some short-term measures might have been taken to reduce the debt or perhaps there was a payoff or restructuring of existing debts.
3. Annual Changes:
   • Over the last year (from May 2023 to May 2024), both external and domestic debts have increased. External debt rose by 5%, while domestic debt saw a more substantial increase of 9%. This indicates ongoing borrowing or accumulation of debt, possibly to finance projects or manage economic challenges.
4. Comparative Analysis:
   • External debt saw a slight decrease in the last month (-3%), indicating a potential focus on managing or reducing foreign obligations.
   • Domestic debt also showed a minor decrease (-1%) over the last month, which might reflect efforts to manage internal borrowing.
5. Debt Management:
   • The data reflects that while there are efforts to manage debt in the short term (as seen by the monthly decreases), the long-term trend indicates growing debt. This could be due to various factors such as financing for development projects, budget deficits, or economic adjustments.
6. Economic Implications:
   • The increase in debt over the year might imply that Tanzania is investing in long-term growth initiatives or facing fiscal pressures that necessitate borrowing.
   • The management of debt (both reductions and increases) indicates a balancing act between addressing immediate financial needs and managing long-term financial health.

Impact on the Economy and the Average Citizen:

The continued increase in national debt can significantly harm the economy and the average citizen by increasing taxes, reducing public services, causing inflation, crowding out private investment, and putting pressure on the exchange rate. Effective debt management and prudent fiscal policies are essential to mitigate these risks and ensure sustainable economic development that benefits all citizens.

1. Higher Taxes and Reduced Public Spending:
   • Debt Servicing Costs: As national debt increases, the government must allocate a larger portion of its budget to service the debt (interest payments and principal repayments). This can lead to higher taxes or reduced spending on essential public services such as healthcare, education, and infrastructure, directly affecting the quality of life of the average citizen.
   • Example: If a significant portion of the 6% annual increase in total debt is financed by domestic borrowing, the government might need to increase taxes to meet its debt obligations, reducing disposable income for households.
2. Inflation and Cost of Living:
   • Monetary Policy: To manage rising debt levels, the government may resort to printing more money, leading to inflation. Increased inflation reduces the purchasing power of the currency, making goods and services more expensive for the average citizen.
   • Example: If the government increases the money supply to manage the 9% annual rise in domestic debt, it could lead to inflation, increasing the cost of living.
3. Crowding Out Private Investment:
   • Interest Rates: High levels of domestic borrowing can lead to higher interest rates as the government competes with the private sector for available funds. Higher interest rates can deter private investment and borrowing, stifling economic growth and job creation.
   • Example: The 1% monthly decrease in domestic debt suggests a temporary relief, but the 9% annual increase implies a longer-term trend of crowding out private investment, affecting business growth and employment opportunities.
4. Exchange Rate Pressure:
   • External Debt Repayments: Increased external debt requires repayment in foreign currencies. This can put pressure on the country’s foreign exchange reserves, potentially leading to a depreciation of the local currency. A weaker currency increases the cost of imports, contributing to higher inflation.
   • Example: The 5% annual increase in external debt indicates rising foreign obligations, which can strain Tanzania’s foreign exchange reserves and depreciate the TZS, making imported goods more expensive for citizens.
5. Reduced Social Services and Development Projects:
   • Budget Constraints: Increased debt servicing limits the government’s ability to fund social services and development projects, which are crucial for improving living standards and reducing poverty.
   • Example: With a 6% annual increase in total debt, the government may cut funding for social programs, affecting access to education, healthcare, and social security for the average citizen.

Economic Implications and Analysis

Tanzania's debt development indicates a balanced approach to leveraging debt for economic development while taking short-term steps to manage debt levels. The investments supported by this borrowing are likely aimed at fostering long-term growth, improving infrastructure, and enhancing public services. However, maintaining debt sustainability through effective fiscal policies and strategic investments remains critical to ensuring that the economic benefits of borrowing are realized without compromising future financial stability.

