Microfinance Institutions & SME Development in Tanzania 2025 | TICGL Research
📊 TICGL Economic Case Studies (TECS) · February 2026
The Contribution of Microfinance Services
to the Development of SMEs in Tanzania
A proposed evaluation of the role of Microfinance Institutions (MFIs) in supporting
Micro and Small Enterprises (MSEs) — trends, challenges and opportunities for Tanzania's
financial ecosystem in 2025.
✍️ Amran Bhuzohera — Senior Economist & Research Lead, TICGL🔬 420 MFIs Surveyed📅 Nov 2024 – April 2025 (Data collection)
420
MFIs Surveyed
TZS 800B
Total Loan Portfolio
49%
MFIs with 5–10% Default
62%
Loans Below TZS 5M
25%
Digital Finance Opportunity
📄
Abstract & Key Findings
Microfinance Institutions (MFIs) play a critical role in financial inclusion by providing capital to
Micro and Small Enterprises (MSEs) in Tanzania. Despite their importance, MFIs face challenges
such as high default rates, limited access to funding, regulatory barriers, and operational
inefficiencies. This study examines the landscape of MFIs, their risk management strategies, loan
portfolio allocations, and recommendations for strengthening financial access for MSEs.
30%
Trade & Retail — Largest Loan Sector
22%
Agriculture Loan Share
18%
Manufacturing Share
62%
Loans Below TZS 5 Million
49%
MFIs: Default Rate 5–10%
44%
MFIs Cite High Borrowing Costs
28%
See Govt-Backed Funding as Key
25%
Emphasise Digital Finance
Loan Portfolio by Business Sector
Distribution of MFI loan allocation across five key economic sectors (TZS 800 billion total)
MFI Default Rate Distribution
Percentage of surveyed MFIs reporting each default rate band (n = 410 MFIs)
Conclusion:
To enhance financial access, MFIs must adopt alternative credit scoring models, expand digital
lending platforms, and strengthen public-private partnerships. Policymakers should consider
tiered regulatory frameworks, interest rate flexibility, and credit guarantee programmes to
support sustainable lending to MSEs.
Introduction
🎯
1. Introduction & Research Objectives
This research analyses the role of Microfinance Institutions (MFIs) in supporting Micro and Small
Enterprises (MSEs) in Tanzania. The study examines key factors such as the duration of MFI
operations, the types of clients they serve, loan portfolio distribution, default rates, and challenges
in accessing capital. Additionally, the research explores risk management strategies, regulatory
challenges, financial products offered, and opportunities for enhancing MFI support for MSEs.
1.1 Specific Research Objectives
Assess the current landscape of MFIs in Tanzania, including their longevity and market reach.
Identify the major challenges MFIs face in financing and supporting MSEs.
Explore risk management techniques used by MFIs when lending to MSEs.
Evaluate the regulatory environment and its impact on MFI operations.
Recommend policy and operational strategies to strengthen MFI contributions to economic development.
🏦
1.2 Why MFIs Matter for Tanzania's MSEs
Microfinance Institutions play a crucial role in promoting financial inclusion and economic
development in Tanzania. With traditional banks often hesitant to serve small businesses due to
perceived risks, MFIs bridge the gap by providing accessible financial services to micro and
small enterprises. According to the Tanzania National Bureau of Statistics (NBS, 2022),
MSEs account for over 35% of Tanzania's GDP and provide employment to more than
5 million people.
35%+
MSE Contribution to GDP
5M+
People Employed by MSEs
Services Offered by MFIs to MSEs
💳 Micro-loans & Credit
Helping businesses expand and sustain operations through accessible, collateral-light credit facilities.
📚 Financial Literacy Training
Ensuring MSEs understand budgeting, loan management, and business planning fundamentals.
💰 Savings & Investment Products
Enabling small businesses to build financial resilience and invest in growth.
📱 Digital Financial Services
Mobile banking and digital payments to improve financial accessibility and reduce transaction costs.
⚖️
1.3 Key Challenges & Opportunities
Top Challenges Facing MFIs
Share of MFIs citing each challenge as a primary obstacle
This research utilised a quantitative survey approach to gather data on the
operations, challenges, and opportunities faced by MFIs in Tanzania. Data was collected
from November 2024 to January 2025, combining structured questionnaires with
key informant interviews and secondary data from NBS, Bank of Tanzania (BoT), and TAMFI.
📋
Structured Surveys
Standardised questionnaires on MFI operations, loan portfolios, risk strategies and regulatory challenges.
🗣️
Key Informant Interviews
In-depth interviews with MFI managers and industry experts across Tanzania.
📰
Secondary Data Review
Reports from NBS (2022), Bank of Tanzania (2024), and TAMFI (2023) to contextualise findings.
🌍
Geographic Coverage
Dar es Salaam, Mwanza, Arusha, Dodoma, Mbeya, and Zanzibar — urban, peri-urban, and rural.
2.2 Sample Size & Distribution
MFI Sample by Years in Operation
420 MFIs surveyed — distributed by operational maturity
Sample by Client Type
Distribution of MFIs by primary client category
Category
MFI Count
Share (%)
Distribution
1 – 5 Years Operation
230
55%
55%
6 – 10 Years Operation
80
19%
19%
Less than 1 Year
90
21%
21%
Over 10 Years
20
5%
5%
Serves Micro-enterprises primarily
37%
37%
Mixed Client Base (Micro + Small)
39%
39%
Serves Small Enterprises
24%
24%
2.3 Study Limitations
🔍 Self-Reported Data
Survey responses may include bias. Secondary data from NBS, BoT and TAMFI used for validation.
🌱 Informal MFIs Excluded
Community savings groups and village lending schemes not fully included; findings apply to registered MFIs.
🏙️ Urban Bias
Higher participation from urban MFIs; unique rural challenges may not be fully captured.
📐 MSE Perspective Gap
Study focuses on MFIs; MSE client perspectives on service quality not extensively covered.
Findings & Analysis
📅
3.1 Years of Operation of MFIs
A majority of MFIs in Tanzania are relatively young, with over 76% (320 MFIs)
having operated for 10 years or less. The largest category (55%) has been operating for 1–5 years,
indicating rapid sector growth. Only 5% have been in existence for more than
10 years, highlighting that long-term sustainability remains a challenge.
5%
MFIs Operating 10+ Years
55%
MFIs in Operation 1–5 Years
21%
MFIs Under 1 Year Old
19%
MFIs Operating 6–10 Years
MFI Sector Maturity Profile — Years in Operation
Distribution of 420 surveyed MFIs by operational age — indicates a young, rapidly expanding sector
3.1.2 Implications of MFI Experience
Dimension
Established MFIs (10+ yrs)
Young MFIs (<5 yrs)
Trend
Loan Default Rate
Below 5%
Up to 15%
▼ Higher Risk for Young MFIs
Investor Confidence
High — proven track record
Low — unproven viability
▲ Improves with age
Operational Costs
Lower — economies of scale
Higher — setup & hiring costs
▲ Decreases with experience
Regulatory Compliance
Resilient — adapted over time
Challenging — capital adequacy gaps
→ Policy support needed
Risk Assessment Quality
Strong frameworks
Underdeveloped
▼ Training gap critical
⚠️ Policy Implication: The dominance of young MFIs creates systemic risk. Targeted policies
— including subsidised risk management training, mentorship from established MFIs, and
access to affordable capital — are critical to improving sector sustainability.
👥
3.2 Type of Clients Served
Client segmentation directly influences lending strategies, risk management approaches, and
overall financial sustainability. The majority of MFIs (39%) serve a mixed client base covering
both micro and small enterprises, while 37% focus on micro-enterprises and 24% on small
enterprises exclusively.
Client Category
MFIs (Frequency)
Share (%)
Typical Loan Size
Risk Profile
Distribution
Micro-enterprises
150
37%
Small, short-term
High Risk
37%
Mixed (Micro & Small)
160
39%
Varied
Medium Risk
39%
Small enterprises
100
24%
Larger, longer-term
Lower Risk
24%
Total
410
100%
—
—
—
Client Segmentation Breakdown
Share of MFIs by primary client category (n = 410)
Interest Rate vs Client Type (Conceptual)
Higher micro-enterprise risk means higher interest rates; small enterprise lending is more cost-efficient
How Client Segmentation Shapes Lending Strategy
📏 Loan Size
Micro-enterprises: Smaller amounts, shorter repayment. Small enterprises: Larger loans, longer terms for equipment and expansion.
🛡️ Risk Management
Micro: Group lending & peer guarantees. Small: Individual lending with collateral requirements.
Micro: Group loans, micro-loans, literacy programs. Small: Working capital, asset financing, trade credit.
🚧
3.3 Challenges in Providing Loans to MSEs
Despite their significance, MFIs face multiple barriers that hinder their ability to extend
credit effectively. Research identified five major challenges in loan disbursement.
Main Barriers — MFIs in Providing Loans to MSEs
Frequency and percentage of each challenge across all surveyed MFIs (total response n = 1,220)
Challenge
Frequency
Share (%)
Key Impact
Priority
Insufficient Funds for Lending
300
25%
Leaves many MSEs unserved
CRITICAL
Lack of Collateral from Clients
290
24%
Forces higher rates, limits approval
CRITICAL
Limited Client Financial Literacy
270
22%
Leads to missed repayments
HIGH
High Operational Costs for Small Loans
210
17%
Reduces profitability & rural reach
HIGH
High Default Rates
150
12%
Stricter lending, higher interest rates
MEDIUM
Total
1,220
100%
—
—
🔑 Key Finding:
The top two barriers — insufficient lending funds (25%) and lack of collateral
(24%) — together account for nearly half of all challenges. Addressing these through
government-backed guarantee schemes and alternative collateral models would have the
greatest impact on financial inclusion.
🛡️
3.4 Risk Management Strategies
Given the high-risk nature of lending to MSEs, MFIs implement various risk mitigation strategies.
The most widely used is credit risk assessment and scoring (26%), followed by
group lending and social collateral (23%).
Risk Mitigation Strategy Usage
Share of MFIs using each risk management approach (n = 1,080 responses)
Effectiveness vs Adoption Rate
Comparing how widely adopted each strategy is against its perceived effectiveness
Risk Strategy
Frequency
Share (%)
How It Works
Key Limitation
Trend
Credit Risk Assessment & Scoring
280
26%
Creditworthiness based on financial history & repayment behaviour
Limited MSE financial records
▲ Growing
Group Lending & Social Collateral
250
23%
Peer-guarantee groups share loan responsibility
Group conflicts can weaken model
→ Established
Strict Loan Monitoring & Follow-ups
200
19%
Regular visits & digital tracking of repayments
Raises operational costs for rural
▲ Digital shift
Loan Portfolio Diversification
180
17%
Spread exposure across sectors & geographies
Requires strong financial expertise
▲ Growing
Credit Guarantee Schemes
170
15%
Government / donor partial risk coverage
Bureaucratic delays, access issues
▲ Needed more
Total
1,080
100%
—
—
—
✅ Best Practice: The most effective approach for MFIs combines multiple strategies simultaneously —
particularly integrating alternative data sources (e.g. mobile money transaction histories)
into credit scoring models alongside group lending mechanisms.
📊
3.5 Loan Portfolio Allocation to MSEs
MFIs allocate their loan portfolios based on sectoral demand, risk assessment, and expected
returns. The total MSE loan portfolio across surveyed MFIs stands at TZS 800 billion,
with Trade & Retail taking the largest share at 30%.
TZS 250B
Trade & Retail — 30%
TZS 180B
Agriculture — 22%
TZS 150B
Manufacturing — 18%
TZS 120B
Services / ICT — 14%
TZS 100B
Construction — 12%
Loan Portfolio by Sector (TZS Billions)
Absolute value allocation across five economic sectors — TZS 800B total
Loan Size Distribution Among MSEs
62% of all loans fall below TZS 5 million — confirming micro-enterprise orientation
Business Sector
Allocation (TZS Bn)
Share (%)
Growth Driver
Trend
Trade & Retail
250
30%
Dominance of small trading businesses
→ Dominant
Agriculture & Agribusiness
180
22%
Government food security policy support
▲ Growing
Manufacturing & Processing
150
18%
Industrialisation & value-addition drive
▲ Rising
Services (Transport, ICT)
120
14%
Digital economy expansion
▲ Rising
Construction & Real Estate
100
12%
Urbanisation & infrastructure demand
→ Stable
TOTAL
800
100%
—
—
3.5.2 Loan Size Distribution
Loan Size (TZS)
Number of Loans
Share (%)
Typical Borrower
Distribution
< 2 Million
5,000
32%
Street vendors, market traders
32%
2 – 5 Million
4,500
30%
Small shop owners, small farmers
30%
5 – 10 Million
3,000
20%
Growing businesses, agribusiness
20%
10 – 20 Million
1,500
10%
Small enterprises, manufacturers
10%
> 20 Million
1,000
8%
Established SMEs, construction
8%
TOTAL
15,000
100%
—
—
📌 Key Trends in Loan Allocation:
1. Digital Lending is Rising: Mobile-based microloans are expanding through fintech partnerships with telecom companies — faster processing & repayment tracking.
2. Women-Owned Business Focus: Growing allocation to women-led businesses, reflecting inclusive finance policies.
3. Manufacturing on the Rise: Growing industrial loan share aligns with Tanzania's industrialisation goals.
Findings & Analysis: MFI Contributions to SME Development in Tanzania 2025 | TICGL Research
Deep-dive into the data from 420 MFIs in Tanzania — loan portfolios, default rates, risk management, regulatory environment, digital integration, training programs, and strategic recommendations.
The duration of operation is a key proxy for stability and financial sustainability. Most MFIs in Tanzania are relatively young, with more than three-quarters having operated for 10 years or less — signalling a rapidly expanding but still maturing sector.
55%
Operate 1–5 years
21%
Less than 1 year
19%
6–10 years
5%
Over 10 years
Distribution
MFI Age Profile (n=420)
Trend Analysis
Sectoral Impact by Operational Age
Years in Operation
No. of MFIs
Share
Distribution
Less than 1 year
90
21%
1–5 years
230
55%
6–10 years
80
19%
Over 10 years
20
5%
Total
420
100%
The prevalence of young MFIs (76% operating ≤ 10 years) reflects Tanzania's rapidly expanding microfinance market. However, only 5% have survived more than a decade, underscoring long-term sustainability as a sector-wide challenge that requires targeted policy support.
📈
Access to Capital
MFIs with longer track records attract stronger investor confidence and better financing terms. Newer MFIs often struggle to access funding before proving financial viability.
⚙️
Operational Efficiency
Experienced MFIs benefit from economies of scale and streamlined lending processes. Newer entrants face higher administrative costs as they build client trust.
🏛️
Regulatory Resilience
MFIs that have survived over 10 years have demonstrated adaptability to regulatory changes — a key indicator of institutional health and long-term sustainability.
Section 3.2
Type of Clients Served
Client segmentation directly shapes an MFI's lending strategy, risk exposure, and financial product portfolio. The near-equal distribution across client types highlights the diversity of Tanzania's MFI landscape.
Client Segmentation
MFIs by Primary Client Category
Influence on Strategy
Lending Strategy by Client Type
Client Category
Frequency
Percentage
Distribution
Micro-enterprises
150
37%
Mixed (Micro & Small)
160
39%
Small enterprises
100
24%
Total
410
100%
How Client Segmentation Influences Lending Strategies
🏪
Micro-Enterprise Focus (37%)
Higher risk profiles driven by irregular income and low financial literacy. MFIs use group lending and peer guarantee models to minimize defaults, and charge higher interest rates to offset costs.
🏢
Small Enterprise Focus (24%)
Better creditworthiness enables individual lending with collateral requirements. MFIs can offer lower interest rates as larger loans reduce per-unit administrative costs.
🔀
Mixed-Client Focus (39%)
The largest segment combines micro-loans, SME loans, working capital facilities and trade credit — diversifying both the product range and risk exposure of the institution.
Section 3.3
Challenges in Providing Loans to MSEs
MFIs face five key barriers that reduce their capacity to extend credit. Insufficient lending funds and lack of borrower collateral emerge as the dominant constraints, together accounting for nearly half of all reported challenges.
25%
Insufficient Funds
24%
Lack of Collateral
22%
Low Financial Literacy
17%
High Operational Costs
12%
High Default Rates
Key Lending Barriers
Main Challenges MFIs Face in Providing Loans to MSEs (n=1,220 responses)
Challenge
Frequency
Percentage
Distribution
Key Impact
Insufficient funds for lending
300
25%
Limits credit supply; many MSEs left unserved
Lack of collateral from clients
290
24%
Blocks informal and women-led businesses
Limited client financial literacy
270
22%
Increases default and misuse of funds
High operational costs for small loans
210
17%
Reduces rural outreach; drives up interest rates
High default rates
150
12%
Strains liquidity and limits new disbursements
Total
1,220
100%
⚠️ Critical finding: The top two barriers — insufficient funds (25%) and lack of collateral (24%) — together explain why many creditworthy MSEs remain financially excluded. Addressing these requires systemic policy intervention, not just institutional adjustment.
Section 3.4
Risk Management Strategies
Given the high-risk profile of MSE lending, MFIs deploy a combination of strategies to manage credit risk. Credit scoring and group lending dominate, collectively accounting for nearly half of all reported approaches.
Strategy Prevalence
Risk Management Strategies Used by MFIs
Effectiveness Radar
Strategy Effectiveness vs Coverage
Risk Management Strategy
Frequency
Percentage
Distribution
Credit risk assessment and scoring
280
26%
Group lending and social collateral
250
23%
Strict loan monitoring and follow-ups
200
19%
Loan portfolio diversification
180
17%
Credit guarantee schemes
170
15%
Total
1,080
100%
Best practice: MFIs with the lowest default rates consistently apply a combination of credit scoring, group lending, and strict monitoring — rather than relying on a single approach. A multi-strategy framework is the most effective risk mitigation model.
Section 3.5
Loan Portfolio Allocation to MSEs
With a total MFI loan portfolio of TZS 800 billion, trade and agriculture dominate allocations, reflecting Tanzania's economic structure. A shift toward manufacturing and digital lending is also underway.
TZS 800B
Total Loan Portfolio
30%
Trade & Retail
62%
Loans Below TZS 5M
32%
Loans Below TZS 2M
Sectoral Distribution
Loan Portfolio by Business Sector (TZS Billion)
Loan Size Distribution
MSE Loan Size Breakdown (n=15,000 loans)
Table 3.4: Loan Portfolio Allocation by Business Sector
Business Sector
Loan Allocation (TZS Billion)
Percentage
Distribution
Trade & Retail
250
30%
Agriculture & Agribusiness
180
22%
Manufacturing & Processing
150
18%
Services (Transport, ICT)
120
14%
Construction & Real Estate
100
12%
Total
800
100%
Table 3.5: Loan Size Distribution Among MSEs
Loan Size (TZS)
Number of Loans
Percentage
Distribution
< 2 Million
5,000
32%
2 – 5 Million
4,500
30%
5 – 10 Million
3,000
20%
10 – 20 Million
1,500
10%
> 20 Million
1,000
8%
Total
15,000
100%
Section 3.6
Default Rates for MSE Loans
Loan repayment performance varies significantly across MFIs, with the majority reporting moderate default rates. However, a substantial minority — more than one in four — face defaults above 10%, posing serious sustainability risks.
24%
Default < 5%
49%
Default 5–10%
27%
Default > 10%
Default Rate Distribution
MFI Default Rate Bands (n=420)
Causes of Default
Primary Drivers of MSE Loan Defaults
Key Causes of Default Among MSE Borrowers
1
Poor Financial Management
MSEs frequently mix personal and business finances, struggle with cash flow planning, and lack structured financial records — making meeting repayment deadlines difficult.
2
Limited Financial Literacy
Many borrowers misunderstand loan terms, interest rate structures, and penalty clauses — leading to unintentional defaults and disputes with MFIs.
3
Economic & Market Fluctuations
Seasonal revenue disruptions, supply chain volatility, and price shocks reduce business income below repayment thresholds — especially in agriculture and trade.
4
High Interest Rates
MFIs charge premium rates to compensate for operational costs and risk exposure. For thin-margin MSEs, cumulative interest obligations often exceed cash flow capacity.
5
Inadequate Risk Assessment
Incomplete financial histories, lack of collateral documentation, and limited credit scoring tools result in loans being extended to clients with insufficient repayment capacity.
6
External & Regulatory Barriers
Delayed payments from clients and government contracts, combined with licensing costs and tax burdens, compress disposable income available for loan repayment.
⚠️ 27% of MFIs face default rates above 10% — a threshold that strains liquidity, limits new loan disbursements, and reduces investor confidence. Without intervention, this segment risks institutional collapse.
