Steady Economic Growth and Financial Stability in Tanzania

Macroeconomic Environment

1. Global Context:
   • The global economy showed resilience in 2023 despite high interest rates, sluggish trade, and geopolitical conflicts.
   • Global inflation decreased to 5.9% in 2023 from 9.2% in 2022, with a projection to further decelerate to 4.8% in 2024.
   • The global economic growth slowed to 3.1% in 2023 from 3.5% in the previous year due to supply-chain disruptions, geopolitical uncertainty, prolonged war in Ukraine, climate-related disasters, and tight monetary policies.
   • The IMF revised its global economic growth projection for 2024 to 3.1%, supported by the strengthening of the US, Emerging Markets, Developing Economies, and fiscal support in China​​.

Household Debts

1. Financial Condition:
   • Household disposable income increased, attributed to higher salaries for government employees and new employment opportunities.
   • Household debt-to-income ratio rose slightly to 52.8% in 2023 from 51.0% in 2022, due to increased salary income and debt repayments​​.
   • Household borrowing and repayment improved, with an increase in disbursed and outstanding personal loans. This trend is due to a higher appetite for bank lending to households and improved borrowers' ability to repay debts​​.

Banking Sector

1. Banking Sub-Sector:
   • The banking sub-sector-maintained robustness and stability with sufficient capital, liquidity, and minimized credit risk.
   • Total assets increased by 17.4% to TZS 54,263.0 billion in 2023, mainly driven by increased deposits.
   • The top six banks, considered systemically important, accounted for more than 65.2% of total deposits, necessitating close monitoring for systemic risks​.
   • Total funding improved by 17.5% to TZS 49,130.6 billion in 2023, with the ratio of core deposits to total funding increasing to 60.0%​​.
   • Loans, advances, and overdrafts dominated banking sector assets, accounting for 57.2% of the total assets​.

Non-Bank Sector Risk

1. Non-Bank Sector:
   • This sector includes insurance, social security, and open-ended collective investment schemes.
   • Total financial system assets grew to TZS 75,288,430.0 million in 2023, with banks accounting for 72.1% of GDP and 31.9% of total financial system assets​.

Tanzania is on a path of steady economic development, characterized by increasing financial stability, improving household welfare, and a supportive environment for business growth.

Macroeconomic Stability

• Resilience in the Global Context: Tanzania's economy is part of a global economy that has shown resilience despite significant challenges such as high interest rates, geopolitical conflicts, and climate-related disasters.
• Inflation Control: The global trend of decreasing inflation suggests potential positive spillover effects for Tanzania, contributing to economic stability.

Household Financial Health

• Increasing Disposable Income: The rise in household disposable income, driven by higher salaries for government employees and new employment opportunities, indicates improved economic welfare.
• Manageable Household Debt: Despite an increase in the household debt-to-income ratio to 52.8%, the rise in income and better debt repayment capacity reflect a healthy and sustainable growth in household borrowing.

Corporate Sector Strength

• Rebound in Business Activities: Improvement in non-financial corporate financing suggests a recovery in business activities, which is crucial for economic growth and job creation.

Robust Banking Sector

• Growth in Assets and Deposits: The significant increase in banking sector assets and deposits points to a strong and growing financial sector.
• Systemic Importance of Major Banks: The dominance of the top six banks highlights the need for vigilant regulatory oversight to mitigate systemic risks, ensuring financial stability.
• Loan Growth: The banking sector's focus on loans, advances, and overdrafts suggests a supportive environment for business and personal finance, facilitating economic activities.

Non-Bank Financial Sector

• Expansion of Financial Assets: The growth in total financial system assets, including the non-bank sector, indicates a broadening of the financial system and diversification of financial services available to businesses and individuals.

Implications for Tanzania's Economic Development

• Economic Growth: The positive trends in household income, corporate financing, and banking sector stability are likely to support sustained economic growth.
• Financial Inclusion: The improvement in household borrowing and repayment capacity suggests enhanced financial inclusion, which is critical for broad-based economic development.
• Investment Opportunities: The expanding financial assets and stable economic environment may attract both domestic and foreign investments, further boosting economic development.
• Policy and Regulatory Focus: Ensuring vigilant oversight of the financial sector, particularly the systemically important banks, will be essential in maintaining financial stability and supporting economic growth.