Tanzania's National Consumer Price Index (NCPI) release for September 2025, issued by the National Bureau of Statistics on October 8, 2025, reveals a stable macroeconomic environment characterized by headline inflation holding steady at 3.4% year-over-year—the highest level since June 2023 but well within the Bank of Tanzania's (BoT) target range of 3-5%. This marks no change from August 2025, with the overall NCPI edging up slightly to 119.86 (2020=100) from 119.77, driven by modest price increases in select food and non-food items. Food and non-alcoholic beverages inflation eased to 7.0% from 7.7%, reflecting a -0.6% monthly dip in the index, while non-food inflation ticked up to 1.9% from 1.6%. Core inflation, excluding volatile items like unprocessed food and energy, rose modestly to 2.2% from 2.0%, signaling underlying price pressures remain contained.

This stability, amid robust GDP growth of 5.4% in Q1 2025, underscores Tanzania's resilient post-pandemic recovery and effective policy framework.

Tanzania Inflation Overview (September 2025)

Inflation by Main Consumption Group (September 2025)

Key Monthly Drivers (Aug–Sept 2025)

Price increases were observed in:

• Food items: sorghum flour (+3.6%), bread (+1.0%), chicken (+5.0%), sweet potatoes (+7.6%), cassava (+2.2%), cocoyams (+8.9%), fruits (+2.2%), and dried peas (+4.0%).
• Non-food items: alcoholic beverages (+0.6%), men’s garments (+0.9%), kerosene (+1.1%), and charcoal (+2.7%).

Economic Implications of Tanzania's September 2025 Inflation Data

1. Monetary Policy and Macroeconomic Stability

• Support for Accommodative Stance: The unchanged headline rate and easing food pressures reinforce the BoT's decision to hold the Central Bank Rate (CBR) at 5.75% during its October 2, 2025, Monetary Policy Committee meeting. This reflects confidence in sustained inflation within the 3-5% target, avoiding the need for tightening that could stifle growth. Prudent monetary policy has historically anchored expectations, contributing to the shilling's relative stability (projected 3.7% depreciation in 2025) and low borrowing costs, which bolster private sector credit expansion.
• Risk Mitigation: Core inflation's slight uptick suggests mild demand-pull pressures from economic expansion, but the overall trajectory—fluctuating between 3.0% and 3.4% over the past year—indicates no overheating. This reduces the likelihood of imported inflation from global commodity shocks, such as energy prices, which have eased regionally.

2. Impact on Household Consumption and Poverty

• Relief for Low-Income Households: Food items, weighting 28.2% of the NCPI basket, drove much of the monthly index increase (e.g., +8.9% for cocoyams, +7.6% for sweet potatoes), yet annual food inflation's decline to 7.0% eases cost-of-living pressures for rural and urban poor households, who spend over 50% of income on food. This could sustain consumption resilience, supporting poverty reduction efforts amid 5.4% Q1 growth.
• Mixed Non-Food Pressures: The +0.3% rise in non-food inflation, fueled by essentials like kerosene (+1.1%) and charcoal (+2.7%), may strain urban budgets amid seasonal energy demands. However, stable categories like health (0.0% monthly change) and education (+0.0%) provide buffers, potentially stabilizing real disposable incomes and consumer confidence.

3. Sectoral and Supply-Side Dynamics

• Agricultural Resilience: Despite monthly spikes in crops like sorghum flour (+3.6%) and dried peas (+4.0%), the food index's -0.6% drop points to improved harvests or supply chain efficiencies, possibly from favorable 2025 rainy seasons. This bodes well for Tanzania's agriculture sector (25% of GDP), enhancing export competitiveness in East Africa and curbing imported food inflation.
• Energy and Manufacturing Pressures: Gains in the Energy, Fuel, and Utilities Index (+0.9% monthly to 3.7% annually) highlight vulnerabilities to global oil dynamics, but contained rises (e.g., liquefied hydrocarbons +0.1%) reflect BoT's forex interventions. Non-food drivers like clothing (+0.3% monthly) suggest manufacturing cost pass-throughs, potentially pressuring small enterprises but signaling domestic production gains.
• Services Sector Boost: Stable services inflation (1.3% annually) in areas like restaurants (+1.0%) and recreation (-0.1% monthly) aligns with tourism recovery, a key growth driver projected at 6% GDP expansion for 2025.

4. Broader Growth and Investment Outlook

• Pro-Growth Environment: Stable inflation complements fiscal prudence, with the IMF endorsing Tanzania's trajectory for 6% GDP growth in 2025, driven by infrastructure and mining investments. Low inflation volatility enhances investor confidence, attracting FDI (e.g., in natural gas) and supporting the shilling's stability against regional peers like Kenya's higher inflation.
• Potential Risks: Persistent food volatility (still 7.0%) could re-emerge from climate events, while global factors like OECD-projected G20 inflation moderation to 2.9% in 2026 offer tailwinds but underscore external dependencies. If non-food trends accelerate, it might prompt BoT vigilance.

In summary, September 2025's inflation data signals a "soft landing" for Tanzania's economy—stable prices fostering inclusive growth without derailing expansion. This positions the country favorably in East Africa, where peers face higher volatility, and supports the BoT's projection of inflation averaging 3.4% for the year. Policymakers should prioritize agricultural diversification and energy security to sustain this momentum into 2026.

Pension Funds, Banks, and Retail Investors Drive Diversification

As of June 2025, Tanzania’s domestic debt stock (excluding liquidity papers) rose to TZS 35,502.8 billion, marking a monthly increase of 0.9% (TZS 301.7 billion) and an annual growth of 11.1% (TZS 3,551.6 billion) from June 2024. This expansion aligns with the government's fiscal strategy to fund the 2.5% of GDP budget deficit, primarily through long-term Treasury bonds. Notably, no Treasury bills were auctioned in June, emphasizing the shift toward longer-term instruments. Domestic debt now accounts for approximately 29.3% of the total national debt (estimated at TZS 121.2 trillion), reflecting a balanced mix of domestic and external financing. The creditor landscape has evolved, with commercial banks holding 28.6%, pension funds 26.1%, and a rapidly expanding “Others” category (18.1%), highlighting increased participation from retail and non-traditional investors. This diversification reduces concentration risks and demonstrates growing confidence in government securities amid stable macroeconomic conditions.

Government Domestic Debt – Overview

The domestic debt stock, excluding liquidity papers (e.g., short-term instruments used for monetary policy), represents funds borrowed by the Tanzanian government from domestic creditors, primarily through Treasury bonds and bills. As of June 2025, the total domestic debt stock was TZS 35,502.8 billion, reflecting steady growth and a diversified creditor base.

• Total Domestic Debt Stock:
  • June 2025: TZS 35,502.8 billion
  • Monthly Increase: +0.9% from TZS 35,201.1 billion in May 2025 (an increase of TZS 301.7 billion).
  • Year-on-Year Increase: +11.1% from TZS 31,951.2 billion in June 2024 (an increase of TZS 3,551.6 billion).
  • Context: The year-on-year growth aligns with Tanzania’s fiscal strategy to finance the FY 2024/25 budget deficit (projected at 2.5% of GDP, per the African Development Bank) through domestic borrowing, particularly Treasury bonds. The absence of Treasury bill auctions in June 2025 (as noted in your earlier query) suggests a focus on long-term borrowing, contributing to the debt stock increase.
• Share of National Debt: Domestic debt constitutes approximately 29.3% of Tanzania’s total national debt (assuming total debt is ~TZS 121.2 trillion, combining domestic debt of TZS 35,502.8 billion and external debt of ~TZS 82.4 trillion or USD 32,955.5 million from June 2025). This reflects a balanced reliance on domestic and external financing.