Section 3.7
Challenges in Accessing Capital
Securing adequate funding is a persistent structural problem for Tanzanian MFIs. High borrowing costs and regulatory constraints are the dominant barriers, limiting the sector's ability to expand lending and reduce interest rates for MSE clients.
44%
Cite High Borrowing Costs
29%
Stringent Collateral Requirements
Capital Access Barriers
Key Challenges MFIs Face in Securing Funds
Role of Regulatory Policies in Financing Accessibility
📋
Licensing & Compliance Costs
Capital adequacy and reporting standards increase operating costs. Smaller MFIs often struggle to meet requirements, reducing their eligibility for external funding.
📊
Interest Rate Caps
Imposed caps limit MFI profitability and exclude high-risk borrowers, as MFIs cannot compensate for lending risks through flexible pricing.
🌍
Foreign Investment Restrictions
International investors face lengthy regulatory approvals. Delays discourage capital inflows that could significantly expand MFI lending capacity.
🏦
Central Bank Policies
Limited access to central bank refinancing forces costly commercial bank borrowing. Tight liquidity controls restrict expansion in underserved regions.
Section 3.8
Preferred Financing Options
MFIs rely on a mix of debt, equity, grants and retained earnings to fund their lending operations. Commercial bank loans dominate despite their high cost — reflecting limited availability of alternative financing.
Financing Mix
Preferred Financing Sources (n=430 MFIs)
Cost vs. Availability
Financing Source Trade-offs
Financing Option
Frequency
Percentage
Key Advantages
Commercial Bank Loans
160
40%
Readily available; consistently accessible but expensive due to high interest rates
Government & Donor Grants
120
30%
Low-cost funding; highly preferred but with inconsistent availability
Most sustainable source; but limited by operational profitability levels
Total
430
100%
Section 3.9 – 3.11
Regulatory Environment for MFIs
Tanzania's regulatory framework receives mixed reviews from MFIs. While a majority view it as broadly supportive, significant policy bottlenecks — particularly around interest rate flexibility and compliance burdens — constrain institutional growth.
Perceptions Survey
MFIs' View of Tanzania's Regulatory Landscape (n=420)
Key Bottlenecks
Regulatory Challenges Faced by MFIs
Table 3.9: MFI Perceptions of Regulatory Environment
Increases administrative burden and operational costs
High compliance costs
130
20%
Reduces funds available for lending, especially for small MFIs
Strict licensing & registration
120
19%
Limits new market entrants; slows sector innovation
Total
640
100%
Recommended Regulatory Reforms (Table 3.11)
Regulatory Change
Frequency
Percentage
Expected Impact
More flexible lending guidelines
300
39%
Expands financial access for underserved MSEs; improves approval rates
Government-backed guarantees for MSE loans
240
31%
Reduces lending risks; enables more loans to MSEs with limited collateral
Streamlined reporting requirements
120
16%
Frees resources for service delivery; reduces administrative costs
Reduction in compliance costs
110
14%
Lowers barriers for smaller MFIs; promotes inclusive market growth
Total
770
100%
Sections 3.12 – 3.14
Financial Products & Service Gaps
Tanzania's MFIs are primarily loan-focused, with micro-loans and group loans accounting for 97% of all financial products. Critical non-lending services — savings accounts, insurance, and mobile banking — remain severely underdeveloped relative to MSE demand.
Products Offered
Financial Products Currently Offered by MFIs
Services Requested
Most Requested Financial Services by MSEs
Demand vs. Supply Gap Analysis (Table 3.13)
Financial Service
MSE Demand (%)
MFI Supply (%)
Gap
Assessment
Small Business Loans
60%
55%
Mostly Met More flexible products needed
Financial Literacy Training
21%
2%
Critical Gap MFIs must integrate structured programs
Key Barriers to Expanding Financial Products (Table 3.14)
Barrier
Frequency
Percentage
Core Impact
High development & operational costs
230
31%
Prevents introduction of new products due to high administrative and tech expenses
Regulatory restrictions
230
31%
Capital requirements and licensing limit savings, insurance and fintech services
Lack of technical expertise
210
28%
Skill gaps in risk assessment, digital finance and product innovation
Limited client demand
70
9%
Low awareness and financial literacy reduce uptake of non-lending products
Total
740
100%
Section 3.15
Barriers to Digital Financial Integration
Digital financial services (DFS) hold transformative potential for Tanzania's MFI sector. However, infrastructure costs, security concerns and low digital literacy among clients are slowing the pace of adoption.
Digital Barriers
Primary Barriers to Digital Financial Integration (n=740 responses)
Barrier
Frequency
Percentage
Impact on Digital Integration
High costs of digital infrastructure
250
34%
Fintech platforms, mobile apps and cloud systems remain unaffordable for smaller MFIs
Data privacy & security concerns
200
27%
Cyber threats and weak data protection frameworks deter MSE adoption
Low digital literacy among clients
200
27%
Despite availability, MSEs lack skills to use mobile banking or digital loan tools
Regulatory barriers
82
11%
Strict licensing and KYC requirements slow digital onboarding
Total
740+
100%
🔒
Security & Trust Solution
Strengthen cybersecurity frameworks, enforce data protection laws, and launch client education programs on digital safety and fraud prevention.
💡
Infrastructure Cost Reduction
Partner with fintech firms to share technology costs; leverage cloud-based solutions and seek government subsidies or donor grants for digital platform adoption.
📱
Digital Literacy Programs
Launch targeted digital finance training for MSEs; develop simplified, user-friendly mobile banking apps with local language support and intuitive interfaces.
📜
Regulatory Sandbox
Advocate for streamlined compliance for digital MFIs; work with policymakers to create regulatory sandboxes that allow controlled testing of new digital financial services.
Sections 3.16 – 3.18
Training, Support & Loan Management Challenges
Financial literacy and business training are not luxuries — they are structural components of a sustainable MFI ecosystem. Yet gaps in delivery, reach and content quality remain significant obstacles.
Training Availability
MFIs with Training Programs
Training Types
Types of Training Offered by MFIs
Loan Management Challenges
MSE Difficulties in Managing Loans
Table 3.16: Training Program Availability
Training Status
Frequency
Percentage
Implications
Training programs already in place
290
73%
Majority of MFIs have active programs for financial literacy and business skills
Planning to introduce programs
90
23%
These MFIs recognise the need but lack implementation frameworks
No training programs offered
20
5%
Focus solely on financial services without capacity-building support
Total
400
96% offer or plan to offer training
Table 3.17: Types of Training Offered
Training Type
Frequency
Percentage
Impact on MSEs
Financial literacy & budgeting
280
35%
Teaches cash flow management, expense tracking, and sustainable fund allocation
Loan management & repayment
200
25%
Reduces defaults by improving understanding of repayment obligations and terms
Business planning & management
200
25%
Helps entrepreneurs develop strategic plans and make better investment decisions
Digital literacy
120
15%
Enables transition to mobile banking, digital payments and online loan management
Total
800
100%
Table 3.18: Challenges MSEs Face in Loan Management
Challenge
Frequency
Percentage
Impact on Repayment
Limited financial literacy
330
35%
Affects budgeting, planning and ability to track loan obligations
Poor cash flow management
330
35%
Results in irregular repayments and difficulty covering business expenses
Difficulty understanding loan terms
190
20%
Confusion over schedules, rates and penalties leads to unintentional defaults
Low digital skills
90
10%
Limits access to digital loan management tools and mobile repayment options
Total
940
100%
Section 3.19
Opportunities for Strengthening MFI Support
MFIs themselves identify four key pathways to enhance their impact on MSE development — government-backed funding, digital transformation, strategic partnerships, and expanded financial literacy programs.
Opportunity Landscape
Opportunities to Improve MFI Support for MSEs in Tanzania (n=1,140)
Opportunity
Frequency
Percentage
Expected Impact
Access to government-backed funding programs
320
28%
Provides MFIs with low-cost capital to expand lending to underserved MSEs
Expanding digital financial services
290
25%
Lowers transaction costs; improves accessibility for rural and informal MSEs
Forming partnerships with fintech providers
310
27%
Enables AI credit scoring, blockchain lending, and advanced risk management
Expanding financial literacy programs
220
19%
Reduces default rates; improves loan utilisation and business outcomes for MSEs
Total
1,140
100%
Section 4
Conclusion & Policy Recommendations
This study establishes that MFIs are critical but structurally constrained drivers of MSE development in Tanzania. Sustainable growth requires a coordinated response across three levels: institutional reform within MFIs, enabling regulatory changes, and broader stakeholder collaboration.
4.1 Summary of Key Findings
📋
Risk Management
A combination of credit scoring, group lending, portfolio diversification, and credit guarantee schemes are most effective in mitigating default risks.
💰
Loan Portfolio
Trade & retail (30%) and agriculture (22%) dominate allocations. Manufacturing and digital lending are growing in share.
🏦
Capital Access
44% cite high borrowing costs; 29% face stringent collateral requirements — both major barriers to expanding affordable lending services.
📜
Regulatory Constraints
Capital adequacy requirements, compliance costs, and interest rate caps limit operational flexibility and restrict financial innovation.
📚
Financial Literacy Gaps
MSE borrowers struggle with loan terms, cash flow management and digital tools — directly increasing default risks and loan misuse.
4.2 Recommendations for MFIs
For MFIs
Strengthen Credit Assessment
Integrate mobile money transaction histories as alternative credit data
Use AI-powered scoring to assess informal MSEs
Conduct rigorous pre-loan screening to improve repayment outcomes
For MFIs
Expand Financial Literacy
Offer mandatory budgeting and repayment workshops prior to loan disbursement
Develop simplified, jargon-free loan agreements
Provide post-disbursement advisory services to at-risk borrowers
For MFIs
Embrace Digital Transformation
Partner with telecoms to enable mobile-based loans and repayments
Invest in user-friendly digital platforms for underserved MSEs
Implement cloud-based systems to reduce operational overhead
4.2 Recommendations for Regulators
For Regulators
Flexible Interest Rate Policies
Implement risk-based pricing to allow MFIs to adjust rates by borrower profile
Encourage blended finance models with public-private subsidies
Review interest rate caps to reflect operational realities of MSE lending
For Regulators
Tiered Compliance Framework
Introduce differentiated requirements based on MFI size and risk exposure
Reduce licensing fees and fast-track approvals for new institutions
Implement digital submission systems to reduce reporting burden
For Regulators
Digital Regulatory Sandbox
Create controlled testing environments for new digital financial products
Streamline KYC processes to ease digital onboarding for MSEs
Establish transparent consultation processes before policy changes
4.2 Recommendations for Other Stakeholders
For Partners & Development Institutions
Public-Private Partnerships
Strengthen collaboration between MFIs, banks, and development finance institutions
Promote government-backed credit guarantee schemes to reduce MFI lending risks
Support blended finance models that combine grants with commercial capital
For Partners & Development Institutions
Support Digital Infrastructure
Invest in mobile banking infrastructure for underserved rural regions
Encourage fintech innovation through funding incentives and sandboxes
Develop shared platforms to reduce per-MFI digital investment costs
For Partners & Development Institutions
Strengthen MSE Capacity
Fund national financial literacy campaigns targeting MSE owners
Support women-led and youth-owned enterprises through targeted credit lines
Develop business incubator programs linked to microfinance access
✅ Way forward: By implementing these recommendations, Tanzania has the opportunity to build a more inclusive, efficient, and sustainable microfinance ecosystem — one where MFIs can serve as genuine growth engines for the country's 5 million+ MSE employees and the broader TZS economy.
AB
Amran Bhuzohera
Senior Economist & Research Lead, TICGL
Research areas include public-private partnerships, SME development, inclusive banking, and microfinance policy in Tanzania. Managing Director of Tanzania Investment and Consultant Group Ltd. Contact: amran@ticgl.com | +255 768 699 002
References
Bibliography
Bank of Tanzania. (2024). Microfinance Sector Performance Report. Bank of Tanzania.
National Bureau of Statistics Tanzania. (2022). Micro, Small, and Medium Enterprises Survey Report.
Kessy, S., & Urassa, G. (2020). The role of microfinance institutions in supporting small businesses in Tanzania. Journal of African Finance, 18(2), 45–62.
Nyamsogoro, G. (2017). Financial sustainability of rural microfinance institutions in Tanzania. African Journal of Economic Policy, 25(3), 78–91.
Tanzania Association of Microfinance Institutions (TAMFI). (2023). Annual Report on Microfinance Institutions in Tanzania.
Ministry of Finance and Planning. (2023). Microfinance Policy and Financial Inclusion Strategy in Tanzania.
GSMA. (2022). Mobile Money Adoption in Tanzania: Trends and Future Growth.
World Bank. (2023). Financial Inclusion and Digital Transformation in Sub-Saharan Africa.
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Is the Bank of Tanzania Prepared for Geopolitical Pressures? | TICGL Economic Analysis 2026
📊 TICGL Economic Analysis📅 February 2026⏱ 25 min read
Is the Bank of Tanzania Prepared for the Geopolitical Pressures Redefining Global Finance?
An in-depth analysis of Tanzania's central banking resilience amid global fragmentation, declining international cooperation, and rising geopolitical tensions in 2026
The global financial system is undergoing a profound transformation driven by geopolitics. Rising tensions between major powers, the fragmentation of trade and financial networks, the weaponization of sanctions, and declining international policy coordination are fundamentally reshaping how capital flows, reserves are held, and crises are managed. In this new environment, central banks are increasingly required to stabilize more risks with fewer external support mechanisms. For developing and frontier economies such as Tanzania, these pressures are particularly acute.
For the Bank of Tanzania (BOT), geopolitical fragmentation coincides with a period of relatively strong macroeconomic performance—but also heightened vulnerability. Inflation has remained well-contained at 3.1–3.6 percent in 2025, comfortably below the 5 percent target, allowing the BOT to reduce the Central Bank Rate to 5.75 percent, the lowest in the East African Community. Economic growth is projected at 6.0 percent, foreign exchange reserves have risen to USD 6.3 billion, equivalent to 4.9 months of import cover, and public debt stands at a moderate 40.6 percent of GDP (present value)—well below the 55 percent sustainability threshold. On the surface, these indicators suggest resilience.
3.2%
Inflation Rate 2025
Target: < 5.0% ✓
5.75%
Central Bank Rate
Lowest in EAC
6.0%
GDP Growth Projection
Strong Performance
$6.3B
Foreign Reserves
4.9 months import cover
However, geopolitical dynamics are reshaping the risk landscape beneath these headline figures. Tanzania's external sector remains highly exposed to global power shifts and concentration risks. Gold accounts for 37.4 percent of total exports, while export markets are heavily concentrated in India (around 30 percent) and China (about 22 percent). At the same time, China accounts for 31.9 percent of total foreign direct investment, signaling a growing dependency on a single geopolitical bloc. Meanwhile, relations with Western partners have deteriorated following the 2025 elections, leading to an EU aid freeze of €156 million, reductions in USAID support, and an overall 20 percent decline in official development assistance to USD 1.85 billion. This has reduced access to concessional financing, increased borrowing costs, and placed additional pressure on reserve accumulation.
Critical External Vulnerabilities
Export Concentration: 37.4% of exports are gold; 52% of markets concentrated in India and China. Investment Dependency: 31.9% of FDI from China alone. Aid Decline: 20% drop in ODA following Western donor freeze.
Regionally, geopolitics has also weakened traditional buffers. Trade disputes and diplomatic tensions within the East African Community—particularly with Kenya—have disrupted cross-border trade flows and undermined prospects for regional financial cooperation. At the continental level, political frictions have slowed momentum under the African Continental Free Trade Area (AfCFTA), while global coordination mechanisms that once provided emergency liquidity—such as broad-based currency swap lines—have become increasingly selective and politicized.
These shifts matter deeply for the BOT because Tanzania operates under a managed floating exchange rate regime in an environment of volatile capital flows and persistent dollar demand. In 2024, the Tanzanian shilling depreciated by about 9 percent, reflecting global tightening, geopolitical uncertainty, and external financing pressures, before stabilizing in 2025. Without reliable international liquidity backstops, the BOT must increasingly rely on its own reserves, domestic financial markets, and policy credibility to manage exchange rate volatility and financial stability.
Central Question
Is the Bank of Tanzania institutionally, operationally, and strategically prepared for a world where cooperation is weaker, financing is more political, and external shocks are more frequent?
The geopolitical reordering of global finance therefore raises a central question: is the Bank of Tanzania institutionally, operationally, and strategically prepared for a world where cooperation is weaker, financing is more political, and external shocks are more frequent? While Tanzania's macroeconomic indicators remain broadly strong, the data reveal growing exposure to geopolitical concentration, declining concessional support, and fragile regional integration. The answer to this question will depend not only on short-term policy performance, but on the BOT's ability to protect its independence, deepen domestic financial markets, diversify external relationships, and build resilience against a fragmented and increasingly politicized global financial system.
1. The Changing Global Environment for Central Banks
1.1 What Has Changed?
Historically, during crises such as the 2008 Global Financial Crisis, major central banks coordinated rapidly through synchronized monetary policy actions, currency swap lines ensuring dollar liquidity globally, shared information and coordinated interventions, and mutual support for financial stability. This era of cooperation provided critical safety nets for both advanced and developing economies during periods of financial stress.
Today, geopolitical fragmentation has eroded this cooperation. Trade wars and sanctions between major economies create unpredictable capital flows. Competing monetary systems have emerged, with dollar dominance challenged by yuan internationalization and BRICS initiatives. Reserve freezing risks mean that foreign reserves can be weaponized through sanctions. Reduced liquidity channels indicate that international liquidity no longer flows automatically during stress periods.
Dimension
2008 Crisis Era
2024-2026 Era
Crisis Response
Rapid coordination (Fed, ECB, BOE, BOJ)
Fragmented, politicized responses
Liquidity Provision
Universal dollar swap lines
Selective, conditional access
Reserve Security
Secure, widely accepted
Vulnerable to sanctions/freezes
Policy Alignment
Synchronized rate decisions
Divergent paths based on politics
Information Sharing
Transparent, cooperative
Guarded, strategic
This transformation fundamentally alters the operating environment for central banks worldwide, but particularly for smaller economies that historically relied on international cooperation during times of crisis. The Bank of Tanzania must now navigate this fragmented landscape with reduced external support and increased self-reliance.
2. Tanzania's Central Banking Challenges
2.1 Multiple Risks Facing the Bank of Tanzania
The BOT currently manages an unprecedented confluence of risks across multiple dimensions simultaneously. These challenges are interconnected and require careful policy calibration to avoid trade-offs that could undermine macroeconomic stability.
Risk Category
Current Status (2024-2026)
BOT Response
Inflation
3.1-3.6% in 2025 (well below 5% target); stable food supply; moderate energy prices
Maintained CBR at 5.75% (lowest in EAC); interest rate corridor 3.75-7.75%
Exchange Rate
Shilling depreciated 9% in 2024; volatile due to dollar demand; recovered briefly in 2024-25
While the BOT has successfully maintained stability across most indicators, the geopolitical dimension represents an emerging and potentially destabilizing force. Unlike traditional macroeconomic risks that can be addressed through conventional monetary policy tools, geopolitical fragmentation requires strategic foresight, institutional resilience, and careful diplomatic navigation.
2.2 The Coordination Deficit
Tanzania faces weakening coordination on multiple fronts, each presenting distinct challenges to the Bank of Tanzania's ability to maintain stability and manage crisis situations effectively.
Level
Evidence of Fragmentation
Impact on BOT
Regional (EAC)
Trade disputes with Kenya (2024-25); permit denials to Kenyan traders; Namanga border tensions; weak EAC enforcement
Reduced cross-border trade flows; currency instability; isolated from regional liquidity support
Continental (Africa)
SADC condemnation of 2025 election; regional isolation; AU concerns over democratic backsliding
EU aid freeze (€156M); USAID cuts; sanctions threats; ODA down 20% to USD 1.85B
Loss of concessional financing (15% of budget); increased borrowing costs; reserve building pressure
Global Powers
China FDI rising (31.9% of total); Western engagement declining; competing monetary bloc pressures
Debt composition shifting to non-concessional; reserve diversification needs; technology dependencies
This multi-level fragmentation means that Tanzania cannot rely on traditional support mechanisms during financial stress. Regional swap lines are unlikely, continental cooperation is politically fraught, Western emergency financing has conditions attached, and dependence on any single major power creates vulnerability. The BOT must therefore build domestic capacity and maintain strategic flexibility across all relationships.
Key Insight
The coordination deficit is not temporary—it reflects a structural shift in global finance. The Bank of Tanzania must adapt its strategy from relying on external support to building domestic resilience and maintaining balanced external relationships.