1. Economic Growth and Development:
   • Rising Debt Levels: The overall increase in debt from May 2021 to May 2024 indicates significant borrowing, which can be associated with efforts to finance large-scale infrastructure projects, enhance public services, and stimulate economic growth. Such investments are crucial for long-term development but need to be managed prudently to avoid unsustainable debt levels.
   • Infrastructure and Services: Increased borrowing might be directed toward developing critical infrastructure like roads, bridges, energy projects, and improving healthcare and education. These investments can boost productivity, attract foreign investments, and improve living standards.
2. Short-Term Debt Management:
   • Monthly Decrease: The 1-month decline in both external (-3%) and domestic debt (-1%) suggests short-term measures to reduce debt levels. This could involve paying off or restructuring existing loans, reflecting a focus on maintaining fiscal stability and avoiding excessive debt accumulation.
3. Long-Term Fiscal Strategy:
   • Annual Increase: The annual rise in both external (+5%) and domestic (+9%) debt indicates ongoing borrowing to support economic activities. While this supports growth, it also highlights the need for a robust fiscal strategy to ensure that debt levels remain sustainable and do not burden future economic development.
4. Domestic vs. External Debt:
   • Domestic Debt Increase: The higher percentage increase in domestic debt (9% over the year) compared to external debt (5% over the year) suggests a strategy to rely more on internal sources of financing. This can reduce dependency on foreign loans and mitigate exposure to exchange rate risks and international market fluctuations.
   • External Debt Management: The slight decrease in external debt over the last month indicates efforts to manage foreign obligations, potentially through negotiations for better terms or prioritizing repayments.
5. Economic Stability and Risks:
   • Debt Servicing: Increased debt levels imply higher future debt servicing costs. Effective management of these costs is essential to avoid diverting funds from essential services and development projects.
   • Sustainability: The 6% annual increase in total debt underscores the importance of monitoring debt sustainability. It is crucial to ensure that the borrowed funds are used efficiently to generate economic returns that can support repayment and further growth.

Interbank Cash Market (IBCM)

The Interbank Cash Market (IBCM) is a crucial platform where banks trade shilling liquidity among themselves:

• Transactions in May 2024: The total value of transactions in the IBCM during May 2024 was TZS 1,581.2 billion, which is a decrease from the TZS 1,768.4 billion traded in April 2024.
• Transaction Duration: The 7-day transactions were the most prevalent, making up 58.5 percent of the total market turnover.
• Interest Rates: The overall interest rate in the IBCM saw an increase, rising to 7.34 percent in May 2024 from 7.02 percent in April 2024.

Interbank Foreign Exchange Market (IFEM)

The Interbank Foreign Exchange Market (IFEM) is where banks trade foreign currencies, and it showed notable activity in May 2024:

• Market Participants: Only commercial banks participated in the IFEM during May 2024.
• Volume of Trades: The banks sold a total of USD 10.3 million in May 2024, a significant increase from the USD 2.3 million traded in April 2024.
• Exchange Rate: The Tanzanian shilling (TZS) traded at an average rate of TZS 2,599.05 per US dollar in May 2024, compared to TZS 2,584.69 per US dollar in April 2024.
• Annual Depreciation: On an annual basis, the shilling depreciated by 11.6 percent.

These markets are vital in maintaining liquidity and foreign exchange stability in the banking sector, with fluctuations in transaction volumes and interest rates reflecting broader economic trends.

The Interbank Cash Market (IBCM) and Interbank Foreign Exchange Market (IFEM) provide significant insights into Tanzania's economic development

The activity in the IBCM and IFEM points to a dynamic but challenging economic environment in Tanzania, with significant roles played by the banking sector, tourism, and agriculture in shaping economic outcomes.

Interbank Cash Market (IBCM)

1. Liquidity Management:
   • Decrease in Transactions: The reduction in the total value of transactions from TZS 1,768.4 billion to TZS 1,581.2 billion suggests changes in liquidity demand among banks. This could be due to various factors, including shifts in economic activity, government policies, or changes in reserve requirements.
   • Interest Rate Increase: The rise in the overall IBCM interest rate from 7.02 percent to 7.34 percent indicates a tightening of liquidity. Higher interest rates can signal increased demand for short-term funds or a response to inflationary pressures.
2. Economic Activity:
   • Dominance of 7-day Transactions: The predominance of 7-day transactions, accounting for 58.5 percent of total market turnover, reflects banks' preference for short-term liquidity arrangements. This could point to cautious financial strategies amidst economic uncertainties.

Interbank Foreign Exchange Market (IFEM)

1. Foreign Exchange Stability:
   • Increased Trade Volume: The significant rise in USD traded (from USD 2.3 million to USD 10.3 million) suggests heightened foreign exchange activity, likely driven by seasonal factors such as tourism and agricultural exports. This increase indicates a more dynamic foreign exchange market and improved foreign currency liquidity.
   • Exchange Rate Fluctuation: The slight depreciation of the shilling from TZS 2,584.69 to TZS 2,599.05 per US dollar in one month, and the annual depreciation of 11.6 percent, highlight pressures on the local currency. This could be due to trade imbalances, inflation, or external economic conditions.
2. Economic Growth Indicators:
   • Tourism and Agriculture: The improvement in the IFEM due to seasonal receipts from tourism and agricultural exports underscores the importance of these sectors to Tanzania's economy. Strong performance in these areas supports foreign exchange reserves and overall economic stability.