Government Domestic Debt by Creditor Category

The domestic debt is distributed across various creditor categories, including commercial banks, the Bank of Tanzania (BoT), pension funds, insurance companies, BoT special funds, and others (e.g., public institutions, private companies, individuals). The following table summarizes the debt stock by creditor for June 2024, May 2025, and June 2025, with shares for June 2025:

Detailed Analysis by Creditor

1. Commercial Banks:
   • June 2025: TZS 10,161.5 billion (28.6% share).
   • Change:
     • Monthly: +0.2% from TZS 10,138.2 billion in May 2025 (TZS 23.3 billion increase).
     • Year-on-Year: +1.7% from TZS 9,996.1 billion in June 2024 (TZS 165.4 billion increase).
   • Share Trend: Declined from 31.3% in June 2024 to 28.6% in June 2025, indicating a reduced relative reliance on banks.
   • Context: Commercial banks are major holders of Treasury bonds (e.g., TZS 322.4 billion accepted in June 2025 auctions), reflecting their role as key financiers of government borrowing. The modest monthly growth suggests banks maintained stable investments, possibly due to high yields (14.50% for 20-year bonds, 14.80% for 25-year bonds). The year-on-year decline in share may reflect banks’ diversification into private sector lending or liquidity constraints, as noted in the interbank cash market’s TZS 2,873.9 billion turnover in June 2025.
   • Implications: Banks’ significant share (28.6%) underscores their systemic importance, but the declining share suggests a broadening creditor base, reducing concentration risks.
2. Bank of Tanzania (BoT):
   • June 2025: TZS 7,174.1 billion (20.2% share).
   • Change:
     • Monthly: +0.2% from TZS 7,158.2 billion in May 2025 (TZS 15.9 billion increase).
     • Year-on-Year: +8.2% from TZS 6,626.2 billion in June 2024 (TZS 547.9 billion increase).
   • Share Trend: Slightly increased from 20.7% in June 2024 to 20.2% in June 2025, reflecting steady BoT participation.
   • Context: The BoT’s holdings include government securities used for monetary policy operations or direct financing (e.g., overdraft facilities). The significant year-on-year increase aligns with the BoT’s role in supporting fiscal deficits, as seen in the TZS 270.2 billion deficit in May 2025. The BoT’s February 2025 report noted a TZS 140.8 billion reduction in domestic debt due to lower overdraft use, suggesting cautious central bank lending.
   • Implications: Rising BoT holdings indicate central bank support for liquidity management, but excessive reliance could blur fiscal-monetary boundaries, potentially affecting monetary policy credibility.
3. Pension Funds:
   • June 2025: TZS 9,265.7 billion (26.1% share).
   • Change:
     • Monthly: +0.7% from TZS 9,203.9 billion in May 2025 (TZS 61.8 billion increase).
     • Year-on-Year: +6.0% from TZS 8,744.9 billion in June 2024 (TZS 520.8 billion increase).
   • Share Trend: Increased from 27.4% in June 2024 to 26.1% in June 2025, remaining a major creditor.
   • Context: Pension funds (e.g., NSSF, PSSSF) are key investors in Treasury bonds due to their long-term investment horizons and need for stable returns. The oversubscription of June 2025 bond auctions (TZS 1,232.9 billion in tenders vs. TZS 638.7 billion offered) reflects strong pension fund demand. The World Bank notes pension funds’ growing role in domestic debt markets as a sign of financial deepening.
   • Implications: The steady share (26.1%) supports fiscal financing but ties pension fund liquidity to government debt, posing risks if debt servicing pressures arise.
4. Insurance Companies:
   • June 2025: TZS 1,843.0 billion (5.2% share).
   • Change:
     • Monthly: +0.2% from TZS 1,840.0 billion in May 2025 (TZS 3.0 billion increase).
     • Year-on-Year: +1.5% from TZS 1,815.7 billion in June 2024 (TZS 27.3 billion increase).
   • Share Trend: Stable at 5.7% in June 2024 to 5.2% in June 2025.
   • Context: Insurance companies invest in government securities for stable returns, but their small share reflects limited market participation compared to banks and pension funds. The stable share aligns with their conservative investment strategies.
   • Implications: The modest role of insurance companies limits their exposure to government debt risks but also restricts their contribution to fiscal financing.
5. BoT Special Funds:
   • June 2025: TZS 638.1 billion (1.8% share).
   • Change:
     • Monthly: +3.5% from TZS 616.3 billion in May 2025 (TZS 21.8 billion increase).
     • Year-on-Year: +98.7% from TZS 321.2 billion in June 2024 (TZS 316.9 billion increase).
   • Share Trend: Increased significantly from 1.0% in June 2024 to 1.8% in June 2025.
   • Context: BoT special funds (e.g., for specific development or liquidity purposes) have a small but growing role, possibly reflecting targeted government borrowing for priority projects. The sharp year-on-year increase suggests new fund allocations or reclassification of debt holdings.
   • Implications: The small share minimizes fiscal risks, but the rapid growth warrants monitoring to ensure alignment with fiscal objectives.
6. Others:
   • June 2025: TZS 6,420.4 billion (18.1% share).
   • Change:
     • Monthly: +2.8% from TZS 6,244.5 billion in May 2025 (TZS 175.9 billion increase).
     • Year-on-Year: +44.3% from TZS 4,447.2 billion in June 2024 (TZS 1,973.2 billion increase).
   • Share Trend: Increased significantly from 13.9% in June 2024 to 18.1% in June 2025.
   • Context: The “Others” category includes public institutions, private companies, and individuals, reflecting growing retail and non-traditional investor participation in government securities. The BoT’s efforts to deepen the domestic debt market, including retail bond issuance, likely drove this growth. The oversubscription of June 2025 bond auctions indicates strong demand from diverse investors.
   • Implications: The rising share signals increased domestic investor confidence and financial inclusion, but the heterogeneous nature of this category requires monitoring for credit quality and liquidity risks.

Observations and Trends

1. Commercial Banks’ Declining Share:
   • The share dropped from 31.3% in June 2024 to 28.6% in June 2025, despite a slight absolute increase (TZS 10,161.5 billion). This reflects banks’ cautious approach amid high lending rates (15.23% overall in June 2025) and competition from other creditors like pension funds and the “Others” category.
   • Implication: Reduced bank reliance diversifies the creditor base but may strain bank liquidity if government borrowing competes with private sector lending.
2. Pension Funds’ Steady Role:
   • The steady 26.1% share (TZS 9,265.7 billion) underscores pension funds’ critical role in financing long-term government borrowing, driven by high bond yields (14.50%–14.80%). The 6.0% year-on-year growth reflects their growing asset base and demand for secure investments.
   • Implication: Pension funds’ exposure to government debt links retiree savings to fiscal health, requiring robust debt servicing capacity.
3. BoT’s Growing Holdings:
   • The BoT’s 20.2% share (TZS 7,174.1 billion) and 8.2% year-on-year growth suggest active central bank support for fiscal deficits, possibly through bond purchases or liquidity facilities. The stable monthly growth (+0.2%) indicates controlled intervention.
   • Implication: Increased BoT holdings could support liquidity but risk monetary policy credibility if perceived as fiscal financing.
4. Rise of “Others” Category:
   • The 44.3% year-on-year increase (TZS 6,420.4 billion, 18.1% share) reflects growing participation from public institutions, private firms, and retail investors, likely driven by accessible bond markets and high yields.
   • Implication: This diversification enhances fiscal resilience but requires regulatory oversight to manage retail investor risks.
5. Stable Minor Creditors:
   • Insurance companies (5.2%) and BoT special funds (1.8%) maintain small, stable shares, reflecting limited but consistent participation.
   • Implication: Their minor roles limit systemic risks but also constrain their contribution to debt financing.