Tanzania's macroeconomic performance during 2024-2026 presents a paradox: strong headline indicators coinciding with rising structural vulnerabilities. While inflation control, growth momentum, and fiscal discipline remain robust, the external sector's concentration risks and geopolitical exposure create potential fragility beneath the surface stability.
3.1 Monetary Policy Framework and Performance
The Bank of Tanzania successfully transitioned to an interest rate-based monetary policy framework in January 2024, marking a significant evolution in its policy toolkit. The Central Bank Rate (CBR) became the primary policy instrument, replacing the previous reserve money targeting approach. This transition enhanced transparency, improved market signaling, and strengthened the monetary transmission mechanism.
Indicator
2024
2025
Target/Benchmark
Central Bank Rate (CBR)
6.00%
5.75% (Jul cut)
Supporting growth
Inflation (Mainland)
3.1%
3.2-3.6%
< 5.0%
GDP Growth
5.5%
6.0% (proj)
6.0%+
Foreign Reserves
USD 5.4B
USD 6.3B
> 4 months imports
Import Cover (months)
4.4
4.9
> 4.0
Public Debt/GDP (PV)
41.1%
40.6%
< 55%
Current Account/GDP
-3.8%
-2.4%
Improving
NPL Ratio
3.2%
3.1%
< 5.0%
Private Sector Credit Growth
16.8%
12.7%
Supporting economy
Policy Achievement
The BOT's July 2025 rate cut to 5.75% represents the lowest Central Bank Rate in the East African Community, demonstrating confidence in inflation control while supporting economic growth. The interest rate corridor (3.75-7.75%) provides clear boundaries for market rates.
3.2 Inflation Dynamics and Price Stability
Inflation performance has been exemplary, with mainland inflation ranging between 3.1-3.6% throughout 2025, consistently below the 5% target. This achievement reflects multiple factors: stable food production with good agricultural seasons, moderate global energy prices compared to 2022-2023 peaks, effective monetary policy transmission through the new interest rate framework, and relatively stable exchange rate conditions in 2025.
3.2%
Average Inflation 2025
Well below 5% target
5.75%
Interest Rate Corridor
3.75% - 7.75%
16.7B
Money Supply (M3) TZS
Controlled expansion
12.7%
Credit Growth 2025
Down from 16.8% in 2024
However, this strong performance masks underlying vulnerabilities. Food inflation remains sensitive to weather patterns and regional trade disruptions. Energy price stability depends on global markets where Tanzania has limited influence. Import inflation could spike if the shilling experiences sustained depreciation. The current benign environment provides limited insight into how the BOT would manage simultaneous shocks—such as commodity price spikes, exchange rate pressure, and supply chain disruptions.
3.3 Exchange Rate Management and Reserve Adequacy
The Tanzanian shilling experienced significant volatility during the 2024-2026 period. After depreciating approximately 9% in 2024 due to global monetary tightening, dollar demand, and external financing pressures, the currency stabilized in 2025 as the BOT accumulated reserves and managed market interventions carefully.
Foreign exchange reserves increased from USD 5.4 billion (4.4 months of import cover) in 2024 to USD 6.3 billion (4.9 months) in 2025. This improvement reflects several factors: strong export performance particularly in gold and tourism, domestic gold purchases by the BOT to diversify reserve holdings, controlled import growth, and moderate foreign direct investment inflows.
Reserve Adequacy Concerns
While 4.9 months of import cover exceeds the minimum 4-month threshold, it remains below the 6-month prudential standard recommended for emerging markets facing volatile capital flows. In a geopolitically fragmented world where emergency liquidity is uncertain, higher reserve buffers would provide greater crisis resilience.
3.4 External Sector Vulnerabilities
The external sector presents Tanzania's most significant macroeconomic vulnerability. Despite improving fundamentals—the current account deficit narrowed from 3.8% of GDP in 2024 to 2.4% in 2025—the composition and concentration of trade flows create substantial geopolitical and economic risks.
Metric
Value/Share
Risk Assessment
Gold Export Share
37.4% of total exports
High concentration risk
India Market Concentration
~30% of exports
High geographic risk
China Market Concentration
~22% of exports
High geographic risk
China FDI Share
31.9% of total FDI
High dependency risk
EU Trade Decline (post-2025)
-13% (USD 3.9B)
Diversification needed
Tourism Revenue Growth
2.1M arrivals (2025)
Positive but vulnerable
Total Exports (2024)
USD 16.0B (+14.8%)
Strong but concentrated
Gold Dependency: With gold accounting for 37.4% of total exports, Tanzania's external earnings are highly vulnerable to global commodity price fluctuations. While gold prices have remained elevated due to geopolitical uncertainty and central bank buying, any significant correction would immediately impact foreign exchange earnings and reserve accumulation capacity.
Market Concentration: Over half of Tanzania's exports flow to just two countries—India (approximately 30%) and China (about 22%). This concentration creates multiple risks: bilateral trade disputes could devastate export revenues, currency fluctuations in rupees or yuan affect competitiveness, geopolitical tensions between major powers could disrupt trade flows, and economic slowdowns in these markets directly impact Tanzania.
Investment Dependency: China's dominance in foreign direct investment—accounting for 31.9% of total FDI—creates both opportunities and vulnerabilities. While Chinese investment has financed critical infrastructure projects, this concentration means that shifting Chinese priorities, debt sustainability concerns, or Western pressure to reduce Chinese economic ties could significantly impact Tanzania's development financing.
Western Donor Retreat: The 20% decline in official development assistance following the 2025 elections and subsequent Western donor freeze represents a structural shift rather than temporary friction. With EU aid frozen at €156 million and USAID support reduced, Tanzania has lost access to approximately 15% of its budget financing. This forces greater reliance on commercial borrowing at higher costs and accelerates the shift toward non-Western financing sources.
3.5 Fiscal-Monetary Coordination
Public debt remains sustainable at 40.6% of GDP in present value terms, well below the 55% threshold for debt distress. Domestic debt constitutes approximately 16% of GDP, with 66.8% held in Treasury bonds. Tax revenue collection has improved, meeting targets and reducing pressure for monetary financing of fiscal deficits.
40.6%
Public Debt/GDP (PV)
Below 55% threshold
16%
Domestic Debt/GDP
66.8% in Treasury bonds
0%
Monetary Financing
BOT independence maintained
15%
Budget Gap from ODA Loss
Requires alternative financing
The critical challenge is maintaining this coordination as external financing becomes scarcer and more expensive. The 15% budget gap created by the Western donor freeze will require either increased domestic revenue mobilization, higher commercial borrowing, deeper engagement with non-Western lenders (primarily China), or expenditure rationalization. Each option carries risks: higher domestic borrowing could crowd out private sector credit, commercial debt increases interest costs and debt service, greater Chinese lending raises debt sustainability concerns and geopolitical dependencies, and expenditure cuts could undermine growth.
3.6 Financial Sector Resilience
Tanzania's banking sector remains sound with strong fundamentals. The non-performing loan (NPL) ratio of 3.1% is well below the 5% regulatory threshold, indicating healthy asset quality. Banks maintain adequate capital buffers, meeting regulatory requirements with room to absorb potential shocks. Liquidity ratios remain comfortable, and the BOT's regulatory supervision has strengthened with enhanced stress testing frameworks.
However, geopolitical fragmentation creates new financial stability risks that traditional metrics may not capture. Concentration in Chinese financing creates rollover risks if access to Chinese credit tightens. Reduced correspondent banking relationships following Western sanctions concerns could disrupt payment systems. Limited domestic capital markets increase vulnerability to external funding shocks. Digital financial services expansion through mobile money (TZS 1.9 trillion in transactions) creates new cybersecurity and operational risks.
Key Performance Indicators Trend (2024-2025)
Inflation Trend
↓
3.1% → 3.2%
Stable ✓
GDP Growth
↑
5.5% → 6.0%
Accelerating ✓
Reserves
↑
$5.4B → $6.3B
Building ✓
Current Account
↑
-3.8% → -2.4%
Improving ✓
NPL Ratio
↓
3.2% → 3.1%
Healthy ✓
Public Debt
↓
41.1% → 40.6%
Sustainable ✓
3.7 Summary Assessment
Tanzania's macroeconomic performance during 2024-2026 demonstrates the Bank of Tanzania's technical competence in managing conventional monetary policy challenges. Inflation control, growth support, financial stability, and debt sustainability all show positive trajectories. These achievements should not be understated—they provide the foundation for addressing more complex geopolitical challenges.
However, the data also reveal structural vulnerabilities that could become acute in a crisis. External sector concentration means that disruptions to gold markets, trade with India or China, or Chinese investment flows could rapidly destabilize the balance of payments. The loss of Western concessional financing creates fiscal pressures that could eventually compromise monetary policy independence. Regional trade disputes undermine export diversification efforts and limit crisis cooperation options.
Critical Insight
Tanzania's current macroeconomic stability reflects favorable external conditions—stable commodity prices, manageable global financial conditions, and continued Chinese engagement. The true test of the BOT's preparedness will come when these conditions deteriorate simultaneously, as geopolitical fragmentation makes increasingly likely.
The question is not whether Tanzania's macroeconomic fundamentals are currently sound—they are. The question is whether the institutional frameworks, policy tools, and strategic relationships are robust enough to maintain stability when the external environment turns hostile. The next section examines the strategic framework the BOT should adopt to build this resilience.
4. Strategic Framework: How Central Banks Navigate Fragmentation
Based on international experience and best practices, central banks facing reduced global coordination should focus on four fundamental pillars. These pillars are not theoretical ideals but practical necessities derived from observing how resilient central banks have navigated previous periods of geopolitical and financial fragmentation. Each pillar addresses specific vulnerabilities while reinforcing the others to create a comprehensive defense against external shocks.
Framework Overview
The four-pillar framework represents a shift from reliance on external support to building domestic institutional resilience. In a fragmented world, central banks cannot depend on international cooperation to solve crises—they must have the tools, credibility, and capacity to act independently.
4.1 Pillar 1: Protect Central Bank Independence
Independence is the strongest defense against political pressure during crises. It provides credibility in price stability commitments, lower costs of controlling inflation, stable inflation expectations among markets and households, and insulation from short-term political cycles. Without independence, central banks become instruments of fiscal policy, losing the ability to maintain monetary discipline when it matters most.
Why Independence Matters More in Fragmentation: In stable periods with strong international cooperation, even politically influenced central banks can maintain reasonable outcomes by following global leaders. When the Federal Reserve, European Central Bank, and Bank of England coordinate, smaller central banks can effectively "import" credibility by aligning their policies. However, in a fragmented world where major central banks pursue divergent paths based on national interests, this external anchor disappears. Domestic credibility becomes the only foundation for monetary policy effectiveness.
Independence Framework Components
🎯
Operational Independence
Freedom to set policy rates and instruments without government approval
⚖️
Legal Protection
Strong legal framework insulating decision-makers from political interference
💰
Financial Autonomy
Control over budget and resources without reliance on government funding
📢
Communication Clarity
Transparent decision-making and clear public accountability
BOT's Current Status: The Bank of Tanzania Act, 2006 provides operational independence with a clear mandate: "to formulate, define and implement monetary policy directed to the economic objective of maintaining domestic price stability conducive to a balanced and sustainable growth of the national economy." The transition to an interest rate-based framework in January 2024 has strengthened this independence by providing clearer policy signals and reducing ambiguity about monetary policy objectives.
The Monetary Policy Committee (MPC) operates with considerable autonomy, publishing detailed statements explaining rate decisions, economic assessments, and forward guidance. The Governor and Deputy Governors serve fixed terms with legal protections against arbitrary removal. The BOT finances its operations from its own revenues, maintaining financial autonomy from the Treasury.
Independence Under Pressure
Key Vulnerability: While legal independence is strong, political pressure can manifest indirectly through public criticism of tight monetary policy, pressure to prioritize growth over inflation control, demands for development financing through the central bank, or appointments of board members sympathetic to government positions. The loss of Western aid creates fiscal pressures that could intensify demands for monetary accommodation.
Required Actions: The BOT must maintain transparent communication of MPC decisions and rationale, resist any pressure for development financing or directed lending, publish clear forward guidance on policy trajectory, defend the primacy of price stability even when politically inconvenient, and build public understanding of why central bank independence serves citizens' long-term interests.
Central banks that take on too many responsibilities lose credibility. A focused mandate prevents conflicting objectives that undermine effectiveness, political pressure to solve non-monetary problems, erosion of public trust when expectations are not met, and resource dispersion across too many goals. In fragmented environments where coordination is weak, clarity about what the central bank can and cannot do becomes essential.
The Mission Creep Danger: During crises or when other institutions fail, political pressure mounts for central banks to expand their roles. Common demands include: financing infrastructure development directly, managing exchange rates to support exporters, providing subsidized credit to strategic sectors, absorbing government debt at below-market rates, supporting employment goals that conflict with price stability, and managing climate change or inequality objectives alongside monetary policy.
✓ PRIMARY MANDATE
Price Stability
Maintaining inflation below 5% target through effective monetary policy
✓ SECONDARY MANDATE
Financial System Integrity
Banking supervision, payment systems, and stability oversight
BOT's Mandate Structure: The Bank of Tanzania's mandate hierarchy is appropriately structured. The primary objective is price stability. Secondary objectives include maintaining financial system integrity, supporting government economic policies (crucially, without prejudice to price stability), and promoting sound monetary conditions. This hierarchy is clear in law but requires constant vigilance to prevent political demands for development financing or exchange rate targeting that conflict with inflation control.
Required Actions: Reinforce price stability as the non-negotiable primary objective in all public communications. Clearly communicate trade-offs when they exist—for example, that supporting the exchange rate through reserve depletion could compromise inflation control. Decline non-monetary missions by explaining institutional limitations and referring requests to appropriate agencies. Build public understanding that central bank effectiveness depends on focus, not breadth of responsibilities.
4.3 Pillar 3: Strengthen Domestic Markets
Building resilient domestic financial markets reduces dependence on external liquidity and creates robust transmission channels for monetary policy. Key elements include deep government securities markets for effective policy transmission, a diverse domestic investor base including pension funds, insurance companies, and banks, local currency bond markets to reduce foreign exchange vulnerability, and modern payment systems infrastructure including digital payments and clearing mechanisms.
Why Domestic Markets Matter in Fragmentation: When international markets fragment and cross-border capital flows become politicized, domestic financial markets become the primary shock absorber and the main channel through which monetary policy affects the real economy. Countries with shallow domestic markets face three critical vulnerabilities: they cannot absorb sudden stops in foreign capital without severe disruptions, monetary policy transmission breaks down when markets are illiquid or underdeveloped, and government financing becomes hostage to external conditions and donor politics.
Progress made, but significant external financing dependence remains
BOT's Progress: Tanzania has made significant strides in developing domestic financial markets. The Treasury bond market shows regular oversubscription, indicating robust domestic demand for government securities. Domestic debt stands at 16% of GDP with 66.8% held in Treasury bonds, demonstrating investor confidence. Mobile money transactions have reached TZS 1.9 trillion, creating a vibrant digital payment ecosystem that reduces reliance on traditional banking infrastructure.
However, critical gaps remain. The corporate bond market is underdeveloped, limiting private sector financing options outside of bank lending. Pension fund and insurance company participation in securities markets remains below potential. The interbank repo market lacks depth, constraining the transmission of the Central Bank Rate to market rates. External financing dependence for infrastructure projects remains high, creating vulnerability to geopolitical shifts in donor priorities.
Required Actions: Deepen the Treasury securities market through regular issuance calendars and market-making support. Develop the repo market as the primary mechanism for implementing monetary policy and managing liquidity. Expand the domestic investor base by incentivizing pension fund and insurance company participation in bond markets. Strengthen payment systems infrastructure to support digital finance while managing cybersecurity risks. Create regulatory frameworks that encourage corporate bond issuance while protecting investor interests.
4.4 Pillar 4: Pragmatic Regional and International Cooperation
While global coordination has weakened, selective cooperation remains critical for small open economies. Key elements include regional payment systems and currency swap arrangements, coordinated crisis protocols within the East African Community and Southern African Development Community, information sharing on financial stability risks, and diversified reserve management to avoid concentration risks.
The Cooperation Paradox: Geopolitical fragmentation makes international cooperation harder precisely when it becomes more important. Large economies can afford greater self-reliance; small economies cannot. Tanzania needs regional integration for trade facilitation, market access, and crisis support—yet regional cooperation has deteriorated due to domestic political choices and bilateral tensions.
Regional Cooperation Crisis
Current State: Trade tensions with Kenya have disrupted cross-border flows and damaged regional trust. The 2025 election fallout has isolated Tanzania from SADC partners. EAC Common Market Protocol enforcement is weak, undermining integration commitments. Regional currency swap mechanisms remain aspirational rather than operational.
BOT's Challenge: Tanzania's trade tensions with Kenya—including permit denials to Kenyan traders, border harassment, and protectionist measures contradicting EAC commitments—have severely damaged regional cooperation prospects. The 2025 elections and subsequent SADC condemnation have further isolated Tanzania continentally. These tensions undermine the very regional cooperation mechanisms that could provide buffers against global fragmentation.
Simultaneously, Tanzania must maintain balanced relationships with competing global powers. Western donor freeze following the 2025 elections has reduced concessional financing access. Growing dependence on Chinese investment (31.9% of FDI) creates its own vulnerabilities. Navigating between these blocs without becoming captive to either requires diplomatic skill and strategic clarity.
Strategic Imperative
The BOT cannot build regional cooperation alone—this requires political will and diplomatic repair at the highest levels. However, the BOT can maintain technical cooperation channels with regional central banks, pursue narrow but practical cooperation on payment systems and information sharing, and advocate internally for policies that rebuild regional trust.
Required Actions for BOT:
Repair Kenya relations through consistent engagement: Maintain technical cooperation with the Central Bank of Kenya regardless of political tensions. Pursue bilateral payment system integration. Support business-to-business dialogue to reduce trade frictions.
Honor EAC commitments credibly: Advocate internally for consistent implementation of EAC protocols. Build reputation for reliability even when difficult. Demonstrate that Tanzania can be a trustworthy regional partner.
Pursue SADC/EAC payment systems cooperation: Focus on technical, non-political areas like cross-border payment infrastructure, settlement mechanisms, and information sharing protocols that build trust through practical results.
Diversify reserve management prudently: Continue domestic gold purchases to reduce dollar concentration. Explore regional currency holdings for trade settlement. Maintain sufficient dollar reserves for international transactions while reducing vulnerability to sanctions or access restrictions.
Balance external relationships strategically: Engage with Chinese partners transparently while maintaining debt sustainability. Rebuild Western donor relationships where possible without political capitulation. Strengthen ties with Gulf states, India, and other emerging partners. Avoid total dependence on any single bloc or partner.
"In a fragmented world, Tanzania cannot afford to be isolated regionally or dependent on any single external partner. The Bank of Tanzania must be a voice for pragmatic cooperation while building the domestic capacity to withstand external shocks when cooperation fails."
The four-pillar framework provides the Bank of Tanzania with a comprehensive strategy for navigating geopolitical fragmentation. Independence protects against political pressure. Clear mandates prevent mission creep. Strong domestic markets reduce external dependence. Selective cooperation provides buffers without creating new vulnerabilities. Together, these pillars create resilience—not immunity to shocks, but the capacity to absorb them without destabilizing the monetary system.
The next section translates this framework into concrete policy recommendations tailored to Tanzania's specific circumstances and institutional capacities.
5. Policy Recommendations for the Bank of Tanzania
The strategic framework outlined in the previous section provides the conceptual foundation for navigating geopolitical fragmentation. This section translates that framework into specific, actionable policy recommendations tailored to Tanzania's institutional context, economic structure, and geopolitical position. These recommendations are prioritized based on urgency, feasibility, and potential impact on the BOT's resilience.
Priority Area
Specific Actions
Expected Outcome
Independence Protection
Maintain transparent communication of MPC decisions; resist pressure for development financing; publish clear forward guidance
Enhanced credibility; lower inflation expectations; reduced political interference
Sound banking sector; crisis resilience; confidence in financial system
5.1 Short-Term Priorities (0-12 months)
🎯
Defend Independence
Resist any pressure for monetary financing of budget gaps created by aid freeze
📊
Strengthen Communication
Publish detailed MPC minutes and economic assessments to build credibility
💰
Build Reserve Buffers
Target 6+ months import cover through continued gold purchases and export support
🤝
Technical Regional Cooperation
Maintain central bank dialogue with CBK despite political tensions
5.2 Medium-Term Priorities (1-3 years)
Develop repo market infrastructure: Create active repo markets to strengthen monetary policy transmission from the Central Bank Rate to market interest rates. This requires standardized repo agreements, central counterparty clearing, and market-making support from the BOT.
