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)

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.

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.

Tanzania’s investment landscape experienced remarkable growth between 2023 and 2024. The number of registered investment projects surged by 71%, from 526 projects in 2023 to 901 projects in 2024. This expansion was accompanied by a significant rise in committed capital investments, which grew by 62.8%, increasing from $5.72 billion in 2023 to $9.31 billion in 2024. In addition, employment opportunities linked to these investments rose sharply, with 212,293 jobs created in 2024, compared to 137,010 jobs in 2023—an increase of approximately 55%. This upward trend reflects strong investor confidence and supportive government policies, as shown by the rising number of permits and approvals issued: work permits grew by 40.8%, Certificates of Incentives by 71.3%, and land rights approvals by 22.2%. Despite a slight decrease in residence permits (-11.4%) and TRA-approved exemptions (-11.9%), the overall environment signals a robust and broad-based investment expansion in Tanzania.

Investment-Related Permits, Licenses, and Approvals: Tanzania 2023 vs 2024

1. Overall Growth in Investment Projects

• 2023: 526 projects
• 2024: 901 projects
• Increase: +375 projects
• Growth Rate: +71.3%

This 71% increase in investment projects explains why permit and approval activities also expanded.

2. Permits and Approvals Breakdown

3. Detailed Explanation

Immigration (Residence Permits)

• Decrease: From 5,540 (2023) to 4,908 (2024)
• Why decrease?
  • Possibly stricter immigration rules or a shift towards local employment (hence, fewer expatriate residence permits).

Labour Office (Work Permits)

• Increase: From 5,272 to 7,425 permits
• Reason:
  • Reflects more foreign professionals being hired due to investment project expansions.
  • +40.8% growth shows demand for skilled foreign workers.

TRA (Tax Exemptions Approved)

• Decrease: From 268 to 236 approvals
• Reason:
  • Possible tightening of exemption policies to protect tax revenues.
  • Shows slight decline of -11.9%.

NIDA (Legal Identity Cards/NIN)

• Increase: From 387 to 457 cards
• Meaning:
  • More legal identification activities linked to newly registered workers and businesses.
  • +18.1% increase.

TIC (Certificates of Incentives)

• Massive Increase: From 526 to 901 certificates
• Meaning:
  • Directly matches the 71% jump in investment projects.
  • Reflects strong government support through fiscal/tax incentives to investors.

Ministry of Lands (Derivative Rights)

• Increase: From 54 to 66 approvals
• Meaning:
  • More investors are acquiring land rights for their projects (factories, offices, farms, etc.).
  • +22.2% growth.

4. Other Major Impacts Related to the Growth

• Jobs: An additional 75,283 jobs created in 2024.
• Capital: An additional $3.59 billion invested.

Key Takeaways:

• Strong increases in permits for work, incentives, and land rights support the surge in new investments.
• Work permits (+40.8%) and Certificates of Incentives (+71.3%) are especially notable.
• Residence permits (-11.4%) and TRA exemptions (-11.9%) slightly declined, reflecting more selective approvals.
• Overall investment environment is expanding rapidly, leading to more capital, more projects, and more employment opportunities in Tanzania.

Trend on Tanzania’s Investment Growth (Based on Permits, Projects, Capital, and Jobs Data)

1. Strong Positive Growth Trend

• Projects increased by 71%.
• Capital investment increased by 62.8%.
• Jobs created increased by 55%.

This shows that investment is expanding strongly across all important dimensions:
more projects, more money coming in, and more jobs being created.

2. Administrative Efficiency and Policy Support

• Certificates of Incentives from TIC grew by 71.3%, exactly matching the project growth.
• This suggests that Tanzania's government (through TIC and other agencies) is working actively to:
  • Attract investors
  • Process approvals faster
  • Offer incentives to stimulate investment

Policy and administrative support are aligning well with investment growth needs.