Insights and Implications

1. Diversified Creditor Base:
   • The spread across commercial banks (28.6%), pension funds (26.1%), BoT (20.2%), and others (18.1%) indicates a diversified domestic debt market, reducing reliance on any single creditor group. The rising “Others” share (18.1%) reflects financial deepening, as retail and non-traditional investors participate more actively.
   • Implication: Diversification enhances fiscal resilience but requires robust market infrastructure to manage retail investor risks and ensure liquidity.
2. Systemic Interconnectedness:
   • The significant shares held by commercial banks and pension funds (54.7% combined) tie the financial sector’s stability to government debt. A fiscal shock (e.g., delayed debt servicing) could impact bank liquidity and pension fund returns, as noted by the World Bank’s concerns about financial sector exposure.
   • Implication: Strong revenue performance (e.g., TZS 2,880.2 billion in May 2025, 3.1% above target) and prudent debt management are critical to mitigate systemic risks.
3. BoT’s Role in Financing:
   • The BoT’s growing holdings (TZS 7,174.1 billion, +8.2% year-on-year) suggest active support for fiscal deficits, possibly through bond purchases or liquidity facilities. This aligns with the absence of Treasury bill auctions in June 2025, indicating reliance on longer-term financing.
   • Implication: While supporting liquidity, excessive BoT involvement could raise concerns about monetary-fiscal coordination, potentially affecting inflation (3.2% in May 2025, within the 3%–5% target).
4. Growing Retail Participation:
   • The “Others” category’s 44.3% year-on-year growth reflects increased retail and institutional investor appetite, driven by high bond yields (14.50%–14.80%) and BoT efforts to promote bond market access. This aligns with the oversubscription of June 2025 bond auctions.
   • Implication: Expanding retail participation supports financial inclusion but requires investor education and market stability to prevent volatility.
5. Fiscal Sustainability:
   • The 11.1% year-on-year debt increase (TZS 35,502.8 billion) is moderate compared to the fiscal deficit (TZS 270.2 billion in May 2025). The IMF’s 2024 Debt Sustainability Analysis indicates a moderate risk of debt distress, with public debt at 45.5% of GDP in 2022/23, below the 55% benchmark.
   • Implication: Strong tax revenue (TZS 2,339.7 billion in May 2025, 4.1% above target) and controlled borrowing support sustainability, but rising debt requires careful servicing management, given external debt servicing absorbs ~40% of expenditures.
6. Economic Context:
   • GDP Growth: Tanzania’s 6.0% projected growth in 2025, driven by agriculture, manufacturing, and tourism, supports debt servicing capacity through revenue growth.
   • Monetary Policy: The BoT’s 6% Central Bank Rate in Q2 2025 and stable interbank rates (7.93% in June 2025) ensure liquidity, facilitating domestic borrowing.
   • External Debt Complement: Domestic debt (29.3% of total debt) complements external debt (70.7%, USD 32,955.5 million), balancing currency risks with local financing.

In June 2025, Tanzania’s government securities market demonstrated strong investor confidence, with TZS 1.23 trillion in bids received for Treasury bonds—nearly double the TZS 638.7 billion on offer—indicating a 93% oversubscription rate. The BoT selectively accepted TZS 322.4 billion to manage borrowing costs, with yields of 14.50% for 20-year bonds and 14.80% for 25-year bonds, reflecting inflation expectations and long-term risk premiums. Notably, no Treasury bills were issued, signaling the government’s strong cash position and preference for long-term financing. Meanwhile, the interbank cash market (IBCM) remained active and stable, with TZS 2.87 trillion in transactions—up 125% year-on-year—and a marginally lower average rate of 7.93%, indicating healthy liquidity and effective monetary policy transmission by the BoT.

Government Securities Market and the Interbank Cash Market June

1. Government Securities Market

The Government Securities Market in Tanzania serves as a cornerstone for domestic financing, allowing the government to raise funds for budgetary needs while providing investors with secure, long-term investment opportunities. The market primarily consists of Treasury bonds (long-term securities) and Treasury bills (short-term securities). In June 2025, the market dynamics reflected strategic fiscal management and strong investor confidence.

Treasury Bonds

Treasury bonds are long-term debt instruments issued by the Bank of Tanzania (BoT) on behalf of the government to finance fiscal deficits and infrastructure projects. The bonds are typically offered with maturities ranging from 2 to 25 years, and their yields are influenced by market demand, inflation expectations, and monetary policy conditions.

• June 2025 Auctions:
  • The BoT conducted auctions for 20-year and 25-year Treasury bonds, reflecting a focus on long-term financing to support infrastructure and development projects under the FY 2024/25 budget.
  • Total tenders received: TZS 1,232.9 billion, indicating robust investor interest.
  • Accepted bids: TZS 322.4 billion, showing selective acceptance to manage borrowing costs and align with fiscal targets.
  • Amount offered: TZS 638.7 billion, meaning the auctions were oversubscribed (tenders exceeded the offered amount by approximately 93%). This oversubscription highlights strong investor confidence in Tanzania’s fiscal stability and the attractiveness of long-term government securities.
  • Yields:
    • 20-year bond: 14.50%, reflecting a competitive return for long-term investors amid prevailing economic conditions.
    • 25-year bond: 14.80%, slightly higher due to the longer maturity and associated risks, such as inflation and interest rate volatility over an extended period.
• Context and Insights:
  • The high oversubscription rate suggests that institutional investors, such as pension funds, insurance companies, and commercial banks, view Treasury bonds as safe and lucrative investments. This is likely driven by Tanzania’s stable macroeconomic environment and the BoT’s credible monetary policy framework.
  • The yields (14.50% for 20-year and 14.80% for 25-year bonds) are elevated compared to shorter-term securities, reflecting the term premium demanded by investors for locking in funds over extended periods. These yields also align with Tanzania’s inflation trends and the BoT’s efforts to balance borrowing costs with investor expectations.
  • The focus on long-term bonds indicates a strategic shift toward financing projects with longer gestation periods, such as infrastructure development, which is critical for Tanzania’s economic growth targets under its Development Vision 2025.

Treasury Bills

Treasury bills are short-term securities (typically with maturities of 35, 91, 182, or 364 days) used to manage short-term liquidity needs of the government. Unlike Treasury bonds, no auctions for Treasury bills were held in June 2025.

• Reason for No Auctions:
  • The domestic financing requirement for FY 2024/25 had already been met by June 2025, likely due to successful bond auctions earlier in the fiscal year and prudent fiscal management.
  • This absence reflects confidence in the government’s cash flow position, reducing the need for short-term borrowing. It also suggests that the government prioritized long-term financing through bonds to avoid frequent rollovers associated with short-term bills.
• Context and Insights:
  • The lack of Treasury bill auctions could indicate that the government met its short-term financing needs through other sources, such as revenue collection or external financing (e.g., concessional loans or grants).
  • By avoiding short-term borrowing, the BoT may be aiming to reduce refinancing risks and stabilize the yield curve, focusing on longer-term securities to lock in funding at predictable rates.

2. Interbank Cash Market (IBCM)

The Interbank Cash Market (IBCM) is a critical component of Tanzania’s financial system, enabling banks to lend and borrow short-term funds to manage liquidity. It supports monetary policy transmission by ensuring banks have access to liquidity, which influences credit availability and economic activity.

Transactions

• Turnover in June 2025: TZS 2,873.9 billion, a significant volume but lower than TZS 3,267 billion in May 2025 (a decrease of approximately 12%). However, it was substantially higher than TZS 1,277.6 billion in June 2024 (a year-on-year increase of 125%).
• Dominant Trades:
  • Overnight placements: Accounted for 37.3% of total volume, reflecting banks’ preference for ultra-short-term liquidity management to meet immediate cash flow needs.
  • 7-day tenors: Contributed 26.5% of total volume, indicating demand for slightly longer liquidity buffers, likely to manage weekly operational cycles.
• Context and Insights:
  • The high turnover (TZS 2,873.9 billion) underscores a vibrant interbank market, where banks actively manage liquidity surpluses and deficits. The year-on-year increase from June 2024 suggests growing confidence in the banking sector and increased economic activity.
  • The slight decline from May 2025 could be attributed to seasonal factors, such as reduced liquidity needs at the end of the fiscal year, or banks adjusting their portfolios after meeting reserve requirements.
  • The dominance of overnight and 7-day tenors reflects a cautious approach by banks, prioritizing flexibility in a dynamic economic environment. These short tenors are typical in markets with stable but fluctuating liquidity conditions.