Expand domestic investor base: Incentivize pension funds and insurance companies to increase participation in Treasury securities markets. Reform regulations to permit greater allocation to government bonds while maintaining prudential standards.
Diversify reserve composition: Gradually reduce dollar concentration by increasing gold holdings (already underway), exploring regional currency holdings for trade settlement, and considering limited diversification into other major currencies while maintaining adequate dollar liquidity for international transactions.
Build data and analytical capacity: Invest in economic modeling capabilities for forecasting under uncertainty. Develop early warning indicators for balance of payments stress. Enhance real-time monitoring of financial system vulnerabilities.
5.3 Long-Term Strategic Priorities (3-5 years)
Foster corporate bond market development: Create regulatory frameworks that encourage corporate bond issuance while protecting investors. Support credit rating infrastructure. Provide tax incentives for long-term bond investments.
Deepen regional financial integration: Work toward regional payment systems that reduce transaction costs and currency conversion needs. Explore regional currency swap arrangements for crisis support. Coordinate financial stability supervision with EAC partners.
Enhance policy frameworks for digital finance: Develop regulatory and supervisory frameworks for digital currencies, mobile money, and fintech innovation that balance innovation with financial stability and consumer protection.
Build institutional research capacity: Establish BOT research department as regional center of excellence. Publish regular research on Tanzania's economy. Build partnerships with international research institutions to strengthen analytical capabilities.
6. Key Risks and Mitigation Strategies
Even with robust policy frameworks and institutional capacity, the Bank of Tanzania faces significant risks in a fragmented geopolitical environment. This section systematically identifies these risks, assesses their probability and potential impact, and outlines mitigation strategies. Understanding these risks is essential for building resilience and preparing contingency responses.
The risk matrix reveals a troubling pattern: multiple high-impact risks with medium-to-high probability. The combination of Western aid cuts, regional fragmentation, and potential exchange rate volatility creates a perfect storm scenario where shocks could cascade and overwhelm policy responses. The BOT's preparedness will be tested not by individual risks but by their simultaneous occurrence.
6.1 Scenario Planning
The BOT should develop detailed contingency plans for three plausible scenarios that combine multiple risks:
Scenario 1: "Perfect Storm" (High stress, low probability): Western aid cuts deepen further, EAC fragmentation accelerates with Kenya trade war, gold prices collapse by 30%+, Chinese lending conditions tighten, shilling depreciates 15%+ rapidly. Response framework: Emergency reserve deployment, temporary capital controls if needed, coordinated fiscal-monetary tightening, seek emergency IMF support, prioritize essential imports.
Scenario 2: "Slow Burn" (Medium stress, medium probability): Gradual decline in Western engagement, continued regional tensions but no acute crisis, moderate commodity price volatility, steady increase in Chinese influence. Response framework: Accelerated domestic market development, prudent reserve management, gradual reserve diversification, maintain policy credibility through transparency.
Scenario 3: "Selective Cooperation" (Low stress, medium probability): Partial Western re-engagement after reforms, improved regional relations through diplomacy, stable commodity markets, balanced external partnerships. Response framework: Rebuild donor relationships selectively, deepen regional integration pragmatically, strengthen domestic institutions while maintaining external options.
7. Conclusion: Navigating the New Normal
The thesis that guided this analysis—"Central banks are asked to stabilize more risks in a world that is coordinating less"—perfectly describes Tanzania's current predicament. The Bank of Tanzania faces mounting responsibilities: controlling inflation, managing exchange rate volatility, ensuring financial stability, supporting economic growth, and now navigating geopolitical fragmentation. Yet the tools and cooperation mechanisms that historically supported central banks during crises have eroded.
"Tanzania cannot fix everything alone. In a world of competing monetary blocs, trade wars, and weakened multilateral institutions, the BOT must guard its independence fiercely, maintain clear and limited mandates, build domestic resilience, and pursue selective cooperation."
The fragmentation is structural, not cyclical. Tanzania must adapt to a world where reserves can be weaponized, international liquidity is conditional, regional cooperation is fragile, aid comes with political strings, and policy space is constrained by competing powers.
7.1 What Success Requires
🏛️
Political Commitment
Respect BOT independence even when politically inconvenient
📊
Fiscal Discipline
Create policy space for monetary policy through sustainable budgets
🤝
Regional Diplomacy
Repair damaged relationships and restore cooperation
⚖️
External Balance
Between competing powers without total dependence
🏗️
Structural Reforms
Deepen financial markets and reduce external vulnerabilities
7.2 The Current Status
The data shows Tanzania has performed well thus far—inflation controlled at 3.2%, growth strong at 6.0%, debt sustainable at 40.6% of GDP, reserves adequate at 4.9 months of import cover, and financial sector sound with NPL ratio at 3.1%. These achievements demonstrate the Bank of Tanzania's technical competence and provide a strong foundation for addressing more complex challenges.
However, the external environment is deteriorating. The 20% decline in official development assistance, rising trade tensions within the EAC, increasing concentration in Chinese financing, and growing geopolitical pressures all signal a narrowing window for building resilience. The time to act is now—before external shocks test whether Tanzania's institutional foundations can withstand sustained stress.
7.3 The Path Forward
Central banks cannot fix a fragmented world, but they can build the resilience to withstand it. The Bank of Tanzania must:
Guard independence fiercely as the foundation of all credibility and effectiveness
Maintain clear, limited mandates with price stability first and resistance to mission creep
Build domestic resilience through deep markets, diverse funding, and strong institutions
Pursue selective cooperation through regional integration where possible, balanced external ties, and pragmatic rather than ideological approaches
The geopolitical fragmentation facing Tanzania is not a temporary disruption but a fundamental restructuring of the global financial system. The era of automatic international cooperation, universal dollar liquidity, and depoliticized multilateral institutions has ended. The Bank of Tanzania must navigate this new reality with clear-eyed realism, strategic foresight, and unwavering commitment to its core mandate.
Final Assessment
Is the Bank of Tanzania prepared for the geopolitical pressures redefining global finance? Partially. The institution has strong technical capabilities, sound macroeconomic fundamentals, and clear legal independence. However, external vulnerabilities remain significant, domestic markets need deepening, regional cooperation requires repair, and the political commitment to respect central bank independence during crises remains untested. The gap between current preparedness and required resilience is narrowing—but action is still possible.
The coming years will test whether Tanzania can successfully navigate the most complex geopolitical environment since independence. The Bank of Tanzania's success in this endeavor will depend not only on its own capabilities but on the political will to support its independence, the fiscal discipline to create policy space, the diplomatic skill to rebuild regional relationships, and the strategic wisdom to balance competing external pressures without becoming captive to any single power.
The challenge is formidable. The stakes are high. But with clear strategy, institutional resilience, and political support, the Bank of Tanzania can build the capacity to stabilize Tanzania's economy even as the global financial system fragments around it.
About the Author
AB
Amran Bhuzohera
Economic Analyst | TICGL Research Team
Amran Bhuzohera is an economic analyst specializing in macroeconomic policy, central banking, and geopolitical risk analysis with a focus on East African economies. His research examines the intersection of monetary policy, international finance, and institutional development in frontier markets.
At TICGL (Tanzania Investment and Consultant Group Ltd), Amran produces in-depth economic analysis on Tanzania's monetary policy framework, external sector dynamics, and regional integration challenges. His work combines rigorous quantitative analysis with strategic policy recommendations aimed at strengthening institutional resilience in an increasingly fragmented global financial system.
This analysis draws on extensive research into the Bank of Tanzania's monetary policy reports, IMF assessments, East African Community trade data, and comparative central banking practices. It reflects ongoing TICGL research into how frontier economies can build institutional capacity to navigate geopolitical uncertainty while maintaining macroeconomic stability.
Bank of Tanzania Monetary Policy Reports (January 2024 - January 2026)
Bank of Tanzania Act, 2006 - Legal framework for central bank independence and mandate
IMF Extended Credit Facility and Resilience and Sustainability Facility Reviews - Tanzania program assessments
East African Community Trade Data and EAC Secretariat Reports - Regional integration and trade statistics
European Parliament Resolution on Tanzania (November 2025) - Donor relations and aid freeze documentation
Trading Economics Tanzania Indicators - Macroeconomic data and trends
TICGL Tanzania Economic Analysis Reports (2024-2026) - Proprietary economic research
Mashariki Research and Policy Centre EAC Integration Studies - Regional cooperation analysis
Want to Contribute to Tanzania's Economic Analysis?
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Tanzania's Monetary Policy and Its Economic Impact: Comprehensive Analysis 2026 | TICGL
Tanzania's Monetary Policy and Its Economic Impact
A Comprehensive Integrated Analysis of the Bank of Tanzania's Monetary Framework, Policy Evolution, and Economic Performance (1961-2026)
Home / Research / Tanzania's Monetary Policy Analysis
Executive Summary
This comprehensive research analyzes Tanzania's monetary policy framework and its impact on economic growth and stability. The analysis reveals that Tanzania has achieved remarkable macroeconomic stability through prudent monetary policy implementation, with inflation consistently maintained within the 3-5% target range and GDP growth averaging around 5-6% annually.
The Bank of Tanzania's transition from reserve money targeting to an interest rate-based framework in January 2024 marks a significant evolution in monetary policy implementation, aligning Tanzania with regional best practices and international standards. This shift from the earlier era of fiscal dominance (1960s-1980s), where government deficits were financed through money printing leading to chronic high inflation, represents a profound institutional transformation.
5.75%
Lowest Policy Rate in EAC
3-5%
Inflation Target Range
20.3%
Credit Growth (2025)
4.9+
Months Import Cover
Key Economic Indicators Overview (2025)
Key Challenges and Opportunities
Challenges: Weak monetary transmission mechanisms, government domestic borrowing crowding out private sector credit, exchange rate volatility from external shocks, and limited financial inclusion (28.2% of households remain financially excluded).
Opportunities: Current conditions in early 2026 are highly favorable with low assessed inflation risks, but vigilant monitoring of external shocks, domestic factors, and structural issues will be critical to sustaining Tanzania's impressive macroeconomic performance.
1. Historical Evolution of Monetary Policy in Tanzania
Tanzania's monetary policy journey spans over six decades, evolving from colonial-era currency arrangements to a modern, sophisticated interest rate-based framework. This evolution reflects the country's broader economic transformation and growing integration into the global financial system.
1961-1966
Pre-Independence and Early Years
Before the establishment of the Bank of Tanzania, the country was part of the East African Currency Board, which administered the East African Shilling. This arrangement meant Tanzania lacked independent monetary policy until 1967. The Currency Board system operated as a passive institution that simply issued currency backed by foreign reserves, limiting the country's ability to respond to domestic economic conditions or pursue independent development objectives.
1965-1967
Bank of Tanzania Formation
The Bank of Tanzania was chartered through the Bank of Tanzania Act of 1965 following the dissolution of the East African Currency Board. The bank commenced operations on June 14, 1966, inaugurated by President Mwalimu Julius Kambarage Nyerere. This marked the beginning of Tanzania's independent monetary policy and the country's ability to use monetary instruments to support national development goals.
1967-1985
Socialist Era and Fiscal Dominance
Following the Arusha Declaration in 1967, the Bank of Tanzania's role evolved significantly within a socialist economic framework. However, this period was characterized by severe fiscal dominance, where the central bank faced political pressure to finance government deficits through money printing.
Chronic high inflation exceeding 20-30% in some years during the 1970s-1980s
Economic instability and severe erosion of purchasing power
Loss of central bank independence in monetary policy formulation
Undermined credibility of monetary authorities both domestically and internationally
Foreign exchange shortages and parallel market premiums
Key Institutional Developments:
The Annual Credit and Finance Plan (1971) granted the bank control over interest rates
The Foreign Exchange Plan gave control over foreign exchange allocation and use
The 1978 Bank of Tanzania Act amendment increased the bank's authority in financial planning
1986-1995
Economic Liberalization Era
The mid-1980s to 1990s witnessed significant economic reforms as Tanzania moved away from socialist policies toward market-oriented approaches:
Rapid inflation and severe currency devaluation, highlighting the urgent need for focused monetary policy
Structural adjustment programs initiated with IMF and World Bank support
Liberalization of the economy in the early 1990s, which removed exchange controls and opened doors to foreign banks
Accelerated use of foreign currency in the domestic economy (dollarization pressures)
These reforms laid the groundwork for the fundamental transformation that would come in 1995.
1995
Modern Monetary Framework: The 1995 Transformation
The Bank of Tanzania Act of 1995 fundamentally transformed the central bank's mandate and represents the most important institutional reform in Tanzania's monetary policy history.
Key Reforms of the 1995 Act
Ended fiscal dominance through legal and institutional mechanisms prohibiting direct central bank financing of government deficits
Restored Bank of Tanzania operational independence with clear mandate and accountability
Established a single, clear objective: to formulate and implement monetary policy directed at maintaining domestic price stability conducive to balanced and sustainable economic growth
Introduced monetary targeting framework focused on reserve money aggregates
Adopted broad money supply (M3) as intermediate target for inflation control
Created fiscal-monetary accord establishing framework for policy coordination without dominance
This reform marked Tanzania's commitment to modern central banking principles, emphasizing price stability as the primary goal while supporting overall economic development. The success of this framework is evident in the subsequent decline in inflation from double-digit levels in the 1990s to the current 3-4% range.
2024
Transition to Interest Rate-Based Framework
On January 19, 2024, the Bank of Tanzania made a historic shift from quantity-based monetary targeting (reserve money) to an interest rate-based monetary policy framework. This transition represents the latest evolution in Tanzania's monetary policy journey and aligns the country with:
International best practices in modern central banking
Regional peers in the East African Community (Kenya, Uganda, Rwanda already using interest rate frameworks)
Enhanced policy transmission mechanisms through clearer market signals
This framework change builds on the solid foundation established in 1995 and reflects Tanzania's economic maturation and financial market development.
Tanzania's Inflation Journey: From High Volatility to Stability
Evolution of Monetary Policy Frameworks in Tanzania
Period
Framework
Primary Objective
Key Characteristics
1961-1966
Currency Board
Currency Stability
Passive issuance backed by foreign reserves
1967-1985
Fiscal Dominance
Development Financing
Direct government financing, high inflation (20-30%)
1986-1995
Transition Period
Stabilization
Structural reforms, liberalization
1995-2023
Reserve Money Targeting
Price Stability
Independent central bank, M3 targeting
2024-Present
Interest Rate-Based
Price Stability & Growth
Policy rate at 5.75%, inflation 3-5% target
💡 Key Insight: The Power of Institutional Reform
The 1995 Bank of Tanzania Act represents one of Africa's most successful monetary policy reforms. By ending fiscal dominance and establishing central bank independence, Tanzania transformed from an economy with chronic 20-30% inflation to one maintaining stable 3-5% inflation for over two decades. This achievement demonstrates that strong institutions and clear mandates are fundamental to macroeconomic stability and sustainable growth.
2. Current Monetary Policy Framework
Tanzania's current monetary policy framework represents the culmination of decades of institutional evolution and reform. The transition to an interest rate-based system in January 2024 marks a significant milestone, aligning Tanzania with international best practices and regional peers in modern central banking.
2.1 Framework Architecture and Objectives
🎯 Primary Objective: Price Stability
The Bank of Tanzania's overarching goal is maintaining price stability to support sustainable economic growth. The framework specifically targets:
Medium-term inflation target: 5% over a 3-5 year horizon
Operational target band: 3-5% for annual inflation
This medium-term approach provides flexibility to respond to short-term shocks while maintaining focus on sustained price stability and creates a predictable environment for investment, credit growth, and overall economic activity.
Supporting Objectives
While prioritizing price stability, the framework also supports:
Adequate liquidity provision to the financial system
Stable short-term interest rates
Exchange rate stability (managed float regime)
Sustainable economic growth
Financial system stability
2.2 The Interest Rate-Based Framework (Since January 2024)
On January 19, 2024, the Bank of Tanzania made a historic transition from quantity-based monetary targeting (reserve money) to an interest rate-based monetary policy framework. This represents a fundamental shift in how monetary policy is conducted.
Central Bank Rate Operating Corridor
Central Bank Rate (CBR) as Main Policy Instrument
The CBR serves as the key policy signal, influencing financial conditions throughout the economy. The framework operates through:
Component
Rate
Description
Upper Bound (Lombard Rate)
7.75%
Maximum rate for overnight lending to banks
Central Bank Rate (CBR)
5.75%
Key policy rate - signals monetary stance
Operating Target
5.75%
7-day Interbank Cash Market (IBCM) rate
Lower Bound (Deposit Facility)
3.75%
Rate paid on excess bank reserves
📐 Operating Corridor: CBR ± 2 Percentage Points
With the CBR at 5.75%, the corridor is designed to keep the 7-day IBCM rate within a band of 3.75% to 7.75%. This provides a clear framework for market expectations and limits excessive interest rate volatility.
Complete Policy Instrument Suite
🔄 Open Market Operations
Primary Tool
Repurchase agreements (repos) and reverse repos
Treasury bill auctions
Regular liquidity operations to steer IBCM rate
🏦 Standing Facilities
Automatic Access
Lombard lending facility (7.75%)
Deposit facility (3.75%)
Available to commercial banks automatically
💰 Reserve Requirements
Structural Tool
Statutory reserve ratios for banks
Used for liquidity management
Less frequently adjusted than before
💱 FX Interventions
Stability Support
Smooth excessive volatility
Maintain adequate reserves
Not for targeting specific rate levels
2.3 Current Policy Stance (January 2026)
Accommodative Stance Maintained
The Bank of Tanzania held the Central Bank Rate at 5.75% in January 2026, marking the third consecutive hold after a 25 basis point cut in July 2025. This represents the lowest policy rate in the East African Community and reflects highly favorable macroeconomic conditions.
3.4%
Headline Inflation (Nov 2025)
2.1%
Core Inflation
5.9%
GDP Growth (2025 Proj.)
5.4%
Q1 2025 Growth
Inflation Performance Analysis
Headline inflation: 3.4% (November 2025), well within 3-5% target band
Average inflation 2025: ~3.5%, consistent with medium-term 5% target
Core inflation: 2.1% (November 2025), indicating no underlying price pressures
Food inflation: 6.6% (November 2025), seasonal but manageable
Growth Momentum
GDP growth projected: 5.9% for full year 2025
Strong Q1 performance: 5.4% in Q1 2025 (up from 5.0% Q1 2024)
External position comfortable with stable exchange rate
No immediate pressures requiring policy tightening
Well-anchored inflation expectations
Policy Rationale
The accommodative stance balances multiple objectives:
Supporting sustained economic expansion
Maintaining inflation within target range
Providing predictable interest rate environment for investment
Responding appropriately to favorable macroeconomic conditions
2.4 Central Bank Rate Evolution (2024-2026)
Date
Policy Decision
Central Bank Rate
Change
Rationale
January 19, 2024
Framework Launch
6.00%
Initial
Transition to interest rate-based framework
March-June 2024
Hold
6.00%
0 bps
Monitor framework effectiveness
July 2024
Hold
6.00%
0 bps
Inflation within target, growth stable
October 2024
Hold
6.00%
0 bps
Maintain accommodative stance
January 2025
Hold
6.00%
0 bps
Favorable inflation outlook
July 2025
Cut
5.75%
-25 bps
Low inflation risks, support growth
October 2025
Hold
5.75%
0 bps
Monitor cut impact
January 2026
Hold
5.75%
0 bps
Continued favorable conditions
Source: Bank of Tanzania Monetary Policy Statements, 2024-2026
The pattern shows prudent, gradual adjustment with extended periods of stability, allowing the economy to adjust to policy signals while maintaining credibility. The single 25 basis point cut in July 2025 demonstrates the Bank's responsiveness to favorable conditions without aggressive easing.
Central Bank Rate Evolution (2024-2026)
3. Economic Performance Data (2015-2026)
Tanzania's economic performance over the past decade demonstrates the effectiveness of the monetary policy framework in supporting sustainable growth while maintaining price stability. This section presents comprehensive data analysis covering GDP growth, inflation trends, sectoral performance, and credit expansion.
3.1 GDP Growth Trends - Comprehensive Analysis
Tanzania has maintained robust economic growth over the past decade, with GDP expansion averaging 5-6% annually despite global challenges including the COVID-19 pandemic. The economy demonstrated remarkable resilience, with only a brief slowdown to 1.99% in 2020 before recovering strongly.