3. Higher Demand for Labor (Local and Foreign)

• Work permits rose by 40.8%, indicating:
  • Higher demand for foreign technical experts
  • More foreign companies bringing specialists to Tanzania
• Meanwhile, local hiring is also rising as shown by the 212,293 new jobs created.

Investment is creating employment opportunities both for Tanzanians and expatriates.

4. More Demand for Land and Legal Compliance

• Derivative rights (land ownership rights) approvals increased by 22.2%.
• NIDA ID cards increased by 18.1%.

This shows that investors are securing land for long-term operations and formalizing their presence legally (getting IDs/NINs for employees).

5. Selective Tightening in Some Areas

• Residence permits (-11.4%) and TRA exemption approvals (-11.9%) dropped.
• This could mean:
  • The government is being more selective in approving tax exemptions and permanent residence.
  • Encouraging local hiring and domestic value creation instead of over-depending on expatriates and incentives.

Tanzania is balancing growth with better controls to maximize local economic benefits.

🔵 Summary of the Trend

✅ Tanzania’s investment environment is growing strongly and broadly.
✅ Government facilitation and private sector response are in sync.
✅ Investments are leading to real economy benefits: more jobs, more money, more businesses.
✅ The country is carefully managing some parts (like residence permits and tax exemptions) to safeguard national interests.
Tanzania is solidifying itself as a growing investment destination in 2024 with sustainable, job-creating, and capital-attracting growth trends.

Tanzania’s financial sector has experienced steady expansion from 2021 to 2024, with domestic credit growing from 27.37 trillion TZS in 2021 to 46.82 trillion TZS in 2024, reflecting increased economic activity. Private sector lending also rose significantly, from 19.64 trillion TZS to 33.76 trillion TZS, showing business growth. Meanwhile, foreign financial assets fluctuated, declining from 12.24 trillion TZS in 2021 to 9.66 trillion TZS in 2023, before recovering to 12.09 trillion TZS in 2024. The money supply (M3) expanded from 32.12 trillion TZS in 2021 to 47.09 trillion TZS in 2024, indicating increased liquidity and banking activity. These trends highlight Tanzania’s growing financial sector, with expanding credit and liquidity supporting economic growth.

Analyzing Tanzania's monetary and financial data from January 2021 to February 2025 reveals key trends across various financial indicators:

1. Foreign Financial Assets (Net)

• 2021 average: 12,240,636 million TZS​
• 2022 average: 10,571,449 million TZS​
• 2023 average: 9,663,721 million TZS​
• 2024 average: 12,099,428 million TZS​

Trend Analysis: There was a decline in net foreign financial assets from 2021 to 2023, followed by a recovery in 2024. This fluctuation may reflect changes in foreign exchange reserves and international investment positions.​

2. Domestic Credit

• 2021 average: 27,371,154 million TZS​
• 2022 average: 34,595,463 million TZS​
• 2023 average: 41,047,502 million TZS​
• 2024 average: 46,824,755 million TZS​

Trend Analysis: Domestic credit exhibited consistent growth over the period, indicating an expansion in lending activities within the economy.​

3. Government Claims (Net)

• 2021 average: 6,501,863 million TZS​
• 2022 average: 9,562,896 million TZS​
• 2023 average: 11,603,732 million TZS​
• 2024 average: 11,576,752 million TZS​

Trend Analysis: Net claims on the government increased from 2021 to 2023, stabilizing in 2024. This suggests increased government borrowing during the initial years, possibly for developmental projects or budgetary support, followed by stabilization.​

4. Claims on Private Sector

• 2021 average: 19,643,860 million TZS​
• 2022 average: 23,815,125 million TZS​
• 2023 average: 28,528,613 million TZS​
• 2024 average: 33,759,428 million TZS​

Trend Analysis: There was a steady increase in claims on the private sector, reflecting robust credit growth. Notably, private sector credit expanded by approximately 22% in both July and August 2023, before moderating to 19.5% in September 2023, surpassing the initial projection of 16.4% for December 2023. This growth is attributed to an improved business environment and supportive monetary policies. ​