Interest Rates

• Overall IBCM rate:
  • June 2025: 7.93%
  • May 2025: 7.98%
• The marginal decline (0.05 percentage points) indicates a stable liquidity environment, with banks able to access funds at slightly lower costs.
• Context and Insights:
  • The IBCM interest rate is influenced by the BoT’s monetary policy stance, particularly the Central Bank Rate (CBR), which was likely maintained at a level to ensure price stability and support economic growth.
  • The slight decline in the IBCM rate suggests adequate liquidity in the banking system, reducing competition for interbank funds. This aligns with the BoT’s efforts to maintain a balanced monetary policy, ensuring liquidity without triggering inflationary pressures.
  • The rate of 7.93% is relatively low compared to Treasury bond yields (14.50%–14.80%), reflecting the lower risk and shorter duration of interbank transactions compared to long-term government securities.

Summary Table

Insights and Broader Implications

1. Robust Demand for Government Securities:
   • The oversubscription of Treasury bond auctions (TZS 1,232.9 billion in tenders vs. TZS 638.7 billion offered) reflects strong investor confidence in Tanzania’s fiscal and monetary policy framework. This demand is likely driven by institutional investors seeking stable, high-yield assets amid global economic uncertainties.
   • The high yields (14.50% for 20-year and 14.80% for 25-year bonds) indicate that investors are pricing in inflation risks and long-term uncertainties, but the oversubscription suggests these yields are competitive compared to alternative investments.
2. Fiscal Prudence in Treasury Bill Strategy:
   • The absence of Treasury bill auctions in June 2025 signals that the government has effectively managed its short-term financing needs, possibly through higher-than-expected revenue collection or earlier borrowing. This reduces rollover risks and borrowing costs, contributing to fiscal sustainability.
   • The focus on long-term bonds aligns with Tanzania’s development agenda, prioritizing investments in infrastructure and other capital-intensive projects.
3. Healthy Interbank Market:
   • The IBCM’s high turnover (TZS 2,873.9 billion) and stable interest rates (7.93%) indicate a well-functioning banking system with adequate liquidity. The dominance of overnight and 7-day tenors suggests banks are managing liquidity efficiently, balancing short-term needs with operational flexibility.
   • The slight decline in IBCM rates from May to June 2025 reflects a stable monetary environment, supported by the BoT’s effective liquidity management tools, such as open market operations and reserve requirements.
4. Monetary Policy Transmission:
   • The active IBCM and stable interest rates facilitate the transmission of the BoT’s monetary policy, ensuring that changes in the policy rate (e.g., CBR) influence lending and borrowing behavior across the economy.
   • The high turnover in the IBCM compared to June 2024 (125% increase) suggests growing economic activity and banking sector confidence, which supports credit creation and private sector growth.
5. Economic Context:
   • Tanzania’s financial markets are operating in a context of steady economic growth, with the BoT projecting GDP growth of around 5.5%–6% for 2025, driven by sectors like agriculture, mining, and infrastructure.
   • Inflation remains a key consideration, with the BoT targeting a range of 3%–5%. The high bond yields and stable IBCM rates suggest that inflationary pressures are manageable but warrant close monitoring.

Strong Tax Revenue Spurs Resilience Amid Budget Deficit Pressures

In May 2025, Tanzania's central government revenue collection reached TZS 2,880.2 billion, surpassing the target by 3.1% (approximately TZS 86.9 billion above expectations). This robust performance was primarily fueled by strong tax revenue of TZS 2,339.7 billion, which exceeded its target by 4.1% (TZS 92.1 billion above target), highlighting the success of digital tax reforms and compliance enforcement. Meanwhile, non-tax revenue underperformed slightly, reaching TZS 428.8 billion, just 2.1% below its TZS 437.8 billion target. On the expenditure side, the government spent TZS 3,150.4 billion, with 70.3% allocated to recurrent expenses and 29.7% to development projects. This resulted in a budget deficit of TZS 270.2 billion, likely covered through borrowing. Despite the deficit, the strong tax performance underscores Tanzania’s steady progress toward fiscal sustainability and development financing aligned with Vision 2050.

1. Central Government Revenues – May 2025

Central government revenue collection is a critical indicator of Tanzania’s fiscal health and its ability to finance public services and development projects. In May 2025, the central government’s revenue performance was robust, exceeding the target by 3.1%, driven primarily by strong tax revenue collection.

Total Revenue Collection

• Total Revenue: TZS 2,880.2 billion
• Performance vs. Target: Exceeded the target by 3.1% (approximately TZS 86.9 billion above the estimated target of TZS 2,793.3 billion, calculated as 2,880.2 ÷ 1.031).
• Context: This strong performance aligns with Tanzania’s ongoing efforts to enhance domestic revenue mobilization, a key priority to reduce reliance on external borrowing and donor funding. The African Development Bank notes that Tanzania’s fiscal policy has focused on improving revenue performance to narrow the fiscal deficit, projected at 2.5% of GDP in FY 2024/25.

Revenue Breakdown

The following table summarizes the revenue components for May 2025:

• Central Government Revenue:
  • Amount: TZS 2,768.5 billion, accounting for 96.1% of total revenue.
  • Performance: Exceeded the target, reflecting effective revenue collection strategies. The strong performance is consistent with earlier reports, such as the February 2025 Monthly Economic Review, which noted tax revenue reaching TZS 2,222.3 billion in January 2025, surpassing the monthly target by 0.3%.
  • Context: The central government’s revenue includes taxes (e.g., VAT, income tax, corporate tax) and non-tax sources (e.g., fees, dividends from state-owned enterprises). The high share of central government revenue underscores its dominance in overall revenue collection.
• Tax Revenue:
  • Amount: TZS 2,339.7 billion, representing 81.2% of total revenue.
  • Performance: Exceeded the target by 4.1% (approximately TZS 92.1 billion above the estimated target of TZS 2,247.6 billion, calculated as 2,339.7 ÷ 1.041).
  • Key Drivers: Enhanced tax administration and compliance efforts, including digital tax collection systems and broader tax base initiatives, have boosted revenue. The World Bank highlights Tanzania’s progress in rationalizing tax expenditures and leveraging digital technologies to reduce compliance gaps, contributing to progressive tax collection.
  • Context: The strong tax performance aligns with Tanzania’s FY 2024/25 budget strategy, which aims to raise TZS 34.61 trillion in domestic revenues (70.1% of the TZS 49.35 trillion budget). Key sectors driving tax revenue include manufacturing, agriculture, and tourism, supported by export growth in gold and cash crops.
• Non-Tax Revenue:
  • Amount: TZS 428.8 billion, representing 14.9% of total revenue.
  • Performance: Slightly underperformed, missing the target of TZS 437.8 billion by TZS 9 billion (approximately 2.1% below target).
  • Context: Non-tax revenue includes dividends from state-owned enterprises, fees, and other government income. The underperformance may reflect lower-than-expected dividends or fees, possibly due to seasonal variations or operational challenges in public entities. For instance, in FY 2024/25, Tanzania collected a record TZS 1.028 trillion in dividends from state-owned enterprises, indicating strong potential but possible fluctuations in monthly collections.
  • Implications: While non-tax revenue missed the target, its contribution remains significant, and efforts to improve collections (e.g., through public enterprise reforms) could address future shortfalls.

Key Takeaway

• Tax Revenue as the Main Driver: The 4.1% overperformance in tax revenue reflects Tanzania’s success in strengthening tax administration, including digitalization and compliance enforcement. This aligns with the government’s goal of increasing domestic revenue to 15.7% of GDP in FY 2024/25.
• Non-Tax Revenue Shortfall: The slight underperformance in non-tax revenue suggests room for improvement in diversifying revenue sources, such as enhancing dividend collections from state-owned enterprises or streamlining fee structures.
• Economic Implications: The strong revenue performance supports fiscal sustainability, reducing reliance on borrowing and enabling investments in priority areas like infrastructure and social services.

2. Central Government Expenditure – May 2025

Central government expenditure reflects Tanzania’s fiscal priorities, balancing recurrent obligations (e.g., salaries, debt servicing) with development spending (e.g., infrastructure, social projects). In May 2025, the government aligned expenditures with available resources, maintaining fiscal prudence.