Year
GDP Growth Rate (%)
Key Characteristics
2015
6.2%
Strong pre-pandemic growth
2016
6.9%
Peak growth period
2017
6.4%
Sustained momentum
2018
5.8%
Broad-based expansion
2019
6.0%
Pre-COVID stability
2020
1.99%
COVID-19 impact
2021
4.3%
Recovery begins
2022
4.7%
Continued recovery
2023
5.1%
Strengthening trajectory
2024
6.3%
Strong rebound
2025
5.9% (projected)
Sustained strong growth
2026
5.5-6.0% (projected)
Stable outlook
Sources: World Bank, IMF, Bank of Tanzania, Tanzania National Bureau of Statistics
📊 Key Observations
Average growth 2015-2019: 6.2% (pre-COVID)
COVID impact: Sharp but brief drop to 1.99% in 2020
Current phase 2024-2026: Return to 5.5-6.3% growth trajectory
Regional performance: Consistently above Sub-Saharan Africa average
Tanzania GDP Growth Rate (2015-2026)
3.2 Inflation Performance - Remarkable Stability
One of the most significant achievements of Tanzania's monetary policy has been maintaining inflation within the target range. The transformation from the high inflation era of the 1980s-1990s to current price stability represents a major macroeconomic success.
Year
Headline Inflation (%)
Core Inflation (%)
Food Inflation (%)
Status
2015
5.6%
4.2%
7.8%
Near target
2016
5.2%
3.8%
7.1%
Within target
2017
5.3%
3.5%
7.4%
Within target
2018
3.5%
2.8%
5.2%
Within target
2019
3.4%
2.5%
5.0%
Within target
2020
3.3%
2.3%
4.9%
Within target
2021
3.7%
2.6%
5.3%
Within target
2022
4.1%
3.0%
5.8%
Within target
2023
3.8%
2.7%
5.5%
Within target
2024
3.2%
2.2%
4.8%
Within target
2025
3.5% (avg)
2.1%
6.6%
Within target
Nov 2025
3.4%
2.1%
6.6%
Well within target
Sources: Bank of Tanzania, Tanzania National Bureau of Statistics, IMF
🎖️ Critical Achievement
Since 2018, inflation has remained consistently below the 5% medium-term target
Average inflation 2018-2025: ~3.5%
This represents a dramatic improvement from 20-30%+ rates in the 1980s
External shocks (2022 commodity crisis) managed well with limited pass-through
Stable exchange rate contributing to low imported inflation
3.3 Sectoral Growth Drivers - Diversified Economy
Tanzania's economy is well-diversified, with growth driven by multiple sectors. The first quarter of 2025 data shows exceptionally strong performance across industrial activities, demonstrating the broad-based nature of economic expansion.
Sector
Q1 2025 Growth (%)
Key Drivers
Electricity
19.0%
Julius Nyerere Hydropower Dam (2,115 MW)
Mining
16.6%
High gold prices, credit expansion (+30%)
Financial Services
15.4%
Financial deepening, credit growth (+20.3%)
Manufacturing
7.2%
Lower energy costs, infrastructure improvements
Construction
6.8%
Infrastructure projects, urban development
Wholesale & Retail
5.6%
Rising consumer demand
Transport & Storage
4.9%
Trade facilitation, logistics improvements
Agriculture
3.0%
Credit growth (+29.8%), mechanization
Source: Bank of Tanzania, October 2025 (constant 2015 prices)
Sectoral GDP Growth Rates (Q1 2025)
Sectoral Highlights
⚡ Electricity (19.0% growth)
Largely attributed to Julius Nyerere Hydropower Dam (commenced operations 2024)
Capacity: 2,115 MW, transforming Tanzania's energy landscape
One of the clearest indicators of accommodative monetary policy effectiveness is the robust credit expansion achieved without triggering inflation. This demonstrates healthy financial intermediation and effective policy transmission.
Credit expansion is broad-based, not concentrated in risky sectors
Monitoring required to ensure credit quality is maintained
Banking sector capitalization adequate to support growth
Financial stability indicators remain within acceptable ranges
The combination of strong credit growth (+20.3%), low inflation (3.4%), and robust GDP growth (5.9%) represents a "Goldilocks" scenario where monetary policy is achieving its objectives across all dimensions without trade-offs.
4. Impact on Economic Growth and Stability
The Bank of Tanzania's monetary policy framework has delivered tangible benefits across multiple dimensions of economic performance. This section analyzes how price stability, accommodative policy, and sound external sector management have supported Tanzania's development objectives.
4.1 Price Stability Achievement - Foundation for Growth
The Bank of Tanzania's primary mandate of maintaining price stability has been successfully achieved with exceptional consistency. This achievement provides multiple benefits that extend far beyond simply keeping inflation low.
🏆 Price Stability Success
Tanzania has maintained inflation consistently within the 3-5% target range since 2018, representing a dramatic transformation from the 20-30%+ inflation rates of the 1980s. This stability provides the foundation for all other economic achievements.
Direct Benefits of Low, Stable Inflation
📊 Predictable Business Environment
Companies can plan investments with confidence
Long-term contracts viable without excessive inflation risk premiums
Capital budgeting more accurate
Multi-year planning feasible
💰 Purchasing Power Protection
Real incomes preserved for wage earners
Savings maintain value
Particularly important for fixed-income households
Poverty reduction supported through stable food prices
🌍 Competitive Advantage for FDI
Tanzania's 3.4% inflation attractive vs. regional peers
Central bank independence (1995 reform) - ending political interference
End of fiscal dominance - prohibiting direct government financing
Professional monetary policy management - technical expertise and training
Credible commitment to price stability - consistent policy implementation
Gradual institutional learning - building credibility over time
Tanzania's Inflation Transformation: A Four-Decade Journey
4.2 Growth Performance - Supporting Development
Tanzania's GDP growth has averaged approximately 6.0% over the last decade (excluding COVID year), significantly above the Sub-Saharan African average of ~3-4%. The accommodative monetary policy stance has supported this growth through multiple channels.
6.0%
Avg. Growth (Pre-COVID)
5.75%
Policy Rate (Lowest in EAC)
20.3%
Credit Expansion (2025)
16-18%
Lending Rate Range
Transmission Channels to Growth
💵 Lower Borrowing Costs
Policy rate at 5.75%, lowest in EAC
Supports business investment decisions
Enables infrastructure financing
Encourages productive sector expansion
📈 Private Sector Credit Expansion
+20.3% credit growth in 2025
Mining, agriculture, construction 20%+
Working capital available for businesses
Consumer credit supporting demand
🏦 Competitive Lending Environment
Commercial lending rates 16-18% range
Competitive regionally
Supports domestic investment vs. imports
Enables SME financing
🏗️ Infrastructure Investment Support
Government finances projects at manageable rates
Public-private partnerships viable
Julius Nyerere Dam completed
Transport corridors developed
Growth Quality Assessment
✅ High-Quality, Sustainable Growth
Broad-based: Not dependent on single sector - diversified across agriculture, mining, services, manufacturing
Employment-generating: Agriculture, construction, services are labor-intensive sectors
Productivity-enhancing: Infrastructure and electricity improvements boost efficiency
Sustainable: Not fueled by credit bubbles or excessive debt accumulation
Inclusive potential: Multiple sectors providing opportunities across income levels
Tanzania's external position has improved significantly, reflecting the positive impact of monetary policy on external balances through multiple channels including export competitiveness, reserve accumulation, and capital flow management.
Indicator
2022
2023
2024
2025
Trend
Current Account (% of GDP)
-7.3%
-4.9%
-3.2%
-2.4%
✅ Improving
Foreign Reserves (months of imports)
4.2
4.5
4.8
4.9+
✅ Strong
Export Growth (%)
8.5%
11.2%
13.8%
9.4%
✅ Robust
FDI Inflows (USD billion)
1.2
1.4
1.6
1.8
✅ Growing
External Debt (% of GDP)
38.2%
39.1%
39.8%
40.2%
⚠️ Manageable
Sources: Bank of Tanzania, IMF Country Reports 2024-2025
External Sector Performance Trends (2022-2025)
Key Achievements in External Sector
📉 Current Account Improvement
Deficit narrowed from 7.3% to 2.4% of GDP (2022-2025)
Growing export earnings from gold, tourism, and agriculture
Sustainable financing through FDI and concessional loans
💎 Reserve Adequacy
4.9+ months of import cover - exceeds IMF benchmark of 3 months
Provides substantial buffer against external shocks
Supports exchange rate stability and market confidence
Enables intervention capacity when needed
Demonstrates prudent reserve management
📦 Export Performance
Gold exports: Benefiting from high prices ($2,000-2,400/oz) and increased production
Tourism: Recovery exceeding pre-COVID levels with strong visitor numbers
Agricultural exports: Coffee, cotton, and cashew growing steadily
Diversification: Efforts beginning to show results across multiple sectors
💼 Capital Flows
FDI: Attracted by macroeconomic stability and growth prospects
Portfolio flows: Increasing with sovereign bond market development
Remittances: Stable and growing diaspora contributions
Concessional financing: Development partner support for infrastructure
4.4 Fiscal-Monetary Coordination - Improved but Challenged
The fiscal-monetary accord established in the mid-1990s enhanced the Bank of Tanzania's independence and created a framework for policy coordination without dominance. Recent performance shows both notable successes and ongoing challenges that require attention.
Fiscal Performance Highlights
💰 Revenue Mobilization Success
Domestic revenue exceeded targets by 4.2% in Q1 2025/26, demonstrating significant improvements in tax administration and collection efficiency.
Tanzania Revenue Authority (TRA) reforms proving effective
Digital systems reducing evasion and improving compliance
Broadening tax base beyond traditional sectors
Enhanced enforcement and taxpayer services
Expenditure Management
Infrastructure investment priorities maintained
Development spending protected from cuts
Recurrent costs controlled effectively
Public sector wage bill managed prudently
⚠️ Critical Challenge: Government Domestic Borrowing
🚨 Crowding-Out Challenge
Recent empirical studies (including Mwakalila, 2025) show that increasing government borrowing from domestic commercial banks prevents effective transmission of monetary policy rate changes to lending rates. This creates a significant challenge for monetary policy effectiveness.
The Crowding-Out Mechanism
Step 1
Government Issues Securities
Government issues Treasury bills and bonds to commercial banks to finance budget deficit
Step 2
Banks Find Them Attractive
Banks find government securities very attractive: risk-free, liquid, decent yields with zero default risk
Step 3
Reduced Private Lending
Banks reduce lending to private sector or maintain high lending rates even when policy rate is cut
Result
Weak Policy Transmission
Even when BoT cuts policy rate, commercial lending rates don't fall proportionally. Private sector credit constrained despite accommodative policy.
Need for fiscal discipline to enhance monetary policy transmission
✅ Positive Developments
Government committed to reducing domestic borrowing over medium term
Revenue improvements providing alternative to borrowing
Shift toward concessional external financing where possible
Debt sustainability framework being strengthened
Awareness of the problem at policy level increasing
5. Exchange Rate Policy and Currency Stability
Tanzania's exchange rate policy is a critical component of its overall monetary framework, balancing the need for flexibility to absorb external shocks with maintaining sufficient stability to support trade and investment. The managed float regime has generally served Tanzania well, though it faces periodic challenges.
5.1 Exchange Rate Management Framework
Tanzania operates a managed float exchange rate regime, where the Tanzanian Shilling's value is primarily determined by market forces with minimal central bank intervention. This framework balances market determination with strategic intervention when necessary.
🎯 Market Determination
Daily exchange rate set by supply and demand
Banks and forex bureaus operate freely
No fixed peg or target rate
Market participants include exporters, importers, investors
🛡️ Strategic Intervention
Bank of Tanzania intervenes only to avoid disorderly conditions
Smooth excessive volatility
Prevent speculative attacks
Build/manage foreign exchange reserves
Rationale for Managed Float
Why Managed Float Works for Tanzania
Flexibility: Provides ability to absorb external shocks through exchange rate adjustment
Competitiveness: Supports export competitiveness through market-based valuation
Independence: Maintains monetary policy independence (impossible with fixed peg)
Credibility: Builds confidence through market-based, transparent approach
Alignment: Consistent with IMF recommendations and regional practices
The Tanzanian Shilling experienced notable volatility in 2024-2025, with a remarkable appreciation period followed by renewed depreciation pressures, demonstrating both the benefits and challenges of the managed float regime.
Period
TZS/USD Rate
Change
Trend
January 2024
2,527
-
Baseline
July 2024
2,287
-9.51%
🟢 Historic Appreciation
December 2024
2,315
-8.39%
🟢 Strong Position
January 2025
2,403
+3.8%
🔴 Depreciation
February 2025
2,458
+2.3%
🔴 Continued Pressure
Late 2025
2,535
-
🟡 Stabilizing
January 2026
2,555
+0.8%
🟢 Slight Appreciation
Sources: Bank of Tanzania Daily Exchange Rates, Trading Economics
TZS/USD Exchange Rate Movements (2024-2026)
📈 Historic Appreciation (July-December 2024)
🏆 Best-Performing Currency Globally
The 9.51% appreciation made the Tanzanian Shilling the best-performing currency globally during this period, a remarkable achievement that strengthened confidence in Tanzania's economic management.
Key Drivers of the Appreciation:
📊 Strong Export Performance
High gold prices ($2,000-2,400/oz) driving export earnings
Tourism recovery exceeding expectations and pre-COVID levels
Agricultural exports (coffee, cotton) performing exceptionally well
Increased foreign exchange supply from multiple sources
💎 Improved Reserve Position
Bank of Tanzania actively building reserves
Market confidence in foreign exchange availability
Reduced speculative demand for dollars
Strong fundamentals supporting currency strength
⚡ Parallel Market Collapse
Strong appreciation led to collapse of parallel FX market premium
Reduced dollarization as confidence in Shilling increased
More transactions channeled through formal banking system
Enforcement of Section 26 (requiring TZS for domestic transactions) effective
💼 Capital Inflows
Portfolio investment attracted by macroeconomic stability
FDI flows sustained and growing
Remittances strong from diaspora
International confidence in Tanzania's economy
📉 Subsequent Depreciation (Early 2025)
The 3.8% monthly depreciation in January and February 2025 reflected seasonal and external factors:
Seasonal Factors: Import demand typically increases in Q1 (Ramadan, Easter preparation), tourism in lower season, agricultural export cycle timing
External Pressures: Global dollar strength, commodity price fluctuations, regional capital flow dynamics
One of Tanzania's significant achievements has been maintaining limited dollarization compared to many other African economies. This reflects the credibility of monetary policy and confidence in the domestic currency.
Transaction Dollarization Assessment
Comprehensive studies show that transaction dollarization in Tanzania remains remarkably limited compared to regional peers and historical levels:
Survey Evidence
Location
% Businesses Quoting in USD
Assessment
Mainland Tanzania
3.2%
Very Limited
Zanzibar
4.5%
Slightly higher (tourism concentration)
Overall Average
~3.5%
Significant improvement from 1990s
Key Finding: The vast majority of domestic commerce is conducted in Tanzanian Shillings, representing dramatic improvement from 1990s levels when dollarization was much higher.
Policy Framework Supporting De-dollarization
📜 Section 26 of Bank of Tanzania Act
Requirement: All domestic transactions must be conducted in Tanzanian Shillings
Exceptions: Only for specific authorized transactions (international trade, tourism packages)
Enforcement: Strengthened significantly in recent years
Penalties: Increased for violations to deter non-compliance
Public awareness: Campaigns conducted to educate businesses and consumers
Impact of 2024 Appreciation
The strong appreciation in late 2024 had several positive effects on dollarization:
Parallel market premium collapsed - minimal difference between official and informal rates
Dollarization declined further - increased confidence in Shilling value retention
Formal channel usage increased - transactions moved to banking system
Reduced currency substitution - less hoarding of dollars by businesses and individuals
Remaining Dollarization
Limited dollarization still persists in specific areas:
Sector
Level
Trend
Real Estate Transactions
Moderate
Declining
High-Value Goods (vehicles, machinery)
Moderate
Stable
Savings/Wealth Preservation
Low-Moderate
Declining
Trade Invoicing (International)
High
Normal practice
🎯 Overall Assessment: Success Story
Tanzania has successfully avoided the high dollarization seen in some African economies (Zimbabwe, Angola historically). This achievement reflects:
Strong institutions - central bank credibility established
6. Regional Comparison: East African Community
Tanzania's monetary policy performance can be best appreciated when compared with regional peers in the East African Community (EAC). This comparison reveals Tanzania's competitive advantages and positions the country as a regional leader in monetary policy effectiveness.
Tanzania's monetary policy stance stands out in the East African Community for its accommodative approach combined with strong price stability. At 5.75%, Tanzania maintains the lowest policy rate in the region, providing a competitive advantage for economic growth while maintaining inflation control.
Country
Central Bank
Policy Rate
Inflation Rate
GDP Growth
Tanzania 🇹🇿
Bank of Tanzania
5.75%
3.4%
6.0%
Kenya 🇰🇪
Central Bank of Kenya
9.00%
4.5%
5.0%
Uganda 🇺🇬
Bank of Uganda
9.75%
3.4%
7.0%
Rwanda 🇷🇼
National Bank of Rwanda
6.75%
7.2%
7.8%
Burundi 🇧🇮
Bank of the Republic of Burundi
12.00%
18.5%
4.1%
Sources: Various Central Bank Monetary Policy Statements, January 2026
EAC Monetary Policy Comparison (January 2026)
6.2 Comparative Analysis - Tanzania's Superior Performance
Tanzania's combination of low policy rates and controlled inflation demonstrates superior monetary policy effectiveness compared to regional peers. Let's examine each comparison in detail:
🇹🇿 Tanzania vs. 🇰🇪 Kenya
Policy Rate: Tanzania 5.75% vs. Kenya 9.00% (Tanzania 325 bps lower)
Inflation: Tanzania 3.4% vs. Kenya 4.5% (Tanzania lower)
GDP Growth: Tanzania 6.0% vs. Kenya 5.0% (Tanzania higher)
Assessment: Tanzania achieves better outcomes with more accommodative policy, reflecting superior fiscal discipline and policy credibility
🇹🇿 Tanzania vs. 🇺🇬 Uganda
Policy Rate: Tanzania 5.75% vs. Uganda 9.75% (Tanzania 400 bps lower)
Inflation: Tanzania 3.4% vs. Uganda 3.4% (equal inflation control)
GDP Growth: Tanzania 6.0% vs. Uganda 7.0% (Uganda slightly higher)
Assessment: Tanzania achieves similar inflation control with significantly lower rates; Uganda's higher growth comes at cost of tighter monetary conditions
🇹🇿 Tanzania vs. 🇷🇼 Rwanda
Policy Rate: Tanzania 5.75% vs. Rwanda 6.75% (Tanzania 100 bps lower)
Inflation: Tanzania 3.4% vs. Rwanda 7.2% (Tanzania much lower)
GDP Growth: Tanzania 6.0% vs. Rwanda 7.8% (Rwanda higher)
Assessment: Tanzania has superior inflation control; Rwanda's higher growth is accompanied by elevated inflation pressures
All major EAC countries now use interest rate-based monetary policy frameworks, creating regional alignment that facilitates policy coordination and supports eventual monetary union objectives.
Interest Rate-Based Frameworks
All major EAC countries transitioned to interest rate-based frameworks
Tanzania's January 2024 transition brought full regional alignment
Facilitates policy coordination and comparison across countries
Supports eventual monetary union objectives within EAC
Inflation Targeting Approaches
Country
Target Band
Medium-Term Target
Current Performance
Tanzania
3-5%
5%
✅ 3.4% (within band)
Kenya
2.5-7.5%
5%
✅ 4.5% (within band)
Uganda
N/A
5%
✅ 3.4% (below target)
Rwanda
N/A
5%
⚠️ 7.2% (above target)
Common frameworks support regional economic convergence and lay groundwork for deeper integration and eventual monetary union within the EAC.
7. Current Challenges and Future Outlook
Despite remarkable successes, Tanzania's monetary policy faces several significant challenges that could impact future effectiveness. Addressing these challenges proactively will be critical to sustaining the impressive macroeconomic performance achieved.
7.1 Key Challenges Facing Monetary Policy
⚠️ Five Critical Challenges
Tanzania's monetary policy framework faces interconnected challenges that require coordinated policy responses and structural reforms to maintain effectiveness.