Overall Economic Implications

1. Economic Health:
   • The trends in IBCM and IFEM reflect ongoing adjustments in the banking sector to maintain liquidity and manage foreign exchange risks. These adjustments are crucial for economic stability and growth.
   • The increase in interest rates and the depreciation of the shilling suggest inflationary pressures and potential challenges in maintaining purchasing power.
2. Sectoral Contributions:
   • The reliance on tourism and agriculture for foreign exchange highlights these sectors' roles in economic development. Policies aimed at boosting these sectors could further enhance economic stability and growth.
3. Policy Implications:
   • The data suggests a need for careful monetary and fiscal policies to manage liquidity, control inflation, and stabilize the exchange rate.
   • Encouraging diversification of the economy and strengthening key sectors like tourism and agriculture can provide a more resilient economic foundation.

Boosting Exports, Tourism, and Foreign Investment Amidst Growing Imports

The external sector performance in Tanzania reflects the country's interactions with the global economy through trade, foreign direct investments, and other international economic activities. Here are the key details based on the document:

Trade Performance

• Exports and Imports:
  • Total Exports: The value of exports of goods and services in May 2024 was USD 11,020.2 million, an increase from USD 10,419.8 million in May 2023. This growth is driven by higher receipts from tourism and non-traditional exports.
  • Total Imports: The value of imports of goods and services in May 2024 stood at USD 14,152.7 million, slightly up from USD 13,849.5 million in May 2023. The increase is largely attributed to higher imports of intermediate and consumer goods.

Balance of Payments

• Current Account Deficit: The current account deficit widened to USD 3,132.5 million in May 2024 from USD 2,963.7 million in May 2023. The widening deficit is primarily due to a higher increase in imports relative to exports.
  • Exports of Goods: USD 6,742.8 million in May 2024, compared to USD 6,205.1 million in May 2023.
  • Imports of Goods: USD 10,215.8 million in May 2024, compared to USD 9,771.2 million in May 2023.

Tourism Receipts

• Tourism: Receipts from tourism, a major foreign exchange earner, increased to USD 3,051.5 million in May 2024 from USD 2,853.4 million in May 2023. This growth is attributed to an increase in the number of tourist arrivals and higher average spending per tourist.

Foreign Exchange Reserves

• Foreign Reserves: The Bank of Tanzania maintained foreign exchange reserves equivalent to about 4.5 months of import cover, which is above the country's benchmark of 4 months. This level of reserves is crucial for ensuring stability in the exchange rate and for covering import needs.

Exchange Rate

• Shilling Exchange Rate: The Tanzania shilling depreciated by 11.6 percent against the US dollar over the year, trading at an average of TZS 2,599.05 per US dollar in May 2024 compared to TZS 2,584.69 per US dollar in the preceding month.

Foreign Direct Investment (FDI)

• FDI Inflows: The country continued to attract foreign direct investments, particularly in mining, manufacturing, and tourism sectors, contributing positively to the external sector performance and economic growth.

Hence, The external sector performance highlights Tanzania's active engagement in international trade, with notable increases in both exports and imports. The growth in tourism receipts and foreign direct investments indicates a positive outlook for the country’s foreign exchange earnings. The current account deficit, while widening, is managed with adequate foreign exchange reserves. The depreciation of the shilling, however, poses challenges but is mitigated by the reserves maintained by the Bank of Tanzania.

The external sector performance reflects a dynamic and growing Tanzania economy

The external sector performance reflects a dynamic and growing Tanzania economy with increasing engagement in global trade. The positive trends in exports and tourism, coupled with sustained FDI inflows, demonstrate robust economic activity and growth potential. However, the widening current account deficit and shilling depreciation highlight the need for balanced policies to support export growth, manage import levels, and maintain currency stability.

1. Growth in Exports and Imports

• Exports Increase: The growth in total exports to USD 11,020.2 million in May 2024 from USD 10,419.8 million in May 2023 indicates a positive trend in the country's export capacity. This growth, driven by tourism and non-traditional exports, reflects Tanzania's ability to diversify its export base and enhance its foreign exchange earnings.
• Imports Increase: The rise in imports to USD 14,152.7 million from USD 13,849.5 million indicates robust domestic demand, likely fueled by economic activities and development projects requiring intermediate and consumer goods. While this contributes to a trade deficit, it also suggests an expanding economy that is investing in growth.