Total Expenditure

• Total Spending: TZS 3,150.4 billion
• Context: This expenditure level is consistent with Tanzania’s FY 2024/25 budget, which allocates TZS 49.35 trillion, with 68% (TZS 30.31 trillion) for recurrent expenditure and 32% (TZS 14.08 trillion) for development expenditure. The May 2025 spending aligns with the government’s strategy to match expenditures with revenue and borrowing capacity, as noted in the BoT’s emphasis on fiscal prudence.

Expenditure Breakdown

The following table summarizes the expenditure components for May 2025:

• Recurrent Expenditure:
  • Amount: TZS 2,213.1 billion, accounting for 70.3% of total expenditure.
  • Components: Includes salaries, interest payments on public debt, and essential services (e.g., healthcare, education operations). The high share reflects the government’s priority to maintain operational stability and meet obligatory payments.
  • Context: Recurrent expenditure aligns with the FY 2024/25 budget, which allocates TZS 30.31 trillion for recurrent costs, including wages, debt servicing, and election-related expenses (e.g., 2024 local elections, 2025 general election preparations). For instance, in January 2025, recurrent expenditure was TZS 2,358.0 billion, indicating consistent spending patterns.
  • Debt Servicing: The BoT notes that domestic debt servicing in February 2025 amounted to TZS 890.9 billion (TZS 609.9 billion for principal repayment, TZS 281 billion for interest). A portion of May’s recurrent expenditure likely includes similar debt servicing costs, given Tanzania’s external debt of $7.9 billion, which absorbs about 40% of government expenditures annually.
• Development Expenditure:
  • Amount: TZS 937.3 billion, representing 29.7% of total expenditure.
  • Components: Includes investments in infrastructure (e.g., Standard Gauge Railway, Julius Nyerere Hydropower Project), social services (e.g., education, health), and other development projects. The FY 2024/25 budget prioritizes flagship projects like the SGR, hydropower plants, and roads.
  • Context: Development spending in May 2025 is slightly lower than January 2025 (TZS 1,218.1 billion), reflecting seasonal variations or project-specific disbursements. The focus on development aligns with Tanzania’s Vision 2050 and Third Five-Year Development Plan (FYDP III), which emphasize infrastructure and industrial growth.
  • Implications: While development spending is significant, its share (29.7%) remains below the 32% target for FY 2024/25, indicating potential constraints in scaling up capital investments due to revenue limitations or prioritization of recurrent costs.

Key Takeaway

• Recurrent Spending Dominance: The 70.3% share of recurrent expenditure underscores the government’s focus on operational stability, including salaries and debt servicing. However, this limits the fiscal space for development projects critical for long-term growth.
• Development Investment: The 29.7% share for development expenditure supports key infrastructure projects, but its lower proportion suggests challenges in balancing short-term obligations with long-term investments.
• Fiscal Prudence: The alignment of expenditures with available resources reflects Tanzania’s commitment to sustainable fiscal management, as noted by the BoT’s Monetary Policy Committee.

Summary Table: Central Government Budget (May 2025)

The following table consolidates the revenue and expenditure data for May 2025:

Insights and Broader Implications

1. Budget Deficit:
   • Revenue–Expenditure Gap: The deficit of TZS 270.2 billion in May 2025 (expenditure of TZS 3,150.4 billion vs. revenue of TZS 2,880.2 billion) indicates that the government relied on borrowing or reserves to finance the shortfall. This aligns with the African Development Bank’s projection of a fiscal deficit of 2.5% of GDP in FY 2024/25, financed by domestic and external borrowing.
   • Financing Strategy: The deficit was likely covered through domestic borrowing, such as Treasury bonds (e.g., TZS 394.1 billion raised in February 2025) or external loans. The BoT notes that domestic debt decreased by TZS 140.8 billion in February 2025 due to reduced use of overdraft facilities, suggesting a cautious approach to borrowing.
   • Implications: While the deficit is manageable, sustained deficits could increase public debt (45.5% of GDP in 2022/23), requiring careful debt management to maintain sustainability.
2. Strong Tax Revenue Performance:
   • The 4.1% overperformance in tax revenue reflects Tanzania’s success in broadening the tax base and improving compliance, as highlighted by the World Bank. Initiatives like digital tax collection and rationalizing tax expenditures have boosted collections, supporting the FY 2024/25 target of TZS 34.61 trillion in domestic revenue.
   • Sectoral Contributions: Key sectors driving tax revenue include manufacturing, agriculture, and tourism, with export growth in gold (24.5%), cashew nuts (141%), and tourism receipts (7.0%) in the year ending April 2025.
   • Implications: Strong tax performance reduces reliance on external financing, enhancing fiscal autonomy and supporting investments in social services and infrastructure.
3. Expenditure Priorities:
   • Recurrent Spending: The dominance of recurrent expenditure (70.3%) reflects the government’s focus on operational stability, including salaries, debt servicing, and election-related costs. However, this limits fiscal space for development projects, as noted by the World Bank’s observation that Tanzania’s public spending (18.2% of GDP in 2020/21) is below the average for lower-middle-income countries.
   • Development Spending: The 29.7% share for development expenditure supports flagship projects like the Julius Nyerere Hydropower Project and Standard Gauge Railway, aligning with Vision 2050’s focus on industrial and infrastructure growth.
   • Implications: Balancing recurrent and development spending is critical to achieving Tanzania’s long-term development goals, including a USD 1 trillion GDP by 2050.
4. Economic Context:
   • GDP Growth: Tanzania’s economy grew by 5.6% in January–September 2024, with projections of 6.0% in 2025, driven by agriculture, manufacturing, and tourism. Strong revenue performance supports this growth by funding public investments.
   • Inflation: Inflation remained stable at 3.2% in May 2025, within the BoT’s 3%–5% target, supporting fiscal stability and purchasing power.
   • Monetary Policy: The BoT maintained the Central Bank Rate at 6% for Q2 2025, ensuring liquidity and supporting economic growth while controlling inflation.
5. Fiscal Sustainability:
   • The BoT’s Monetary Policy Committee notes that public debt remains sustainable with a moderate risk of debt distress, reflecting fiscal prudence. The strong revenue performance and controlled expenditure in May 2025 reinforce this sustainability.
   • Challenges: The World Bank highlights the need to further broaden the tax base and improve spending efficiency, particularly in social sectors like education (3.3% of GDP) and healthcare (1.2% of GDP), to close service delivery gaps.

Stability in Lending, Competitive Deposit Market, and a Narrowing Spread Signal Sector Efficiency

In June 2025, Tanzania’s banking sector exhibited notable stability and competitiveness. The overall lending rate held steady at 15.23%, slightly up from May, while short-term lending rates eased from 15.96% to 15.69%, reflecting increased liquidity and competition. Deposit rates rose across the board, with the negotiated deposit rate jumping from 10.64% to 11.21%, driven by end-of-year liquidity needs. Importantly, the short-term interest rate spread narrowed to 5.90%, down from 6.49% in June 2024, indicating improved efficiency and a more competitive banking environment benefiting both borrowers and depositors.

1. Lending Interest Rates

Lending interest rates represent the cost of borrowing from commercial banks and are influenced by factors such as the Bank of Tanzania’s (BoT) monetary policy, liquidity conditions, credit risk, and competition in the banking sector. In June 2025, lending rates remained broadly stable, with minor fluctuations reflecting market dynamics.

Key Lending Rates

The following table summarizes the lending rates for May and June 2025, with changes noted:

• Overall Lending Rate:
  • Increased slightly from 15.18% in May 2025 to 15.23% in June 2025 (+0.05 percentage points).
  • This marginal increase suggests stable credit conditions, with banks maintaining relatively high rates to account for credit risk and operational costs. The stability aligns with the BoT’s monetary policy stance, likely aimed at controlling inflation while supporting economic growth.
  • Compared to June 2024 (15.30%), the June 2025 rate is slightly lower, indicating a modest easing in borrowing costs over the year, possibly due to improved liquidity or competitive pressures.
• Short-Term Lending Rate (loans up to 1 year):
  • Decreased from 15.96% in May 2025 to 15.69% in June 2025 (-0.27 percentage points).
  • The decline suggests increased competition among banks for short-term lending, possibly driven by higher liquidity in the banking system or demand for short-term credit from businesses managing working capital needs.
  • Compared to June 2024 (15.57%), the June 2025 rate is higher, reflecting a temporary tightening in short-term lending conditions earlier in 2025, possibly due to seasonal liquidity demands.
• Negotiated Lending Rate:
  • Decreased from 12.99% in May 2025 to 12.68% in June 2025 (-0.31 percentage points).
  • Negotiated rates are typically offered to prime customers (e.g., large corporations or low-risk borrowers with strong credit profiles). The decline indicates banks are offering better terms to attract or retain high-quality borrowers, possibly due to competitive pressures or improved borrower creditworthiness.
  • Compared to June 2024 (12.82%), the June 2025 rate is lower, suggesting a trend toward more favorable conditions for prime borrowers over the year.