A. Weak Monetary Policy Transmission Mechanisms
Research indicates that adjustments in interest rates or liquidity often fail to influence broader economic activity adequately. This transmission weakness stems from multiple structural factors:
1. Low Financial Inclusion (28.2% Excluded)
Approximately 28.2% of households remain financially excluded
71.8% inclusion rate improved from previous years but still leaves significant population unreached
Excluded populations don't respond to interest rate changes
Limits monetary policy impact on consumption and investment decisions
Rural areas particularly underserved by formal financial services
2. Underdeveloped Financial Markets
Shallow interbank market limiting liquidity distribution among banks
Limited secondary trading in government securities
Absence of derivatives markets for hedging and risk management
Small corporate bond market providing few alternatives to bank credit
Limits overall effectiveness of monetary policy tools
4. Information Asymmetries
Limited credit information systems increasing perceived lending risks
Banks unable to assess creditworthiness accurately
Results in high interest rate spreads for risk compensation
Even when policy rate falls, lending rates stay high
SMEs particularly affected by information gaps
Evidence of Weak Transmission
CBR cut from 6.00% to 5.75% in July 2025
Commercial lending rates remained largely unchanged at 16-18%
10-12 percentage point spread indicates serious transmission blockage
Policy rate changes not fully reflected in real economy
B. Government Domestic Borrowing Impact - Critical Challenge
This represents perhaps the most significant impediment to monetary policy effectiveness currently. Recent empirical evidence (Mwakalila, 2025, Journal of Policy Modeling) demonstrates that increasing government borrowing from domestic commercial banks prevents effective transmission of monetary policy rate changes to lending rates.
Government commitment to reduce domestic borrowing over medium term
Shift to concessional external financing where available
Debt sustainability framework being strengthened
Public Financial Management reforms improving expenditure efficiency
However: Sustained fiscal discipline is essential to enhance monetary policy effectiveness.
C. Exchange Rate Volatility and External Shocks
Despite recent stability, the exchange rate remains vulnerable to multiple pressures that can create macroeconomic instability:
1. Seasonal FX Flows
Tourism seasonality (high: Jun-Oct, low: Mar-May)
Agricultural export cycles timing
Predictable quarterly variations
Requires active central bank liquidity management
2. Commodity Price Volatility
Gold prices ($1,800-2,400/oz range)
Oil prices affecting import costs
Food commodities (exports and imports)
Terms of trade shocks
3. Import Demand Pressures
Ramadan preparation (Jan-Feb)
Festive season (Nov-Dec)
Infrastructure project imports
Energy imports (oil, gas)
4. Limited Export Diversification
Gold dominates (~40% of merchandise exports)
Tourism second major source
Agricultural exports concentrated
Lack of manufacturing exports
Recent Example: The 9.51% appreciation (Jul-Dec 2024) followed by 3.8% monthly depreciation demonstrates volatility challenge, even with sound fundamentals.
D. Climate Change and Agricultural Volatility
With agriculture accounting for approximately 30% of GDP and employing 60%+ of the workforce, climate-related disruptions pose significant macroeconomic risks.
Climate Risk Impact on Key Economic Indicators
☔ Heavy Rains and Flooding
Agricultural production disruption and crop damage
Global Trade Tensions: US-China conflicts, protectionism, supply chain reconfigurations
Advanced Economy Monetary Policy: US Fed and ECB policies affecting global capital flows and dollar strength
Geopolitical Conflicts: Ukraine-Russia war, Middle East tensions, Red Sea shipping disruptions
Development Assistance Uncertainty: Potential aid reductions, conditionality changes
Global Growth Slowdown: China deceleration, Europe stagnation, emerging market stress
Technology Shifts: Digital economy growth, cryptocurrency, fintech disruption, AI impacts
7.2 Strategic Priorities and Recommendations
To address these challenges and sustain Tanzania's impressive macroeconomic performance, several strategic priorities emerge:
Five Strategic Imperatives
Tanzania must pursue coordinated reforms across multiple fronts to maintain and enhance monetary policy effectiveness while building resilience against external and structural vulnerabilities.
1. Strengthen Monetary Policy Transmission
📈 Deepen Financial Markets
Develop repo market for liquidity management
Enhance secondary trading in securities
Introduce derivatives (futures, options)
Promote corporate bond market
Strengthen interbank market infrastructure
💳 Enhance Financial Inclusion
Expand mobile money integration
Develop agent banking in rural areas
Promote digital credit products
Support microfinance institutions
Strengthen financial literacy programs
ℹ️ Improve Credit Infrastructure
Expand credit reference bureaus
Develop collateral registry systems
Strengthen insolvency framework
Enhance credit guarantee schemes for SMEs
Improve movable assets financing
📊 Reduce Information Asymmetries
Mandate credit reporting for all lenders
Develop appropriate credit scoring models
Share positive credit information
Support alternative data usage
2. Reduce Government Domestic Borrowing
🎯 Critical for Policy Effectiveness
Reducing government domestic borrowing is essential to restore monetary policy transmission and enable private sector credit expansion at affordable rates.
Continue Revenue Mobilization: Tax reforms, digital systems, base broadening, VAT compliance, property tax
Prioritize Concessional External Financing: Multilateral development banks, bilateral loans, green climate finance, Islamic finance (Sukuk)
Export Diversification: Manufacturing exports through value addition, processing, tourism diversification, services exports
7.3 Medium-Term Outlook (2026-2030)
Current Risk Assessment (Early 2026)
✅ HIGHLY FAVORABLE CONDITIONS
The Bank of Tanzania's January 2026 assessment indicates LOW INFLATION RISKS for the near term, creating exceptionally favorable conditions for continued growth support.
Supporting Factors for Favorable Outlook
Factor
Status
Details
Food Security
✅ Strong
Adequate stocks, good harvests, regional availability, import capacity maintained
External Stability
✅ Comfortable
Reserves >4.9 months, stable exchange rate (+0.8%), narrowing current account
Tanzania's monetary policy journey represents a remarkable transformation from the chaos of fiscal dominance and hyperinflation in the 1980s to the current era of exceptional macroeconomic stability. This comprehensive analysis demonstrates several critical achievements:
1995
Institutional Transformation
3.4%
Inflation (vs. 25% in 1980s)
6.0%
Avg. GDP Growth
#1
Regional Leadership (EAC)
1. Institutional Transformation (1995-Present)
Bank of Tanzania independence established through historic 1995 Act
End of fiscal dominance enabling credible monetary policy
Modern framework adoption (monetary targeting → interest rate-based)
Professional policy management with clear accountability
Regional leadership in monetary policy effectiveness
2. Price Stability Success (2018-Present)
Inflation consistently 3-4% vs. 5% medium-term target
Dramatic improvement from 20-30%+ rates of the 1980s-1990s
8.5 Final Verdict: Remarkable Success with Vigilance Required
Tanzania's monetary policy evolution represents one of Sub-Saharan Africa's most impressive macroeconomic transformations. The journey from fiscal dominance, chronic inflation, and economic instability to the current era of price stability, robust growth, and policy credibility demonstrates what is possible with:
✅ Strong institutional frameworks (1995 BoT Act)
✅ Professional policy management (modern targeting frameworks)
✅ Regional leadership (lowest rates, best inflation control)
🏆 Unequivocal Positive Impact
The data unequivocally supports the conclusion that monetary policy HAS HAD A POSITIVE, STABILIZING IMPACT on Tanzania's economy:
✓ Inflation controlled 3-4% vs. 20-30%+ historically
✓ Growth supported 6% average vs. SSA 3-4%
✓ Credit expanded +20.3% without inflation
✓ External position improved CAD narrowed, reserves adequate
✓ Currency stabilized Dollarization limited, confidence high
✓ Regional leadership Best policy effectiveness in EAC
However, complacency would be dangerous. The challenges of weak transmission, government borrowing crowding-out, external vulnerabilities, and climate risks are real and could undermine future effectiveness if not addressed.
🎯 The Path Forward
With the right conditions met, Tanzania is well-positioned to maintain macroeconomic stability while achieving its development objectives under Vision 2050 and beyond:
Sustained commitment to inflation targeting and central bank independence
Enhanced fiscal discipline to reduce crowding-out effects
Structural reforms deepening financial markets and improving transmission
Climate resilience building to protect agriculture and energy
Continuous monitoring of risks and agile policy responses
The current moment—early 2026—represents perhaps the strongest macroeconomic position Tanzania has enjoyed in its post-independence history. The foundation is solid, the framework is sound, and the track record is proven.
Preserving and building on this achievement will require continued policy excellence, structural reforms, and vigilant risk management, but the rewards in terms of sustained growth, poverty reduction, and improved living standards make the effort essential.
🌍 Lessons for Africa and the Developing World
Tanzania's monetary policy success story demonstrates that with the right institutions, professional management, and sustained commitment, emerging economies can achieve macroeconomic stability comparable to advanced economies—an inspiring lesson for the broader African continent and developing world.
Bank of Tanzania Financial Statement December 2025 - Complete Analysis | TICGL
Bank of Tanzania Financial Statement Analysis
Comprehensive Review of Central Bank's Financial Position
Reporting Period: December 31, 2025 |
Published: January 16, 2026 |
Total Assets: TZS 29.73 Trillion
Introduction
The Bank of Tanzania's financial statement for December 31, 2025, reveals a robust balance sheet totaling TZS 29,734,116,024,000 (TZS 29.73 trillion) in total assets, representing a marginal increase of TZS 62.75 billion (0.21%) from the previous month. The central bank maintains strong foreign currency reserves, significant gold holdings, and substantial government securities portfolios, positioning Tanzania's monetary authority as a stable financial institution.
Key highlights include total equity of TZS 2.69 trillion, though this declined by TZS 138.09 billion from November 2025. Currency in circulation increased to TZS 9.87 trillion, while foreign currency marketable securities remained substantial at TZS 8.97 trillion, demonstrating the bank's capacity to manage monetary policy and maintain financial stability.
Total Assets
TZS 29.73T
+0.21% from Nov 2025
Total Equity
TZS 2.69T
-4.89% from Nov 2025
Currency in Circulation
TZS 9.87T
+1.72% from Nov 2025
Foreign Reserves
TZS 8.97T
-0.20% from Nov 2025
Detailed Assets Analysis
Asset Composition and Distribution
The Bank of Tanzania's asset portfolio demonstrates strategic diversification across multiple categories, with foreign currency marketable securities representing the largest single asset class at TZS 8.97 trillion (30.1% of total assets). This substantial foreign currency position enables the central bank to maintain exchange rate stability and meet international payment obligations.
Asset Category
Dec 31, 2025 (TZS '000)
Nov 30, 2025 (TZS '000)
Change (TZS '000)
% Change
Cash and Cash Equivalent
4,082,721,981
4,451,306,481
-368,584,500
-8.28%
Items in Course of Settlement
26,824,175
0
+26,824,175
New
Holdings of SDRs
248,262,596
260,076,904
-11,814,308
-4.54%
Monetary Gold
2,094,668,771
1,882,335,649
+212,333,122
+11.28%
IMF Quota
1,335,991,251
1,316,940,410
+19,050,841
+1.45%
Foreign Currency Securities
8,965,338,736
8,983,322,949
-17,984,213
-0.20%
Government Securities
1,785,952,682
1,788,957,901
-3,005,219
-0.17%
Advances to Governments
4,313,547,925
5,003,855,160
-690,307,235
-13.79%
Loans and Receivables
1,333,694,778
1,353,585,170
-19,890,392
-1.47%
Equity Investments
160,318,269
159,420,434
+897,835
+0.56%
Bullion Gold
3,303,237,679
2,790,183,836
+513,053,843
+18.39%
Other Assets & PPE
2,083,557,181
1,681,386,053
+402,171,128
+23.92%
Asset Distribution (December 2025)
Key Asset Movement Insights
Significant Gold Holdings Increase: Combined monetary and bullion gold increased by TZS 725.39 billion (+13.44%), reaching TZS 5.40 trillion. This substantial increase reflects strategic reserve diversification and potentially rising gold prices.
Government Lending Reduction: Advances to Governments decreased by TZS 690.31 billion (-13.79%), suggesting improved government fiscal position or strategic deleveraging by the central bank.
Cash Position Optimization: Cash and cash equivalents declined by TZS 368.58 billion (-8.28%), likely reflecting deployment into higher-yielding assets or operational requirements.
Liabilities and Equity Analysis
Liability/Equity Category
Dec 31, 2025 (TZS '000)
Nov 30, 2025 (TZS '000)
Change (TZS '000)
% Change
Currency in Circulation
9,865,443,677
9,698,821,378
+166,622,299
+1.72%
Deposits - Banks & NBFIs
4,640,101,835
5,436,842,144
-796,740,309
-14.65%
Deposits - Others
3,460,470,196
3,570,569,361
-110,099,165
-3.08%
Foreign Currency Liabilities
4,512,327,889
4,030,408,142
+481,919,747
+11.96%
Repurchase Agreements
360,000,000
0
+360,000,000
New
BoT Liquidity Papers
433,095,193
242,517,669
+190,577,524
+78.58%
SDR Allocation
1,920,310,507
1,892,927,446
+27,383,061
+1.45%
IMF Related Liabilities
1,209,845,414
1,209,845,414
0
-
Other Liabilities
645,181,968
764,009,689
-118,827,721
-15.55%
Liability Structure (December 2025)
Monetary Policy Indicators
The increase in currency in circulation by TZS 166.62 billion (+1.72%) to TZS 9.87 trillion indicates strong economic activity and seasonal demand patterns typical of the December period. This growth in money supply aligns with increased consumer spending during the holiday season and end-of-year business transactions.
The significant introduction of TZS 360 billion in repurchase agreements and a 78.58% increase in BoT Liquidity Papers (TZS 433.10 billion) demonstrates active liquidity management operations. These instruments allow the central bank to fine-tune money market conditions and maintain target interest rates.
Bank and non-bank financial institution deposits decreased substantially by TZS 796.74 billion (-14.65%), potentially reflecting seasonal withdrawal patterns, lending activities, or strategic reserve management by financial institutions.
Month-over-Month Financial Position Trends
Equity Position and Reserves
Component
Dec 31, 2025 (TZS '000)
Nov 30, 2025 (TZS '000)
Change (TZS '000)
Authorised and Paid up Capital
100,000,000
100,000,000
0
Reserves
2,587,339,345
2,725,429,704
-138,090,359
Total Equity
2,687,339,345
2,825,429,704
-138,090,359
Equity Analysis
Total equity declined by TZS 138.09 billion (-4.89%) from November to December 2025, entirely attributable to a reduction in reserves. This decrease may reflect operational expenses, valuation adjustments on foreign currency holdings, or strategic reserve allocations. Despite this decline, the central bank maintains a healthy equity position of TZS 2.69 trillion, representing 9.04% of total assets, which is adequate for a central bank's capital requirements.
Financial Ratios and Performance Indicators
Financial Indicator
Dec 2025
Nov 2025
Analysis
Equity to Assets Ratio
9.04%
9.52%
Adequate capital adequacy for central banking operations
Foreign Reserves to Liabilities
33.15%
33.47%
Strong foreign currency position relative to obligations
Gold Holdings (Total)
TZS 5.40T
TZS 4.67T
Significant strategic reserve diversification
Liquidity Coverage
41.39%
45.91%
Healthy liquid asset position
Currency Coverage Ratio
3.01
3.06
Assets exceed liabilities by factor of 3
Key Financial Metrics Comparison
Strategic Implications for Tanzania's Economy
Monetary Stability and Exchange Rate Management
The Bank of Tanzania's substantial foreign currency reserves of TZS 8.97 trillion, combined with total gold holdings of TZS 5.40 trillion, provide a robust foundation for maintaining exchange rate stability and meeting external payment obligations. These reserves represent approximately 47.7% of total assets, demonstrating the central bank's commitment to safeguarding Tanzania's currency value and supporting international trade.
Liquidity Management and Financial System Stability
The active use of monetary policy instruments, including the introduction of TZS 360 billion in repurchase agreements and significant increase in liquidity papers, demonstrates sophisticated liquidity management capabilities. These tools enable the Bank of Tanzania to maintain optimal money market conditions, control inflation, and support economic growth objectives.
Government Fiscal Coordination
The reduction in advances to government by TZS 690.31 billion (-13.79%) suggests improved fiscal discipline or reduced government borrowing requirements from the central bank. This positive trend indicates either stronger revenue collection, alternative financing sources, or expenditure rationalization, all contributing to macroeconomic stability.
Economic Growth Support
The 1.72% increase in currency in circulation reflects growing economic activity and financial deepening. This expansion in money supply, when properly managed, supports business transactions, consumer spending, and overall economic growth while maintaining price stability objectives.
International Reserve Position
Tanzania's international reserves composition includes:
Foreign Currency Securities: TZS 8,965.34 billion (30.15% of assets)
Monetary Gold: TZS 2,094.67 billion (7.05% of assets)
Bullion Gold: TZS 3,303.24 billion (11.11% of assets)
IMF Quota: TZS 1,335.99 billion (4.49% of assets)
SDR Holdings: TZS 248.26 billion (0.84% of assets)
Total international reserves of approximately TZS 15.95 trillion provide substantial import cover and external debt servicing capacity, enhancing investor confidence and supporting currency stability.
Comparative Analysis: November vs December 2025
Major Balance Sheet Changes
Top 5 Increases (December 2025)
Item
Change (TZS Billion)
% Change
Impact
Bullion Gold
+513.05
+18.39%
Strategic reserve diversification and value appreciation
Foreign Currency Liabilities
+481.92
+11.96%
Increased external obligations or currency swaps
Other Assets
+410.54
+80.95%
Operational adjustments and receivables management
Repurchase Agreements
+360.00
New
Active liquidity management operations
Monetary Gold
+212.33
+11.28%
Reserve asset appreciation and acquisitions
Top 5 Decreases (December 2025)
Item
Change (TZS Billion)
% Change
Impact
Deposits - Banks & NBFIs
-796.74
-14.65%
Reduced institutional deposits, possible lending activity
Advances to Governments
-690.31
-13.79%
Government debt repayment or fiscal improvement
Cash and Cash Equivalent
-368.58
-8.28%
Cash deployment to other investments
Reserves (Equity)
-138.09
-5.07%
Operational costs and valuation adjustments
Other Liabilities
-118.83
-15.55%
Settlement of outstanding obligations
Sector-Specific Insights
Banking Sector Implications
The 14.65% decrease in bank and NBFI deposits at the central bank suggests financial institutions are actively deploying capital into lending and investment activities. This reduction in excess reserves typically indicates confidence in economic conditions and opportunities for profitable deployment of funds. Commercial banks may be responding to increased credit demand or seeking higher returns in government securities markets.
Government Financing Dynamics
Government securities holdings of TZS 1.79 trillion combined with the reduction in direct advances demonstrates a shift toward market-based government financing. This transition enhances transparency, promotes market development, and reduces inflationary pressures associated with central bank financing of fiscal deficits.
External Sector Strength
The robust foreign reserve position provides Tanzania with approximately 5-6 months of import cover (based on typical import levels), well above the internationally recommended minimum of 3 months. This strong external buffer enhances the country's ability to weather external shocks, maintain exchange rate stability, and attract foreign investment.
Related Economic Analysis & Resources
Explore comprehensive economic data and insights about Tanzania's business environment:
Critical analysis of income distribution, poverty reduction, and strategies for more inclusive economic development.
Conclusion and Outlook
The Bank of Tanzania's December 2025 financial statement reflects a well-managed central bank with strong international reserves, effective liquidity management capabilities, and prudent fiscal coordination with the government. The TZS 29.73 trillion balance sheet demonstrates institutional strength and capacity to support Tanzania's economic development objectives.
Key positive indicators include the substantial increase in gold holdings (+TZS 725.39 billion), reduced government dependency on central bank financing (-TZS 690.31 billion in advances), and healthy foreign currency reserves (TZS 8.97 trillion). These factors position Tanzania favorably for exchange rate stability, inflation management, and economic growth support.
The marginal equity decline of 4.89% warrants monitoring but does not raise immediate concerns given the overall strength of the balance sheet. The central bank's equity ratio of 9.04% remains adequate for its operational requirements and risk management framework.
Looking ahead, the Bank of Tanzania's robust reserve position and sophisticated monetary policy toolkit provide essential foundations for navigating global economic uncertainties, supporting financial sector development, and fostering sustainable economic growth in 2026 and beyond.
As of November 2025, the Bank of Tanzania (BoT) recorded total assets of TZS 29.67 trillion (approximately USD 12 billion), liabilities of TZS 26.85 trillion, and equity of TZS 2.83 trillion, featuring a remarkable increase in gold holdings (over TZS 4.67 trillion combined) and cash equivalents (TZS 4.45 trillion) driven by record gold sales and tourism revenue—this directly reflects Tanzania's strong economic performance in 2025, with GDP growth of 6.0–6.3%, inflation below 3.4%, and foreign exchange reserves of USD 6–7 billion (4.7 months of import cover). The BoT plays a critical role in managing the economy through monetary policies, such as purchasing domestic gold, controlling currency in circulation (TZS 9.7 trillion), and extending loans to the private sector to stimulate investment and sustainable development.