2. Current Account Deficit

• Widening Deficit: The increase in the current account deficit to USD 3,132.5 million from USD 2,963.7 million suggests that the country is importing more than it exports. While this can be a sign of robust domestic consumption and investment, it also highlights the need to further enhance export performance and reduce dependency on imports.

3. Tourism Sector Performance

• Tourism Receipts: The significant increase in tourism receipts to USD 3,051.5 million indicates a thriving tourism sector. This growth supports economic development by generating foreign exchange, creating jobs, and stimulating related industries such as hospitality, transportation, and retail.

4. Foreign Exchange Reserves

• Adequate Reserves: Maintaining foreign exchange reserves equivalent to 4.5 months of import cover shows prudent fiscal management. These reserves provide a buffer against external shocks, support the stability of the Tanzania shilling, and ensure the country can meet its international obligations.

5. Exchange Rate Dynamics

• Shilling Depreciation: The 11.6 percent depreciation of the Tanzania shilling against the US dollar indicates some pressure on the currency, possibly from higher import demand or external economic factors. While depreciation can make exports more competitive, it also makes imports more expensive, affecting inflation and purchasing power.

6. Foreign Direct Investment (FDI)

• FDI Inflows: Continued attraction of FDI, particularly in key sectors like mining, manufacturing, and tourism, highlights investor confidence in Tanzania's economic prospects. FDI brings in capital, technology, and expertise, contributing to economic growth and development.

Hence, Tanzania is on a positive development trajectory, leveraging its export and tourism sectors while managing external economic challenges through prudent fiscal and monetary policies. Continued focus on enhancing export capacity, attracting FDI, and maintaining adequate foreign exchange reserves will be crucial for sustaining this growth and ensuring long-term economic stability.

Government Budgetary Operations and Fiscal Management

Tanzania is focusing on improving revenue collection efficiency, managing expenditures prudently, and prioritizing development projects to foster sustainable economic growth. The budgetary operations reflect a commitment to fiscal stability and economic development.

Revenue Collection:

• Domestic Revenue: In April 2024, Tanzania's domestic revenue, which includes central and local government collections, was TZS 2,119 billion. This was 94.1 percent of the target for the month, demonstrating strong performance in revenue collection.
• Central Government Revenue: TZS 2,036.1 billion, with TZS 1,821.6 billion from tax revenue and TZS 214.6 billion from non-tax revenue.

Tax Categories Performance:

• Taxes on Imports: TZS 592.9 billion in 2024, compared to TZS 416.5 billion in 2023.
• Income Tax: TZS 384.5 billion in 2024, compared to TZS 258.4 billion in 2023.
• Taxes on Local Goods and Services: TZS 732.1 billion in 2024, compared to TZS 467.1 billion in 2023.
• Other Taxes: TZS 411.9 billion in 2024, compared to TZS 126.9 billion in 2023.
• Non-Tax Revenue: TZS 214.6 billion in 2024, compared to TZS 116.5 billion in 2023.

Government Expenditure:

• Total Expenditure: In April 2024, government expenditure amounted to TZS 2,480.4 billion, allocated as follows:
  • Recurrent Expenditure: TZS 1,882.8 billion, including wages and salaries, interest costs, and other recurrent expenditures.
  • Development Expenditure: TZS 597.5 billion, directed towards development projects.

Breakdown of Central Government Expenditure:

• Wages and Salaries: TZS 752.3 billion in 2024 estimates, compared to TZS 575.0 billion in 2023 actuals.
• Interest Costs: TZS 317.1 billion in 2024 estimates, compared to TZS 258.4 billion in 2023 actuals.
• Other Recurrent Expenditure: TZS 573.2 billion in 2024 estimates, compared to TZS 467.1 billion in 2023 actuals.
• Development Expenditure: TZS 597.5 billion in 2024, compared to TZS 126.9 billion in 2023 actuals.

Fiscal Management:

• 2024/25 National Budget Proposal: The budget estimate is TZS 49.35 trillion, an 11.2 percent increase from the previous year.
  • Revenue Estimates: Domestic revenue is projected to be 70.1 percent of the budget, focusing on improving compliance and leveraging ICT for efficiency.
  • Expenditure Allocation: Development expenditure is expected to account for 30 percent of the budget, prioritizing flagship projects outlined in the Five-Year Development Plan III.