Context and Insights:

• Stability in Lending Rates: The overall lending rate’s stability (15.23% in June 2025) reflects a balanced monetary policy environment, with the BoT likely maintaining the Central Bank Rate (CBR) at a level to ensure price stability while supporting credit growth. The high rates (relative to deposit rates) indicate that banks are cautious about credit risks, particularly for non-prime borrowers.
• Short-Term Lending Dynamics: The decrease in short-term lending rates may be linked to the robust interbank cash market (IBCM) activity, with a turnover of TZS 2,873.9 billion in June 2025 (as noted in the previous query). Higher liquidity in the IBCM, with a slight decline in interest rates (7.93%), likely eased funding costs for banks, enabling them to lower short-term lending rates.
• Negotiated Rates and Competition: The decline in negotiated lending rates suggests increased competition among banks to secure high-value clients. This could be driven by Tanzania’s growing private sector, particularly in sectors like agriculture, manufacturing, and mining, which require significant financing.
• Economic Implications: Stable but high lending rates (15.23% overall) may constrain borrowing for small and medium enterprises (SMEs), which are sensitive to borrowing costs. However, the lower negotiated rates benefit larger firms, potentially boosting investment in key sectors.

2. Deposit Interest Rates

Deposit interest rates reflect the returns banks offer to depositors for savings, time deposits, and other accounts. These rates are influenced by liquidity needs, competition for deposits, and the BoT’s monetary policy. In June 2025, deposit rates generally increased, driven by seasonal liquidity demands at the end of the financial year.

Key Deposit Rates

The following table summarizes the deposit rates for May and June 2025, with changes noted:

• Overall Time Deposit Rate:
  • Increased from 8.58% in May 2025 to 8.74% in June 2025 (+0.16 percentage points).
  • This rise reflects banks’ increased demand for funds, likely driven by end-of-financial-year obligations, such as loan disbursements or reserve requirements.
  • Compared to June 2024 (7.66%), the June 2025 rate is significantly higher, indicating a sustained increase in deposit rates over the year, possibly due to tighter liquidity conditions or higher competition for deposits.
• 12-Month Deposit Rate:
  • Increased slightly from 9.72% in May 2025 to 9.79% in June 2025 (+0.07 percentage points).
  • The modest increase suggests banks are offering slightly better returns to attract longer-term deposits, which provide more stable funding for lending activities.
  • Compared to June 2024 (9.09%), the June 2025 rate is higher, reflecting a trend toward higher returns for depositors, possibly to compete with alternative investment options like Treasury bonds (yields of 14.50%–14.80% in June 2025).
• Negotiated Deposit Rate:
  • Increased noticeably from 10.64% in May 2025 to 11.21% in June 2025 (+0.57 percentage points).
  • Negotiated rates are offered to large or institutional depositors (e.g., pension funds, corporations). The significant rise indicates banks’ willingness to pay a premium to secure large deposits, likely to meet liquidity needs or fund lending activities.
  • Compared to June 2024 (9.86%), the June 2025 rate is much higher, suggesting increased competition for high-value deposits over the year.
• Savings Deposit Rate:
  • Increased from 2.52% in May 2025 to 2.90% in June 2025 (+0.38 percentage points), recovering from a dip in May.
  • Compared to June 2024 (2.86%), the June 2025 rate is slightly higher, indicating a modest improvement in returns for retail depositors.
  • The low savings rate reflects the lower risk and liquidity of savings accounts compared to time deposits, but the increase suggests banks are incentivizing retail savings to bolster their deposit base.

Context and Insights:

• Seasonal Liquidity Needs: The rise in deposit rates, particularly the negotiated rate (+0.57%), is attributed to seasonal liquidity demands at the end of the financial year (June 2025). Businesses and individuals often settle obligations, increasing banks’ need for funds to meet withdrawal demands or loan disbursements.
• Competition for Deposits: The significant increase in negotiated deposit rates suggests banks are competing aggressively for large deposits from institutional clients, who have bargaining power to secure better terms. This could be driven by the high yields on Treasury bonds (14.50%–14.80%), which compete with bank deposits as investment options.
• Retail Depositor Trends: The recovery in savings deposit rates (from 2.52% to 2.90%) indicates banks are also targeting retail depositors to diversify their funding sources. However, the low savings rate compared to time deposits reflects the limited bargaining power of retail clients.
• Economic Implications: Rising deposit rates encourage savings, which can support bank lending capacity and economic growth. However, higher deposit rates increase banks’ funding costs, which could pressure profit margins unless offset by lending income or operational efficiencies.

3. Interest Rate Spread

The interest rate spread is the difference between lending and deposit rates, typically measured for short-term instruments to reflect banking efficiency and profitability. A narrower spread indicates improved financial intermediation and a more competitive banking environment.

• Short-Term Interest Rate Spread:
  • June 2024: 6.49%
  • May 2025: 6.24%
  • June 2025: 5.90%
  • The spread narrowed by 0.34 percentage points from May to June 2025 and by 0.59 percentage points from June 2024 to June 2025.

Context and Insights:

• Calculation: The short-term interest rate spread is derived from the short-term lending rate (15.69% in June 2025) and the 12-month deposit rate (9.79% in June 2025), as these are comparable tenors. The spread is calculated as:
  • 15.69% - 9.79% = 5.90%
• Narrowing Spread: The decline in the spread reflects:
  • Increased Competition: Banks are lowering short-term lending rates (15.69%) and raising deposit rates (9.79%) to attract customers, reducing their profit margins per transaction.
  • Improved Efficiency: A narrower spread suggests banks are improving financial intermediation, passing on liquidity benefits to borrowers and depositors.
  • Liquidity Conditions: The robust IBCM turnover (TZS 2,873.9 billion) and lower IBCM rate (7.93%) in June 2025 indicate ample liquidity, enabling banks to offer better terms to borrowers and depositors.
• Economic Implications: A narrower spread benefits borrowers by reducing borrowing costs and encourages lending, supporting economic activity. However, it may squeeze bank profitability, prompting banks to seek operational efficiencies or alternative revenue sources.

Summary Table

Key Insights and Broader Implications

1. Stable Lending Environment:
   • The overall lending rate’s stability (15.23% in June 2025) and slight year-on-year decline (from 15.30% in June 2024) suggest that credit risk perceptions have not worsened, despite high rates. This stability supports private sector borrowing, particularly for large firms benefiting from lower negotiated rates (12.68%).
   • The decrease in short-term lending rates (15.69%) reflects competitive pressures and ample liquidity, as evidenced by the IBCM’s high turnover and lower rates. These benefits businesses seeking working capital loans, supporting sectors like trade and agriculture.
2. Rising Deposit Rates:
   • The increase in deposit rates, particularly the negotiated rate (11.21%), reflects banks’ efforts to attract funds to meet liquidity needs at the financial year-end. This aligns with the absence of Treasury bill auctions in June 2025, which may have increased banks’ reliance on deposits for liquidity.
   • Higher deposit rates encourage savings, strengthening banks’ funding base. However, the low savings deposit rate (2.90%) indicates limited benefits for retail depositors, potentially constraining household savings growth.
3. Narrowing Interest Rate Spread:
   • The narrowing spread (5.90% in June 2025) is a positive signal for Tanzania’s banking sector, indicating improved efficiency and competition. This benefits borrowers through lower borrowing costs and depositors through higher returns, fostering financial inclusion and economic activity.
   • The spread’s decline from 6.49% in June 2024 suggests structural improvements in the banking sector, possibly driven by technological advancements, regulatory reforms, or increased market participation.
4. Monetary Policy Context:
   • The BoT’s monetary policy likely played a role in stabilizing lending rates and supporting liquidity, as seen in the IBCM’s performance. The CBR, while not specified, is likely set to balance inflation (targeted at 3%–5%) and growth (projected at 5.5%–6% for 2025).
   • The rise in deposit rates and narrowing spread suggest the BoT’s liquidity management tools (e.g., open market operations, reserve requirements) are effective in maintaining a stable financial environment.
5. Economic Implications:
   • The trends in lending and deposit rates support Tanzania’s economic growth by facilitating credit access and encouraging savings. However, high lending rates (15.23% overall) may limit SME borrowing, a critical driver of employment and growth.
   • The competitive banking environment, as evidenced by the narrowing spread, could attract more players to the financial sector, enhancing financial inclusion and supporting Tanzania’s Development Vision 2025 goals.