If this trend continues into 2026, in line with IMF projections (GDP growth of 6.3%), BoT assets are expected to reach TZS 32–35 trillion, liabilities to remain well-managed below TZS 30 trillion, and equity to strengthen above TZS 3 trillion—signaling a steadily growing and resilient economy. In comparison, the Central Bank of Kenya (CBK) holds total assets of approximately KES 2 trillion (USD 15–16 billion) with foreign reserves of around USD 12 billion (5.2–5.3 months of import cover) as of December 2025; while the CBK offers stronger liquid foreign reserves for greater protection against shocks, the BoT's gold-focused strategy provides a hedge against global price volatility, with both institutions contributing to their countries' growth (Kenya projected at 5.0–5.3% in 2026) through effective inflation control and credit stimulation. Read More:Central Bank Asset Dynamics and Tanzania’s Macroeconomic Performance in 2025–2026
Central Banks as Pillars of Growth: Comparing Tanzania and Kenya Amid Political Uncertainties
In East Africa, the Bank of Tanzania (BoT) and the Central Bank of Kenya (CBK) stand as critical institutions steering their respective economies toward stability and expansion. As of December 2025, both nations exhibit resilient growth trajectories, with Tanzania's GDP expanding by 5.6% in FY2024/25 and projections for 6.0-6.3% in 2025-2026, while Kenya anticipates 5.3% growth in 2025 amid controlled inflation. These figures reflect the central banks' pivotal roles in fostering economic development through monetary policy, reserve management, and financial stability. However, Tanzania's post-election political turmoil in late 2025 introduces risks that could dampen its 2026 outlook, underscoring the interplay between governance and economic progress. This article examines the functions of BoT and CBK in driving growth, offers a comparative lens, and explores how Tanzania's political dynamics might influence its economic path forward.
The Role of the Bank of Tanzania in Economic Development
The BoT, established under the Bank of Tanzania Act of 2006, serves as the guardian of monetary stability while actively supporting broader economic growth. Its primary mandate includes formulating and implementing monetary policy to maintain low inflation—currently at 3.33% in 2025—and ensuring financial system soundness. Beyond price stability, the BoT contributes to development by developing financial markets, promoting inclusive finance, and accumulating foreign reserves to buffer against external shocks. For instance, its November 2025 balance sheet reveals total assets of TZS 29.67 trillion (approximately USD 12 billion), bolstered by an 18.6% surge in gold holdings to TZS 4.67 trillion, reflecting strategic purchases from domestic miners to diversify reserves and support the mining sector—a key driver of Tanzania's export-led growth.
By managing currency in circulation (TZS 9.7 trillion as of November) and extending loans to the private sector (up 62% month-on-month to TZS 1.35 trillion), the BoT stimulates investment in agriculture, tourism, and manufacturing, which employ over 65% of the workforce. In January 2025's Monthly Economic Review, the BoT emphasized aligning monetary policy with growth objectives, such as sustaining reserves at USD 6.17 billion (4.7 months of import cover) to enhance investor confidence and facilitate infrastructure projects like LNG developments. These efforts have helped Tanzania achieve resilient GDP growth despite global headwinds, positioning the bank as a catalyst for long-term development through policies that encourage savings, credit access, and economic diversification.
The Role of the Central Bank of Kenya in Economic Development
Similarly, the CBK, mandated by Article 231 of Kenya's Constitution, prioritizes price stability while promoting economic growth and public interest. It formulates monetary policy, issues currency, and regulates the financial sector to foster a stable environment for investment. As of December 2025, the CBK lowered its Central Bank Rate (CBR) to 9.00% from previous levels, aiming to stimulate economic activity, support SMEs, and boost lending amid inflation of 4.46% in November—well within its 2.5-7.5% target. This proactive stance, as outlined in its bi-annual Monetary Policy Statements, regulates money supply growth in line with GDP targets, using tools like Open Market Operations and a Cash Reserve Ratio of 3.25% to manage liquidity.
The CBK's foreign exchange reserves stand at approximately USD 12 billion (5.2-5.3 months of import cover), providing a stronger buffer than Tanzania's and enabling interventions to stabilize the Kenyan Shilling. By encouraging long-term investments and maintaining deflation-free conditions, the bank supports key sectors like agriculture, services, and manufacturing, which have driven Kenya's consistent GDP expansion. For example, its role in currency issuance and management ensures efficient transactions, while financial inclusion initiatives have expanded access to credit, contributing to poverty reduction and job creation. Overall, the CBK acts as an economic enabler, balancing stability with growth to position Kenya as a regional hub.
Comparative Analysis: BoT vs. CBK in Driving Growth
While both central banks share core functions like inflation control and reserve management, their approaches reflect national economic structures. Tanzania's BoT emphasizes commodity diversification, with gold comprising a significant portion of reserves, aligning with its mining-dependent economy. In contrast, Kenya's CBK relies more on liquid foreign currency holdings, suiting its service-oriented market with higher external trade volumes.
Rate cuts for SMEs; stabilizes services/manufacturing
Inflation (2025)
3.33%
4.46% (Nov)
Policy Tools
Domestic gold acquisition, monetary easing
CBR at 9%, Open Market Operations
GDP Contribution
Enables 6%+ growth via reserves buildup
Sustains 5%+ growth through liquidity
This table highlights Kenya's edge in reserve depth for external resilience, while Tanzania's strategy hedges against volatility through gold. Both institutions have effectively contained inflation below 5%, fostering environments conducive to investment and poverty alleviation.
Tanzania's Political Landscape and Its Potential Impact on 2026 Economic Growth
Tanzania's political stability, once a regional benchmark, has been shaken by the October 2025 general elections, marred by allegations of irregularities and resulting in widespread protests. President Samia Suluhu Hassan secured re-election, but opposition parties like Chadema have decried the process as fraudulent, calling for a UN-overseen transitional government. Post-election violence led to a lethal crackdown by security forces, with UN experts condemning systematic human rights violations, including killings and digital restrictions. By December 2025, the government imposed nationwide protest bans, tightened security, and urged the military to remain apolitical amid escalating tensions.
This unrest could jeopardize Tanzania's 2026 economic projections of 6.1-6.3% GDP growth. Prolonged instability might deter foreign investment, disrupt tourism (a key forex earner), and strain fiscal resources through heightened security spending. If protests escalate, supply chain disruptions could inflate food prices, pushing inflation above the 3-5% target and eroding purchasing power. Moreover, international scrutiny from bodies like the UN and African Union could lead to sanctions or reduced aid, impacting reserves and infrastructure projects. However, if the government addresses grievances through dialogue—as hinted in recent calls for military professionalism—stability could return, allowing the BoT's policies to sustain growth amid global trade tensions.
Conclusion
The BoT and CBK exemplify how central banks can drive economic development by balancing stability with proactive growth measures, from reserve diversification in Tanzania to rate adjustments in Kenya. Their efforts have positioned both nations for robust 2025-2026 performance, with low inflation and adequate buffers against external risks. Yet, Tanzania's political volatility post-2025 elections poses a wildcard, potentially hindering 2026 growth through investor flight and fiscal strain. For sustained progress, addressing governance issues will be as crucial as monetary policy, ensuring these East African powerhouses continue their upward trajectories.
Tanzania’s economic performance in 2025 reflects a period of strong macroeconomic stability, export-led growth, and improving external resilience, underpinned by prudent monetary management by the Bank of Tanzania (BoT). As of 30 November 2025, the BoT’s financial position signals a notable strengthening of the country’s economic fundamentals, with total assets rising to TZS 29.67 trillion, equivalent to a 4.9% increase (about TZS 1.39 trillion) compared to October 2025. This expansion mirrors heightened foreign exchange inflows, record performance in the mining sector—particularly gold—and rising domestic economic activity, all of which have reinforced liquidity conditions and reserve buffers.
A defining feature of 2025 has been the rapid accumulation of gold and liquid assets. Total gold holdings (monetary and bullion combined) increased by 18.6% to TZS 4.67 trillion, driven by the BoT’s domestic gold purchase programme and Tanzania’s exceptional export performance. Gold export earnings reached an estimated USD 4.3–4.43 billion in the year ending September/October 2025, representing a 35–36% year-on-year increase and firmly establishing gold as the country’s leading foreign exchange earner. In parallel, cash and cash equivalents rose by 32.8% to TZS 4.45 trillion, reflecting strong inflows from exports and services such as tourism, as well as improved liquidity management. These trends have contributed to a more diversified and resilient reserve position.
These monetary and reserve developments are consistent with Tanzania’s broader macroeconomic outcomes in 2025. Real GDP growth is estimated at 6.0–6.3%, supported by mining, tourism (with arrivals rising by around 11%), agriculture, manufacturing, and large-scale infrastructure projects. Inflation remained subdued at about 3.4% in November 2025, comfortably within the BoT’s 3–5% target band, while foreign exchange reserves stood at around USD 6.17 billion (approximately 4.7 months of import cover) by end-October 2025, meeting regional adequacy benchmarks and enhancing exchange rate stability.
Economic Trajectory for 2026
Looking ahead, Tanzania’s macroeconomic outlook for 2026 remains broadly positive, building on the strong foundations established in 2025. Current projections from international and domestic sources point to real GDP growth of about 6.1–6.3% in 2026, indicating stable to slightly accelerating momentum. Growth is expected to continue being driven by mining (especially gold), tourism, infrastructure investments, manufacturing, and gradual expansion in private sector credit, supported by ongoing structural reforms aimed at improving the business environment.
Inflation in 2026 is projected to remain around 3.5%, still within the BoT’s policy target range, reflecting continued prudent monetary policy, stable food supply conditions, and moderated global energy prices. Foreign exchange reserves are expected to remain adequate—above 4.5–5 months of import cover, bolstered by sustained gold and tourism receipts and steady capital inflows. Gold exports are likely to remain elevated, potentially exceeding USD 4 billion, although performance will remain sensitive to global commodity prices and production dynamics.
Overall, the 2026 trajectory suggests that Tanzania is well positioned to consolidate its macroeconomic gains, strengthen external buffers, and advance toward its medium-term development goals, including upper-middle-income status. Nonetheless, risks such as commodity price volatility, climate-related shocks, and post-election policy adjustments could influence outcomes. Maintaining fiscal discipline, deepening export diversification, and sustaining prudent monetary management will be critical to preserving stability and translating growth into inclusive and resilient economic development beyond 2026. Read More:Tanzania Economic Updates December 2025
Key Changes in the BoT Balance Sheet (November vs. October 2025)
The table below highlights selected major items (in TZS '000) with significant changes, focusing on those relevant to economic development (e.g., reserves, gold, and liquidity indicators).
Item
30-Nov-2025 (TZS '000)
31-Oct-2025 (TZS '000)
Change (TZS '000)
% Change
Implications for Economy
Total Assets
29,671,370,947
28,276,931,699
+1,394,439,248
+4.9%
Strong reserve accumulation and economic expansion
Cash and Cash Equivalents
4,451,306,481
3,351,589,357
+1,099,717,124
+32.8%
Inflows from exports (e.g., gold, tourism) boosting liquidity
Monetary Gold
1,882,335,649
1,503,197,004
+379,138,645
+25.2%
Higher gold prices and BoT domestic purchases
Bullion Gold
2,790,183,836
2,437,344,646
+352,839,190
+14.5%
Reflects mining sector boom and reserve diversification
The most notable development is the ~18.6% increase in total gold holdings (combined monetary and bullion gold), driven by Tanzania's mining sector expansion and the BoT's policy of purchasing gold from domestic producers. This aligns with record gold export earnings of approximately USD 4.3–4.43 billion in the year ending September/October 2025, a ~35–36% surge year-on-year, fueled by high global gold prices and increased production.
Broader Tanzania Economic Indicators (2025 Context)
Tanzania's economy in 2025 demonstrates resilient growth, low inflation, and strengthening external buffers, supported by key sectors: mining (gold-led), tourism (strong recovery in arrivals), agriculture (stable output despite weather risks), and infrastructure investments. GDP growth is driven by exports and public projects, with foreign reserves providing a buffer against external shocks.
Indicator
Value (2025)
Notes/Source Context
Real GDP Growth (projected/full year)
6.0–6.3%
IMF projection 6.0%; Q2 actual 6.3%; driven by mining, tourism (+11% arrivals), agriculture
Headline Inflation (November 2025)
3.4%
Down from 3.5% in October; within BoT target (3–5%); food inflation cooled to ~6.6%
Foreign Exchange Reserves (end-October 2025)
~USD 6.17 billion (4.7 months import cover)
BoT data; some reports cite ~USD 6.4 billion excluding gold in November; adequate per EAC benchmarks
Mining and tourism leading export/FX earnings; agriculture employs ~65% of workforce
These indicators reflect sustained economic development:
Mining boom directly contributes to the BoT's gold reserve buildup, enhancing foreign exchange reserves and fiscal revenues.
Low inflation (around 3–3.5%) supports purchasing power and investment attractiveness.
Adequate reserves (4.5–5 months import cover) provide stability amid global uncertainties.
Ongoing reforms (e.g., infrastructure like ports/railways, LNG projects) and private sector lending growth signal diversification beyond traditional agriculture.
Overall, the BoT balance sheet reinforces a positive outlook for Tanzania's economy, characterized by export-led growth, macroeconomic stability, and progressive reserve accumulation in 2025.
Tanzania's Economic Trajectory for 2026
Tanzania's strong macroeconomic momentum in 2025 is expected to carry into 2026, with projections indicating continued resilient growth, low inflation, and strengthening external buffers. International and domestic forecasts highlight sustained performance in key sectors—particularly mining, tourism, infrastructure investments, and manufacturing—while ongoing reforms aim to enhance diversification and private sector participation. The Bank of Tanzania's prudent monetary management and reserve accumulation are likely to support exchange rate stability and resilience against global uncertainties. However, risks such as potential political transitions following the 2025 elections, commodity price volatility, and climate-related challenges could moderate the pace if not managed effectively.
Projected Key Economic Indicators for 2026
The table below summarizes major forecasts from reputable sources (as of late 2025 data), compared to 2025 estimates for context.
Indicator
Projected Value (2026)
2025 Estimate/Actual
Change/Trend
Notes/Source Context
Real GDP Growth
6.1–6.3%
6.0–6.3%
Stable to slight acceleration
IMF: 6.3%; Tanzania government target: 6.1%; driven by fixed investments, exports, and reforms
Headline Inflation
~3.5%
~3.3–3.4%
Mild increase
Expected to stay within BoT's 3–5% target; supported by stable food/energy prices and tight policy
Foreign Exchange Reserves
Adequate (>4.5–5 months import cover)
~4.7 months (end-2025 est.)
Continued improvement
Bolstered by gold/tourism exports and inflows; aligns with EAC benchmarks
Gold Exports
Sustained high levels (potentially >USD 4 billion)
USD 4.3–4.43 billion
Stable growth
Dependent on global prices and production; mining remains dominant
Emphasis on LNG projects, ports/railways, and private sector credit expansion; East Africa regional leader at ~5.9% average growth
Overall, the 2026 outlook reinforces Tanzania's path toward upper-middle-income status, with export-led growth and reserve buildup (as seen in the BoT's 2025 balance sheet trends) providing a solid foundation. Successful implementation of structural reforms, climate-resilient investments, and fiscal prudence will be critical to achieving these projections and mitigating downside risks.
Conclusion
The Bank of Tanzania's November 2025 balance sheet paints an optimistic picture of the nation's macroeconomic health, with significant asset growth, diversified reserves (particularly in gold), and strengthened equity signaling enhanced resilience and capacity for development financing. Tanzania's 2025 performance—marked by record export earnings, low and stable inflation, private sector credit expansion, and GDP growth around 6%—has been anchored by effective central bank policies and sectoral strengths in mining and tourism, providing a buffer against external risks while fostering inclusive progress.
As the economy transitions into 2026, projections of 6.1–6.3% GDP growth, inflation remaining around 3.5%, and sustained reserve adequacy offer a compelling outlook for continued momentum. Key opportunities lie in advancing structural reforms, climate-resilient investments, and diversification efforts to mitigate risks such as commodity price fluctuations or global slowdowns. With the BoT's prudent stewardship and export-led drivers intact, Tanzania is well-positioned to build on its 2025 gains, driving sustainable development, job creation, and regional leadership in the years ahead.
The Tanzania Shilling (TZS) remained broadly stable in July 2025 despite mild depreciation pressures. The currency averaged TZS 2,666.79 per USD, a 1.34% monthly decline from June, while annual depreciation slowed to 0.11%, reflecting resilience compared to 0.21% in June. Stability was supported by higher foreign exchange market activity, with IFEM turnover rising 33.7% to USD 162.5 million, boosted by export inflows, while the Bank of Tanzania intervened by selling USD 17.5 million. Importantly, reserves strengthened to USD 6,194.4 million, covering about 5 months of imports, well above EAC (4.5 months) and SADC (3 months) benchmarks, cushioning the currency against external shocks.
Exchange Rate Movement
The Shilling traded at an average of TZS 2,666.79 per USD in July 2025, compared to TZS 2,631.56 per USD in June 2025.
This represents a monthly depreciation of about 1.34%.
On an annual basis, the Shilling depreciated at a rate of 0.11%, slightly better than the 0.21% annual depreciation recorded in June 2025.
Market Liquidity & Central Bank Intervention
Interbank Foreign Exchange Market (IFEM) turnover increased to USD 162.5 million in July 2025, up from USD 121.5 million in June 2025.
The Bank of Tanzania intervened by selling USD 17.5 million, compared to USD 6.3 million in the previous month.
Seasonal inflows from cash crops and gold exports supported liquidity and moderated depreciation pressure.
Reserves Buffer
Gross foreign exchange reserves stood at USD 6,194.4 million at the end of July 2025, compared to USD 5,292.2 million in July 2024.
This covers about 5 months of imports of goods and services, above both the EAC and SADC benchmarks.
Strong reserves have helped cushion the Shilling from sharper depreciation.
Table: Tanzania Shilling Stability (July 2025)
Indicator
June 2025
July 2025
Annual Comparison
Exchange Rate (TZS per USD, average)
2,631.56
2,666.79
Depreciation 0.11%
Monthly Change (%)
—
-1.34%
—
IFEM Turnover (USD Million)
121.5
162.5
+33.7%
BOT Intervention (USD Million sold)
6.3
17.5
—
Gross Reserves (USD Million)
—
6,194.4
5,292.2 (Jul 2024)
Import Cover (months)
—
5.0
>EAC: 4.5; >SADC: 3
Economic Implications of Tanzania Shilling Stability – July 2025
1. Exchange Rate Movement
Marginal Depreciation and Resilience: The TZS's 1.34% monthly depreciation to 2,666.79 per USD from June 2025 indicates mild pressure from import demand, yet the annual depreciation slowed to 0.11% from 0.21% in June, highlighting improved stability compared to prior periods. Economically, this controlled weakening helps maintain export competitiveness, particularly for key commodities like gold (exports up to USD 3,977.6 million annually) and cash crops, boosting foreign earnings without triggering inflationary spirals. It reflects a narrowing current account deficit to USD 2,079.2 million in the year to July 2025 (down 23.4% from 2024), driven by a 19.7% rise in goods exports to USD 9,479.4 million, as per the report's external sector data.
Broader Implications: A stable yet slightly depreciating currency reduces the risk of capital outflows, supporting domestic investment and aligning with BOT's accommodative policy (CBR at 5.75%). However, persistent depreciation could elevate debt servicing costs for USD-denominated external debt (USD 32,955.5 million as of June 2025), though strong reserves mitigate this.
2. Market Liquidity & Central Bank Intervention
Increased Turnover and Supportive Inflows: The Interbank Foreign Exchange Market (IFEM) turnover surged 33.7% to USD 162.5 million from USD 121.5 million in June 2025, signaling enhanced market liquidity bolstered by seasonal inflows from cash crops (e.g., cashew nuts up significantly) and gold exports. BOT's increased intervention—selling USD 17.5 million versus USD 6.3 million—helped moderate depreciation pressures, ensuring orderly market conditions.
Economic Meaning: This liquidity boost enhances forex availability for importers, stabilizing supply chains in import-dependent sectors like manufacturing and energy (imports at USD 14,720.3 million annually). It underscores BOT's role in smoothing volatility, fostering business confidence and credit growth (15.9% annually), while aligning with global easing of trade tensions that could further support export-driven liquidity. Overall, it contributes to macroeconomic stability, potentially lowering transaction costs and encouraging foreign direct investment.