Summary of Budget Frame for 2023/24 and 2024/25:

• Total Resources:
  • 2023/24: TZS 43,510,082 million
  • 2024/25: TZS 49,345,688 million
• Domestic Revenue:
  • 2023/24: TZS 30,503,207 million
  • 2024/25: TZS 34,610,646 million
• Grants:
  • 2023/24: TZS 5,466,215 million
  • 2024/25: TZS 5,130,613 million
• Loans:
  • 2023/24: TZS 7,540,841 million
  • 2024/25: TZS 9,604,428 million
• Total Expenditure:
  • 2023/24: TZS 43,510,082 million
  • 2024/25: TZS 49,345,688 million
• Recurrent Expenditure:
  • 2023/24: TZS 30,178,271 million
  • 2024/25: TZS 34,590,391 million
  • Debt Service:
    • 2023/24: TZS 10,469,759 million
    • 2024/25: TZS 13,121,466 million
  • Wages and Salaries:
    • 2023/24: TZS 10,882,126 million
    • 2024/25: TZS 11,767,987 million
• Development Expenditure:
  • 2023/24: TZS 13,331,811 million
  • 2024/25: TZS 14,755,296 million

Key Fiscal Assumptions:

• Real GDP Growth: Projected at 5.4 percent in 2024.
• Inflation: Targeted within a range of 3 to 5 percent.
• Revenue to GDP: Domestic revenue at 15.8 percent and tax revenue at 12.9 percent of GDP.
• Budget Deficit: Maintained at 3 percent of GDP.
• Foreign Exchange Reserves: Maintaining reserves to cover 4 months of imports.

Tanzania's Interest Rates

Lower Borrowing Costs and Higher Savings Returns Amidst Narrowing Spreads

The trends in Tanzania's banking sector, showing a more favourable environment for both borrowers and savers. The reduction in loan interest rates can drive economic activity, while the higher deposit rates can increase the savings rate, contributing to overall economic stability and growth.

Interest Rates on Loans:

• Overall Lending Rate: Decreased to an average of 15.23 percent in May 2024 from 15.42 percent in April 2024.
• Negotiated Lending Rate: Dropped to an average of 12.68 percent in May 2024 from 13.95 percent in the previous month. This rate reflects the interest charged on loans negotiated between banks and their customers, often for large or corporate clients.

Interest Rates on Deposits:

• Overall Deposit Rate: Increased to an average of 8.05 percent in May 2024 from 7.44 percent in April 2024. This rate indicates the return that savers earn on their deposits.

Interest Spread:

• One-Year Lending vs. Deposit Rates: The interest spread, which is the difference between the average lending rate and the deposit rate for one-year terms, narrowed to 6.83 percentage points in May 2024 from 7.72 percentage points in April 2024. This narrowing spread suggests that the cost of borrowing is becoming more favorable, and the returns on savings are improving.

Implications

• Easing Borrowing Costs: The decrease in lending rates indicates that borrowing has become more affordable for businesses and individuals, which can stimulate economic activity by encouraging investment and consumption.
• Increased Savings Returns: The increase in deposit rates offers better returns to savers, which can incentivize savings and enhance the capital available for lending.
• Narrowing Spread: A narrowing interest spread typically signals a competitive banking environment where the cost of borrowing is reduced, and savings are adequately rewarded. This balance supports financial stability and economic growth by facilitating access to credit while encouraging savings.

Summary Table:

The Insurance Sector in Tanzania

Performance Overview:

• Net Worth: The insurance sector's total net worth increased from TZS 690.5 billion in 2022 to TZS 742.2 billion in 2023, showing a growth of 7.5%.
• Investments: Total investments in the insurance sector rose by 12.7%, from TZS 1,169.7 billion to TZS 1,318.5 billion. This growth indicates stronger financial positions as assets outgrew liabilities.
• Gross Premiums Written: The total gross premiums written, combining general and life insurance, increased by 8.9% to TZS 1,238.5 billion. Specifically, premiums for general insurance increased by 8.8% to TZS 974.0 billion, and for life insurance, they grew by 9.2% to TZS 264.5 billion​​.

Market Dynamics:

• Digital Platforms and Bancassurance: The growth in the insurance sector was significantly driven by the use of digital insurance platforms and bancassurance. These innovations introduced new products, business channels, and expanded outreach, especially to rural areas. Consequently, motor insurance premiums rose from TZS 287.2 million to TZS 339.8 million, increasing its market share from 32.1% to 34.9%​​.