Debt Structure, Shilling and Figures

As of May 2025, Tanzania’s national debt stood at TZS 107.70 trillion, comprising TZS 72.94 trillion in external debt and TZS 34.76 trillion in domestic debt. The external debt stock, equivalent to approximately USD 34.1 billion (using an exchange rate of TZS 2,884.42 per USD from April 2025), was primarily held by multilateral institutions and directed toward key sectors such as transportation (21.5%) and telecommunications. The central government accounted for 78.3% of external debt (USD 26.7 billion), with 67.7% of this debt denominated in US dollars (USD 23.1 billion). Domestic debt, at TZS 34.26 trillion in March 2025, was largely financed by commercial banks (29%) and pension funds (26.5%), with Treasury bonds dominating at 78.2%.

In May 2025, principal repayments on external debt amounted to USD 267 million. Debt servicing costs are significant, with historical data indicating that external debt servicing consumed up to 40% of government expenditures in earlier years. For 2023, total debt service was 2.89% of Gross National Income (GNI), and in 2025, servicing the external debt (at concessional rates) and domestic debt (at 15.5% lending rates) could cost approximately USD 1–2 billion and TZS 5.31 trillion annually, respectively. These costs divert resources from productive investments, potentially straining fiscal space.

Impact on the Tanzania Shilling

The Tanzania Shilling’s stability in May 2025 is supported by several factors related to debt management and economic performance:

• Foreign Exchange Reserves: The Bank of Tanzania (BoT) reported foreign exchange reserves of USD 5,360 million in May 2025, covering 4.2 months of imports, which exceeds the national benchmark of 4 months. By March 2025, reserves had increased to USD 5,700 million, covering 3.8 months of imports, indicating sustained adequacy. These reserves provide a buffer against external shocks, reducing pressure on the Shilling and enabling the BoT to meet external debt obligations without significant currency devaluation.
• Export Performance: Robust export growth, particularly in gold (24.5% increase) and cashew nuts (141% increase), contributed to a 16.8% rise in exports to USD 16.7 billion in the year ending April 2025. Gold prices, at USD 2,983.25 per ounce in March 2025, further bolstered foreign exchange inflows, supporting the Shilling’s stability.
• Fiscal and Monetary Policy: The BoT maintained the Central Bank Rate (CBR) at 6% in April 2025 to safeguard economic stability amid global uncertainties. Prudent fiscal policy, with a fiscal deficit trending toward 3% of GDP, and stringent monetary policy have kept inflation low at 3.2% in May 2025, below the BoT’s 5% target. Low inflation reduces pressure on the Shilling by maintaining purchasing power and stabilizing import costs.

Despite these stabilizing factors, the Shilling experienced a 3.86% annual depreciation against the USD, trading at TZS 2,884.42 per USD in April 2025. This depreciation, though improved from the previous month, reflects pressures from external debt servicing and import demands. The high USD denomination of external debt (67.7%) exacerbates these pressures, as a depreciating Shilling increases the local currency cost of debt servicing by approximately TZS 2.37 trillion for the USD 34.1 billion external debt, based on a 2.6% depreciation rate.

Foreign Exchange Interventions and Their Role

The BoT’s interventions in the Interbank Foreign Exchange Market (IFEM) have been critical to maintaining the Shilling’s stability. In January 2025, the BoT sold USD 7 million to stabilize the exchange rate, preventing excessive depreciation amid a 1.37% month-on-month weakening of the Shilling (from TZS 2,420.84 to TZS 2,454.04 per USD). Similar interventions likely occurred in April and May 2025, as the document notes that seasonal inflows from cash crops and gold exports, combined with BoT actions, mitigated depreciation pressures. However, IFEM transactions declined significantly from USD 95.7 million in December 2024 to USD 16.3 million in January 2025, suggesting reduced market activity, possibly due to lower trade or investor participation.

These interventions, supported by adequate reserves, have ensured short-term stability, with the Shilling appreciating by 2.6% year-on-year from January 2024 to January 2025. The BoT’s ability to intervene is bolstered by improved current account performance, with the deficit narrowing by 31.1% to USD 2,021.5 million in the year ending January 2025, driven by strong export earnings and moderate import growth.

Potential Risks to Long-Term Shilling Stability

The composition of Tanzania’s external debt and reliance on commodity-driven inflows pose several risks to the Shilling’s long-term stability:

1. High USD Denomination of External Debt: With 67.7% of the USD 34.1 billion external debt denominated in US dollars (USD 23.1 billion), the Shilling is highly exposed to exchange rate fluctuations. A further depreciation, such as the 2.6% observed in 2024, increases debt servicing costs in local currency, potentially requiring the BoT to draw down reserves or increase borrowing, both of which could weaken the Shilling.
2. Commodity Price Volatility: Tanzania’s foreign exchange inflows heavily depend on gold and agricultural exports (e.g., cashew nuts, coffee). While gold prices were strong at USD 2,983.25 per ounce in March 2025, declines in coffee (-2%) and sugar (-1.5%) prices highlight vulnerability to global commodity market fluctuations. A downturn in gold prices or reduced export demand could strain reserves and pressure the Shilling.
3. Global Economic Uncertainties: The document highlights risks from global trade tariffs and geopolitical tensions, with the IMF projecting global growth at 2.8% in 2025. Rising global interest rates could increase external borrowing costs, particularly for non-concessional loans, further straining fiscal resources and reserves needed to stabilize the Shilling.
4. Fiscal Constraints and Crowding-Out Effects: High domestic borrowing (TZS 34.26 trillion) and lending rates (15.5%) crowd out private sector investment, weakening credit growth and economic diversification. This limits the economy’s ability to generate sustainable foreign exchange inflows, increasing reliance on volatile commodity exports and BoT interventions.
5. Climate and Structural Risks: Climate change could reduce agricultural output, a key export sector, with the World Bank estimating a potential 4% GDP growth reduction by 2050 due to climate impacts. Slow structural transformation and shallow financial markets further constrain Tanzania’s ability to diversify revenue sources, heightening Shilling vulnerability.

Mitigating Factors and Policy Measures

Tanzania’s authorities are implementing measures to mitigate these risks:

• Debt Sustainability: The IMF’s Debt Sustainability Analysis (DSA) classifies Tanzania’s risk of external debt distress as moderate, with public debt at 35% of GDP in 2024, well below the 55% benchmark. Access to concessional financing from multilateral institutions reduces servicing costs compared to commercial loans.
• Revenue Mobilization: The government collected TZS 2,441 billion in April 2025, with tax revenue exceeding targets by 1.5% due to improved administration. The proposed TZS 56.49 trillion 2025/26 budget aims to enhance revenue through new taxes and levies, reducing reliance on borrowing.
• Export Diversification: Investments in infrastructure (48% of World Bank financing) and sectors like manufacturing and tourism (projected to drive 6% GDP growth in 2025) aim to reduce reliance on commodity exports.
• Monetary Policy: The BoT’s 6% CBR and interventions in the IFEM demonstrate proactive management of liquidity and exchange rate stability. Food reserves (587,062 tonnes, with 32,598 tonnes released) help stabilize food prices, supporting low inflation and Shilling stability.