3. Reserves Buffer
Robust Accumulation and Coverage: Gross foreign reserves rose to USD 6,194.4 million by end-July 2025, up 17% from USD 5,292.2 million in July 2024, covering 5 months of imports—exceeding EAC (4.5 months) and SADC (3 months) benchmarks. This buildup, fueled by export growth (e.g., tourism receipts up 3.8% to USD 3,871.9 million), provides a strong buffer against external shocks.
Economic Significance: High reserves enhance currency credibility, reducing vulnerability to global risks like oil price stability (at USD 69.2 per barrel) and enabling BOT to intervene effectively. It supports fiscal flexibility for development spending (TZS 909.4 billion in June) and debt management (national debt at USD 46,586.6 million), promoting sustainable growth. In a regional context, this positions Tanzania favorably for credit ratings and inflows, aiding long-term projections of 6% GDP growth amid subdued global uncertainties.
Summary of Broader Economic Significance
The TZS's stability in July 2025 reflects a positive interplay of export strength, reserve adequacy, and policy vigilance, mitigating depreciation risks while supporting economic expansion. This fosters a conducive environment for private sector activity, with potential upsides in tourism and agriculture, though monitoring import pressures remains key to avoid imbalances. Compared to earlier depreciations (e.g., 6.1% in 2023), current trends indicate improved resilience, aligning with IMF and World Bank views on Tanzania's stable outlook.
The Bank of Tanzania’s August 2025 review shows that lending and deposit rates continued to adjust in response to the accommodative monetary policy stance. Lending rates eased slightly, with the overall rate at 15.16% in July 2025 (down from 15.23% in June), while short-term lending declined to 15.51% and negotiated prime customer loans to 12.56%. On the deposit side, rates for time deposits increased modestly, with the 12-month rate reaching 9.88%, while negotiated deposits for large savers fell to 10.72%. The spread between short-term lending and deposit rates narrowed to 5.63 percentage points from 6.66 points a year earlier, signaling lower borrowing costs relative to savings returns and supporting private sector credit growth of 15.9% annually.
1. Lending Interest Rates
Overall lending rate:
15.16% in July 2025, slightly lower than 15.23% in June 2025.
Short-term lending rate (≤ 1 year):
15.51% in July 2025, down from 15.69% in June 2025.
Negotiated lending rate (prime customers):
12.56% in July 2025, down from 12.68% in June 2025.
Trend: Lending rates are easing slightly, reflecting improved liquidity and accommodative monetary policy (CBR cut to 5.75%).
2. Deposit Interest Rates
Overall deposit rate:
8.83% in July 2025, up from 8.74% in June 2025.
12-month deposit rate:
9.88% in July 2025, up from 9.79% in June 2025.
Negotiated deposit rate (large depositors):
10.72% in July 2025, down from 11.21% in June 2025.
Savings deposit rate:
2.90%, unchanged from June 2025.
Trend: Deposit rates have been slightly increasing for time deposits, but declining for large negotiated deposits.
3. Interest Rate Spread
The spread between short-term lending and deposit rates narrowed to 5.63 percentage points in July 2025, compared to 6.66 percentage points in July 2024.
This indicates reduced borrowing costs relative to deposit returns, which can stimulate credit growth.
Table: Lending and Deposit Interest Rates (July 2025)
Category
June 2025 (%)
July 2025 (%)
Change
Lending Rates
Overall Lending Rate
15.23
15.16
-0.07
Short-Term Lending Rate (≤ 1 yr)
15.69
15.51
-0.18
Negotiated Lending Rate
12.68
12.56
-0.12
Deposit Rates
Overall Deposit Rate
8.74
8.83
+0.09
12-Month Deposit Rate
9.79
9.88
+0.09
Negotiated Deposit Rate
11.21
10.72
-0.49
Savings Deposit Rate
2.90
2.90
0.00
Interest Rate Spread
—
5.63 (vs. 6.66 in 2024)
Narrowed
Economic Implications of Lending and Deposit Interest Rates – July 2025
1. Lending Interest Rates
Slight Decline: The overall lending rate eased to 15.16% from 15.23%, short-term rates (≤ 1 year) dropped to 15.51% from 15.69%, and negotiated rates for prime customers fell to 12.56% from 12.68%.
Economic Meaning: This modest reduction aligns with the BOT's CBR cut and improved liquidity (e.g., TZS 758.8 billion in reverse repo operations), lowering borrowing costs for businesses and households. The decline, though small, signals policy transmission, encouraging investment and consumption—key drivers of Tanzania's projected 6% GDP growth. Lower short-term rates (15.51%) support working capital needs, while the negotiated rate drop (12.56%) benefits creditworthy firms, potentially boosting sectors like agriculture and manufacturing (supported by food stock increases to 485,930.4 tonnes). However, rates remain high relative to inflation (3.3%), suggesting banks are cautious about risk, possibly due to lingering global uncertainties noted in the global section.
2. Deposit Interest Rates
Mixed Trends: The overall deposit rate rose to 8.83% from 8.74%, with the 12-month rate increasing to 9.88% from 9.79%, while the negotiated rate for large depositors fell to 10.72% from 11.21%, and savings rates stayed at 2.90%.
Economic Meaning: The rise in time deposit rates (e.g., 9.88% for 12 months) reflects banks' efforts to attract longer-term savings amid robust M3 growth (19.9%), ensuring liquidity for lending. This competition for funds supports financial deepening, aligning with Tanzania's goal of mobilizing domestic resources (e.g., savings up 18.7% annually). The decline in negotiated rates (10.72%) for large depositors suggests banks are adjusting terms for institutional clients, possibly to manage excess liquidity. Stable savings rates (2.90%) indicate limited incentives for short-term savings, directing funds toward higher-yield investments or consumption, which could fuel demand-led growth.
3. Interest Rate Spread
Narrowing Gap: The spread between short-term lending and deposit rates narrowed to 5.63 percentage points in July 2025 from 6.66 points in July 2024, reflecting a more balanced cost-benefit for borrowers.
Economic Significance: A shrinking spread (from 6.66% to 5.63%) enhances borrowing affordability, stimulating credit demand (e.g., private sector credit at 15.9%). This supports the BOT's growth objective, as lower relative borrowing costs can spur business expansion and job creation. However, the spread remains wide compared to advanced economies (typically 2-3%), indicating banks are still prioritizing profitability, possibly due to high operational costs or non-performing loans. This could limit the pace of credit growth unless offset by further policy easing.
Summary of Broader Economic Significance
Growth and Investment Boost: The easing lending rates and narrowing spread create a more favorable borrowing environment, supporting the BOT's credit growth target (15.9% achieved) and aligning with GDP growth projections. Rising deposit rates for time deposits enhance savings mobilization, providing a stable funding base for banks.
Policy Effectiveness: The trends reflect successful monetary policy transmission, with the CBR cut and liquidity injections (e.g., reverse repos) influencing rates, though the high base rates suggest room for further easing to match inflation.
Potential Challenges: High lending rates (above 15%) could deter small borrowers, while the mixed deposit rate trends might signal uneven liquidity management. In a regional context (e.g., EAC inflation within 8%), Tanzania's rate dynamics support stability but require monitoring to avoid overheating risks.
Comparative Insight: Compared to 2024's wider spreads (6.66%), the 2025 narrowing aligns with global easing trends (e.g., stable oil at USD 69.2/barrel), positioning Tanzania favorably for investment inflows.
The Bank of Tanzania’s August 2025 Monthly Economic Review shows that the financial market remained highly liquid in July 2025, supported by the recent reduction of the Central Bank Rate (CBR) to 5.75%. Government securities were in strong demand, with Treasury bill auctions oversubscribed nearly threefold (TZS 452.1 billion bids vs. TZS 162.0 billion offered) and a decline in the weighted average yield to 8.13% from 8.89% in June. In the bond market, investor preference shifted toward longer maturities, with the 10-year bond oversubscribed at a yield of 13.74%, while shorter tenors recorded slight yield increases. Meanwhile, interbank cash market (IBCM) activity surged, with turnover rising by 30% to TZS 3,746 billion, dominated by 7-day deals, while the average rate eased to 6.62% (from 7.93%), reflecting improved banking sector liquidity and effective monetary policy transmission.
1. Government Securities Market
In July 2025, the Bank of Tanzania conducted two Treasury bill auctions with a total offer of TZS 162.0 billion.
Bids received: TZS 452.1 billion
Successful bids: TZS 158.9 billion
Weighted Average Yield (WAY): 8.13% (down from 8.89% in June 2025).
Treasury Bonds:
Auctions for 2-, 5-, and 10-year bonds were held.
Tender sizes:
2-year: TZS 117.05 billion
5-year: TZS 136.2 billion
10-year: TZS 162.8 billion
Bids received: TZS 396.4 billion, of which TZS 351.9 billion were accepted.
Yields:
2-year: 12.17% (slight increase)
5-year: 13.18% (slight increase)
10-year: 13.74% (slight decrease).
Investor trend: Preference shifted toward longer-term bonds (10-year oversubscribed, while 2- and 5-year were undersubscribed).
2. Interbank Cash Market (IBCM)
The IBCM continued to play a role in liquidity management.
Turnover in July 2025:TZS 3,746 billion (up from TZS 2,873.9 billion in June 2025).
Structure of transactions:
7-day deals dominated: 65.9% of total turnover.
Interest rates:
Overall IBCM rate eased to 6.62% (down from 7.93% in June 2025).
Within the Central Bank Rate (CBR) corridor of 3.75% – 7.75%.
Table 1: Treasury Bills Auction (July 2025)
Indicator
Amount / Rate
Amount Offered
TZS 162.0 billion
Bids Received
TZS 452.1 billion
Successful Bids
TZS 158.9 billion
Oversubscription Ratio
2.8x
Weighted Average Yield (WAY)
8.13% (vs. 8.89% in Jun 2025)
Table 2: Treasury Bonds Auctions (July 2025)
Bond Tenor
Tender Size (TZS Billion)
Bids Received (TZS Billion)
Accepted (TZS Billion)
Yield (%)
Investor Demand
2-Year
117.05
12.17 ↑
Undersubscribed
5-Year
136.20
13.18 ↑
Undersubscribed
10-Year
162.80
13.74 ↓
Oversubscribed
Total
416.05
396.4
351.9
—
Strong demand
(Arrows indicate direction vs. June 2025 yields)
Table 3: Interbank Cash Market (IBCM), July 2025
Indicator
June 2025
July 2025
Change
Total Turnover (TZS Billion)
2,873.9
3,746.0
+30%
Dominant Deal Type
7-day (≈66%)
7-day (65.9%)
—
Overall IBCM Rate (%)
7.93
6.62
-1.31
Policy Corridor (CBR range)
3.75% – 7.75%
3.75% – 7.75%
—
Economic Implications of the Financial Market Data (Government Securities and IBCM)
1. Government Securities Market
Government securities (Treasury bills and bonds) are key tools for the BOT and government to manage liquidity, finance budgets, and signal interest rate expectations. The July 2025 data shows strong demand overall, but with nuanced shifts in investor preferences.
Treasury Bills (Short-Term Securities):
Oversubscription and Yield Decline: The auctions offered TZS 162.0 billion but attracted TZS 452.1 billion in bids (nearly 2.8x oversubscribed), with only TZS 158.9 billion accepted (about 35% of bids). The weighted average yield (WAY) fell to 8.13% from 8.89% in June.
Economic Meaning: This indicates abundant liquidity in the banking system, as investors (primarily banks and institutional players) are eager to park excess funds in safe, short-term assets. The yield drop reflects the BOT's accommodative policy transmitting to lower short-term borrowing costs for the government. Economically, it signals:
Lower Government Financing Costs: Cheaper short-term debt helps ease fiscal pressure, allowing more budget allocation to growth-oriented spending (e.g., infrastructure, as noted in the document's budgetary operations section).
Stimulus to Credit and Growth: With yields falling, banks may redirect funds toward private sector lending, aligning with the BOT's goal of boosting credit growth (which was at 15.9% annually in July). This could support sectors like agriculture and manufacturing, contributing to GDP expansion.
Potential Risks: Persistent oversubscription might hint at risk aversion if investors prefer safe assets over riskier loans, though the document's strong money supply growth (19.9% for M3) suggests otherwise.
Treasury Bonds (Medium- to Long-Term Securities):
Auction Details and Yield Movements: Tender sizes were TZS 117.05 billion (2-year), TZS 136.2 billion (5-year), and TZS 162.8 billion (10-year). Total bids reached TZS 396.4 billion (oversubscribed overall), with TZS 351.9 billion accepted. Yields rose slightly for 2-year (to 12.17%) and 5-year (to 13.18%) bonds but eased for 10-year (to 13.74%).
Investor Shift to Longer Tenors: The 10-year bond was oversubscribed, while shorter ones were undersubscribed, showing a preference for long-term instruments.
Economic Meaning: This points to evolving investor confidence and expectations of future rates.
Yield Curve Dynamics: The slight increase in short- to medium-term yields contrasted with a dip in long-term yields suggests a flattening yield curve. Investors may anticipate further policy easing (e.g., more CBR cuts) or stable inflation, making long-term bonds attractive for locking in returns. This reflects optimism about Tanzania's medium-term economic stability, supported by the document's notes on resilient global conditions and domestic inflation within the 3-5% target.
Confidence in Long-Term Outlook: The shift to 10-year bonds indicates reduced perceived long-term risks, possibly due to improving external factors (e.g., stable commodity prices like oil at USD 69.2/barrel) and strong export performance. It could lower the government's overall debt servicing costs over time, freeing resources for development (as seen in the document's external sector improvements).
Fiscal and Growth Implications: Higher acceptance rates (89% of bids) help fund budgetary operations without crowding out private credit. However, undersubscription in shorter bonds might signal caution on near-term liquidity or inflation risks from food price upticks (e.g., rice and millet, as detailed in the inflation section).
Overall, for Government Securities:
Broad Implications: The market's robustness (high bids, easing yields) underscores effective monetary policy transmission, fostering lower interest rates economy-wide. This supports the BOT's dual mandate of price stability and growth, potentially reducing the cost of capital for businesses and households. From a macroeconomic perspective, it aligns with Tanzania's 2025 growth projections (around 6.5% per IMF estimates), driven by mining, tourism, and agriculture. However, if yields continue falling too sharply, it could encourage speculative borrowing or pressure the shilling (though it remained stable at TZS 2,666.79/USD).
2. Interbank Cash Market (IBCM)
The IBCM is a short-term lending market among banks, crucial for liquidity management and transmitting BOT policy signals. It operates within the CBR corridor (3.75%-7.75% in July).
Increased Turnover and Easing Rates: Turnover rose ~30% to TZS 3,746 billion from TZS 2,873.9 billion in June, with 7-day deals dominating (65.9%). The overall rate eased to 6.62% from 7.93%.
Economic Meaning: This reflects improved liquidity conditions in the banking sector, directly tied to the BOT's reverse repo operations (TZS 758.8 billion injected in July, per the document).
Ample Liquidity and Policy Effectiveness: Higher turnover and lower rates indicate banks have excess reserves to lend, reducing borrowing pressures. The rate staying within the corridor shows the BOT's success in steering short-term rates toward the CBR, promoting stability.
Boost to Banking and Credit: Easier interbank lending lowers funding costs for banks, which can pass savings to customers via cheaper loans. This complements the document's noted private sector credit growth (15.9%), potentially accelerating investment in key sectors.
Growth Support Amid Easing: The ~1.3% rate drop signals a loosening environment, encouraging economic activity without stoking inflation (which remained stable due to offsetting food and energy dynamics). It could help mitigate global risks like trade uncertainties (highlighted in the global section).
Summary of Broader Economic Significance
Positive for Growth and Stability: The data portrays an easing financial environment, with lower yields and rates fostering cheaper credit, higher investment, and fiscal flexibility. This is consistent with the BOT's strategy to counter subdued global demand while maintaining inflation targets, potentially supporting Tanzania's 2025 GDP growth amid resilient exports (e.g., gold and cash crops).
Liquidity-Driven Trends: Strong demand and easing conditions stem from policy measures like the CBR cut and reverse repos, indicating effective liquidity management. Investors' long-term preference suggests confidence in sustained recovery.
Potential Challenges: While beneficial, excessive liquidity could lead to asset price inflation or currency depreciation if not monitored. The document's emphasis on stable commodity prices and external improvements mitigates this, but ongoing vigilance is key.
Comparative Context: Compared to regional peers (e.g., EAC inflation within 8% benchmark), Tanzania's markets appear more liquid and investor-friendly, enhancing its attractiveness for foreign inflows.
As of February 28, 2025, the Bank of Tanzania’s total assets grew by 3.18%, reaching TZS 26.05 trillion, up from TZS 25.24 trillion in January. This growth was driven by a 15% increase in cash reserves (TZS 6.05 trillion) and a 10.2% rise in foreign currency marketable securities (TZS 8.53 trillion). Meanwhile, equity surged by 15.3%, supported by a 16% rise in reserves (TZS 2.41 trillion). However, advances to the government declined by 17.1%, reflecting tighter monetary policy, while currency in circulation fell by 1.4%, signaling a possible shift towards digital transactions or inflation control measures.
1. Total Assets:
Total:TZS 26.05 trillion (increased from TZS 25.24 trillion in January 2025, a 3.18% increase).
IMF-related Liabilities:TZS 1.17 trillion (no change).
Special Drawing Rights (SDRs) Allocation:TZS 1.94 trillion (up from TZS 1.86 trillion, +4.7%).
3. Equity:
Total:TZS 2.51 trillion (up from TZS 2.18 trillion, +15.3%).
Breakdown:
Paid-up Capital:TZS 100 billion (unchanged).
Reserves:TZS 2.41 trillion (up from TZS 2.08 trillion, +16%).
Key Takeaways:
✅ Increase in Assets (+3.18%), driven by growth in foreign marketable securities, loans, and cash reserves. ✅ Increase in Liabilities (+2%), with a rise in bank deposits and foreign currency liabilities. ✅ Growth in Equity (+15.3%), mainly due to an increase in reserves. ⚠️ Decline in Advances to Government (-17.1%), indicating reduced central bank lending to the government. ⚠️ Slight decrease in Currency Circulation (-1.4%), potentially reflecting economic factors like lower cash demand.
Analysis of the Bank of Tanzania's Financial Position (As of 28 February 2025)
The financial statement shows key trends in Tanzania’s monetary system and economic conditions.
1. Financial Stability and Growth
✅ Total Assets Increased (+3.18%)
The growth in total assets to TZS 26.05 trillion suggests a stronger financial position for the central bank.
The rise in foreign currency marketable securities (+10.2%) indicates increased foreign reserves, which enhances Tanzania’s ability to manage external shocks.
Higher cash reserves (+15%) signal stronger liquidity and better financial sector stability.
✅ Increase in Equity (+15.3%)
A rise in reserves (+16%) suggests that the central bank has improved its capital buffer, making it more resilient against financial risks.
2. Monetary Policy Implications
⚠️ Decline in Advances to Government (-17.1%)
A reduction in lending to the government means the Bank of Tanzania is possibly tightening its monetary policy, aiming to control inflation or reduce fiscal dependency on central bank funding.
⚠️ Decrease in Currency Circulation (-1.4%)
A drop in money circulation could suggest:
Lower cash demand, possibly due to increased digital transactions.
Slower economic activity, as businesses and individuals hold less cash.
Efforts to control inflation by reducing excess liquidity in the economy.
✅ Increase in Bank Deposits (+14.8%)
This indicates stronger banking sector liquidity, suggesting that banks have more funds available for lending to businesses and individuals, which can drive economic growth.
3. External Sector and IMF Involvement
✅ Increase in IMF Quota & Special Drawing Rights (SDRs) (+4.7%)
Tanzania’s higher quota and SDRs mean increased access to IMF financial support if needed, enhancing the country’s external financial stability.
✅ Increase in Foreign Currency Liabilities (+1.1%)
This could indicate external borrowing or obligations, possibly linked to foreign exchange market interventions or debt management.
4. Potential Risks & Considerations
⚠️ Reduction in Government Securities (-1.7%)
This could signal lower investment in domestic government debt, potentially affecting fiscal financing.
⚠️ Deposits from Other Sources Dropped (-4.8%)
A decrease in non-bank deposits might indicate lower private sector liquidity or withdrawals from certain institutional accounts.
Conclusion
✅ The Bank of Tanzania’s financial position is strong, with rising reserves, improved liquidity, and controlled government lending. ⚠️ However, the decline in cash circulation and advances to the government may indicate monetary tightening and a possible slowdown in cash-based economic activities. 💡 Recommendation: Monitor government borrowing and liquidity trends to ensure balanced growth without excessive tightening.