Financial Soundness Indicators:

• Retention Ratio: The retention ratio for general insurance increased to 53.3% from 49.4% in 2022, while life insurance retained 83.3%, down slightly from 85.7% in 2022. These ratios are within the regulatory thresholds, indicating balanced risk exposure and market stability.
• Liquidity Ratio: In 2023, the liquidity ratio for general insurers improved to 140.4% from 106.8% in 2022. For life insurers, it improved to 90.0% from 79.9% in the previous year​​.

Regulatory Developments:

• Guidelines Issued: The Tanzania Insurance Regulatory Authority (TIRA) introduced several guidelines in 2023 to enhance industry practices and consumer protection. These included guidelines on retention and reinsurance management, accreditation of automobile repairers, and medical insurance and health service provider registration​.

Growth and Resilience:

• The insurance subsector demonstrated robust growth and resilience. Total assets increased by 12.1% to TZS 1,870.8 billion by the end of 2023, while total liabilities rose by 10.2% to TZS 1,128.7 billion, indicating an increase in financial obligations due to higher policy payouts​​.

Insights on Tanzania's Economic Development from the Insurance Sector

The performance and trends in Tanzania's insurance sector provide several important insights into the broader economic development of the country:

1. Growth and Financial Stability

• Increased Net Worth and Investments: The insurance sector's net worth and total investments grew significantly, indicating a strengthening financial position. This growth reflects an increase in economic activities and confidence in the financial system.
  • Net Worth Growth: From TZS 690.5 billion in 2022 to TZS 742.2 billion in 2023 (7.5% growth).
  • Investment Growth: From TZS 1,169.7 billion to TZS 1,318.5 billion (12.7% growth).

2. Expanding Market and Accessibility

• Rising Gross Premiums: The increase in gross premiums written signifies a growing market for insurance products, driven by higher economic activity and improved public awareness.
  • Total Gross Premiums: Increased by 8.9% to TZS 1,238.5 billion.
  • General Insurance Premiums: Grew by 8.8% to TZS 974.0 billion.
  • Life Insurance Premiums: Grew by 9.2% to TZS 264.5 billion.
• Digital Platforms and Bancassurance: The adoption of digital platforms and bancassurance expanded insurance outreach, particularly in rural areas, enhancing financial inclusion and accessibility to insurance services.
• Motor Insurance Premiums: Increased from TZS 287.2 million to TZS 339.8 million, boosting its market share from 32.1% to 34.9%.

3. Financial Soundness and Risk Management

• Improved Retention and Liquidity Ratios: Better retention and liquidity ratios for insurers indicate prudent risk management and financial health.
  • General Insurance Retention Ratio: Improved to 53.3% from 49.4%.
  • Life Insurance Retention Ratio: Maintained at 83.3%, slightly down from 85.7%.
  • General Insurance Liquidity Ratio: Improved to 140.4% from 106.8%.
  • Life Insurance Liquidity Ratio: Improved to 90.0% from 79.9%.

4. Regulatory Enhancements

• New Guidelines: The Tanzania Insurance Regulatory Authority (TIRA) introduced guidelines to improve industry practices and consumer protection, fostering a stable and transparent insurance market.
  • Guidelines on retention and reinsurance management, accreditation of automobile repairers, and registration of medical insurance and health service providers were introduced.

5. Economic Resilience

• Growth in Assets and Liabilities: The increase in total assets and liabilities of the insurance sector reflects economic resilience and the capacity to handle higher policy payouts.
  • Total Assets: Increased by 12.1% to TZS 1,870.8 billion.
  • Total Liabilities: Rose by 10.2% to TZS 1,128.7 billion.

Implications for Economic Development

• Financial Inclusion: The expansion of digital insurance platforms and bancassurance has increased accessibility to insurance products, particularly in rural areas, contributing to financial inclusion.
• Economic Confidence: The growth in the insurance sector suggests rising economic confidence among businesses and individuals, which is crucial for sustained economic growth.
• Risk Mitigation: A robust insurance sector supports economic development by providing risk mitigation mechanisms for businesses and individuals, encouraging investment and economic activities.
• Regulatory Strength: The proactive regulatory environment ensures the stability and integrity of the insurance sector, fostering a secure financial ecosystem.

The growth and development of Tanzania's insurance sector indicate positive economic development, characterized by increased financial stability, expanding market accessibility, improved risk management, and a supportive regulatory framework.