Conclusion

In May 2025, Tanzania’s national debt developments and foreign exchange interventions have supported the Tanzania Shilling’s short-term stability, with reserves of USD 5,360 million (4.2 months of import cover) and export-driven inflows mitigating a 3.86% annual depreciation. BoT interventions in the IFEM, backed by strong gold and cashew nut exports, have prevented sharp fluctuations, maintaining the Shilling at TZS 2,884.42 per USD in April 2025. However, the high USD denomination of external debt (67.7% of USD 34.1 billion), reliance on volatile commodity exports, and global uncertainties pose risks to long-term stability. A potential further depreciation could increase debt servicing costs by TZS 2.37 trillion, straining reserves and fiscal space. Continued prudent fiscal and monetary policies, alongside diversification efforts, are critical to sustaining Shilling stability and supporting Tanzania’s projected 6% GDP growth in 2025.

Table: Key Economic Figures Impacting Tanzania Shilling Stability (May 2025)

Notes and Explanations

1. Debt Figures: The total national debt (TZS 107.70 trillion) and its breakdown into external (USD 34.1 billion) and domestic (TZS 34.26 trillion) components reflect Tanzania’s borrowing profile. The high USD denomination (67.7%) of external debt increases vulnerability to exchange rate fluctuations, as a 2.6% depreciation could raise servicing costs by approximately TZS 2.37 trillion (calculated as 2.6% of TZS 72.94 trillion).
2. Foreign Exchange Reserves: Reserves of USD 5,360 million in May 2025 and USD 5,700 million in March 2025 provide a buffer for debt servicing and exchange rate stabilization. The 4.2-month import cover exceeds the national benchmark, supporting short-term Shilling stability.
3. Exchange Rate: The Shilling’s depreciation to TZS 2,884.42 per USD reflects pressures from debt servicing and imports, mitigated by BoT interventions (e.g., USD 7 million sale in January 2025). The 2.6% appreciation from January 2024 to January 2025 indicates effective short-term management.
4. Export Performance: Strong export growth (USD 16.7 billion, up 16.8%) driven by gold and cashew nuts bolsters foreign exchange inflows, critical for reserve accumulation and Shilling stability. Gold’s high price (USD 2,983.25 per ounce) is a key factor but introduces volatility risk.
5. Current Account and Inflation: The narrowed current account deficit (USD 2,175 million) and low inflation (3.2%) reduce pressure on the Shilling, supporting its purchasing power and import affordability.
6. Debt Servicing Costs: Estimated based on historical data (2.89% of GNI in 2023) and domestic lending rates (15.5%). These costs strain fiscal resources, potentially requiring reserve drawdowns or further borrowing, which could weaken the Shilling.

This table provides a concise overview of the key figures driving the Tanzania Shilling’s stability in May 2025, highlighting the interplay between debt developments, foreign exchange interventions, and external sector performance, as well as underlying risks from debt composition and commodity reliance.

Tanzania’s inflation in March 2025, as detailed in the April 2025 Monthly Economic Review, shows an upward trend in headline inflation, driven primarily by rising food and energy prices, while core inflation has declined. Below, we outline the current inflation trends and their drivers, using specific figures from the document to provide clarity.

Headline Inflation Trend

Figure: Headline inflation rose to 3.3% in March 2025, up from 3.0% in March 2024.

Explanation:

• Trend: The 0.3 percentage point increase indicates a moderate upward trend in overall price levels, but inflation remains within national targets and regional benchmarks of the East African Community (EAC) and Southern African Development Community (SADC).
• Drivers: The document attributes this rise primarily to increases in food and energy prices (Page 3). These components have exerted significant upward pressure on the Consumer Price Index (CPI), which is based on a 2020=100 index.
• Context: Despite the increase, headline inflation is relatively stable, supported by the Bank of Tanzania’s monetary policy, which maintains the Central Bank Rate at 6% to keep inflation expectations below the 5% medium-term target.

Food Inflation Trend

Figure: Food inflation surged to 5.4% in March 2025, up from 1.4% in March 2024.

Explanation:

• Trend: The sharp 4.0 percentage point increase reflects significant price pressures in the food sector, which has a CPI weight of 26.1%.
• Drivers: Higher prices for staple crops—maize, rice, and beans—are the primary drivers, amplified by logistical challenges in transportation due to seasonal heavy rains. These rains disrupted supply chains, increasing costs for producers and traders.
• Mitigation: The National Food Reserve Agency (NFRA) held 587,062 tonnes of food stocks (mainly maize and paddy) and released 32,598 tonnes to local traders by March 2025, which helped mitigate further price spikes. The overall food supply remained adequate, preventing even higher inflation.
• Impact: The document notes that unprocessed food inflation’s contribution to overall inflation has increased, making it a key driver of the 3.3% headline rate.

Core Inflation Trend

Figure: Core inflation decreased to 2.2% in March 2025 from 3.9% in March 2024.

Explanation:

• Trend: The 1.7 percentage point decline indicates easing price pressures from non-food items, which constitute 73.9% of the CPI basket.
• Drivers: Core inflation excludes volatile items like food, energy, and utilities. The reduction suggests stable or declining prices for services and non-food goods, reflecting lower underlying inflationary pressures.
• Impact: The document highlights that core inflation’s contribution to overall inflation has gradually diminished, with unprocessed food inflation taking a larger role. This decline helps moderate the headline inflation rate despite food and energy spikes.

Energy, Fuel, and Utilities Inflation Trend

Figure: Energy, fuel, and utilities inflation increased to 7.9% in March 2025 from 6.6% in March 2024.

Explanation:

• Trend: The 1.3 percentage point rise makes this the highest inflation component, with a CPI weight of 5.7%.
• Drivers: The increase is primarily due to rising prices of petroleum products and wood charcoal, the latter linked to scarcity following seasonal rains (Page 5). The document notes the weight of wood charcoal in the energy component but does not quantify it.
• Impact: High energy inflation significantly contributes to the 3.3% headline rate, as energy costs affect transportation, production, and household expenses, amplifying overall price pressures.

Additional Context and Drivers

• Global Commodity Prices: Rising global fertilizer prices (up 2% to USD 615.13 per tonne) increase agricultural input costs, indirectly contributing to food inflation by raising production expenses. Conversely, a 4% drop in crude oil prices to USD 70.70 per barrel may have tempered energy inflation slightly, though domestic petroleum price hikes dominated.
• Monetary Policy: The Bank of Tanzania’s stable Central Bank Rate (6%) and adequate liquidity management (no reverse repo auctions) help anchor inflation expectations, preventing runaway price increases despite food and energy pressures.
• CPI Dynamics: The CPI weights show food (26.1%) and energy (5.7%) as smaller shares compared to core items (73.9%), but their volatility gives them outsized impacts on headline inflation. Month-on-month data shows food inflation at 2.5% and energy at 2.9% for March 2025, reinforcing their role as key drivers.

Conclusion

In March 2025, Tanzania’s headline inflation rose to 3.3% (from 3.0% in 2024), driven by surging food inflation (5.4%, up from 1.4%) and energy, fuel, and utilities inflation (7.9%, up from 6.6%). Food price increases, fueled by maize, rice, and bean costs and rain-related logistical challenges, and energy price hikes, driven by petroleum and wood charcoal, are the primary drivers. Core inflation’s decline to 2.2% (from 3.9%) moderate’s overall pressures, but unprocessed food’s growing contribution underscores its significance. The NFRA’s 587,062-tonne food stock and 32,598-tonne release helped contain food inflation, keeping headline inflation within EAC and SADC benchmarks.

Key Figures: Tanzania’s Inflation Trends and Drivers (March 2025)

Notes:

• All inflation figures reflect March 2025 unless stated otherwise.
• Food inflation driven by maize, rice, bean prices, and logistical issues from rains.
• Energy inflation driven by petroleum and wood charcoal price hikes.
• Source refer to the April 2025 Monthly Economic Review.