5. Reserve Money (M0)

• 2021 average: 7,913,564 million TZS​
• 2022 average: 9,103,874 million TZS​
• 2023 average: 9,922,327 million TZS​
• 2024 average: 11,049,539 million TZS​

Trend Analysis: Reserve money showed consistent growth, indicating an increase in the central bank's monetary base.​

6. Extended Broad Money (M3)

• 2021 average: 32,127,715 million TZS​
• 2022 average: 36,201,424 million TZS​
• 2023 average: 41,107,812 million TZS​
• 2024 average: 47,090,824 million TZS​

Trend Analysis: M3, which includes M2 plus foreign currency deposits, grew steadily, reflecting an overall increase in the money supply.​

7. Broad Money (M2)

• 2021 average: 24,773,941 million TZS​
• 2022 average: 28,296,534 million TZS​
• 2023 average: 32,083,035 million TZS​
• 2024 average: 35,505,154 million TZS​

Trend Analysis: M2, comprising currency in circulation and local currency deposits, also exhibited consistent growth, indicating increased liquidity in the economy.​

8. Foreign Currency Deposits (FCD)

• 2021 average: 7,353,728 million TZS​
• 2022 average: 7,904,890 million TZS​
• 2023 average: 9,024,777 million TZS​
• 2024 average: 11,585,670 million TZS​
• FCD in USD (2024 average): 4,355 million USD​

Trend Analysis: Foreign currency deposits increased annually, both in TZS and USD terms, suggesting growing confidence in foreign currency holdings.​

Key Observations:

• Consistent Growth in Domestic Credit: The steady rise in domestic credit indicates an expanding lending environment, supporting economic activities.​
• Fluctuations in Foreign Financial Assets: The decline followed by a recovery in net foreign financial assets may reflect changes in foreign exchange reserves and international investment positions.​
• Robust Private Sector Credit Expansion: The private sector experienced significant credit growth, with rates reaching approximately 22% in mid-2023, surpassing initial projections. This surge is linked to supportive monetary policies and an improved business environment. ​
• Expansion of Monetary Aggregates: The consistent growth in monetary aggregates (M0, M2, M3) indicates an increasing money supply, aligning with economic expansion.

The monetary and financial data for Tanzania from 2021 to 2024 in millions of TZS:

Tanzania's monetary and financial trends from 2021 to 2024, showing overall economic expansion with a few notable trends:

1. Domestic Credit Growth (↑)

• Domestic credit has increased consistently from 27.37 trillion TZS in 2021 to 46.82 trillion TZS in 2024.
• This suggests expanding economic activity, higher lending to businesses and households, and greater access to financial resources.

2. Foreign Financial Assets (Fluctuations)

• Declined from 12.24 trillion TZS in 2021 to 9.66 trillion TZS in 2023, before recovering to 12.09 trillion TZS in 2024.
• This suggests a temporary reduction in foreign reserves, possibly due to trade imbalances or forex interventions, followed by recovery.

3. Increased Government Borrowing (↑)

• Government net claims grew from 6.50 trillion TZS in 2021 to 11.57 trillion TZS in 2024.
• Indicates rising government debt and reliance on credit, which could be used for infrastructure projects or fiscal deficit financing.

4. Private Sector Credit Expansion (↑)

• Increased from 19.64 trillion TZS in 2021 to 33.76 trillion TZS in 2024.
• This suggests improved business confidence and investment, with private sector borrowing more to expand operations.

5. Money Supply Growth (M0, M2, M3) (↑)

• Reserve Money (M0) increased from 7.91 trillion TZS in 2021 to 11.04 trillion TZS in 2024.
• Broad Money (M2) grew from 24.77 trillion TZS in 2021 to 35.50 trillion TZS in 2024.
• Extended Broad Money (M3) increased from 32.12 trillion TZS in 2021 to 47.09 trillion TZS in 2024.
• A growing money supply indicates strong economic expansion, rising liquidity, and higher banking activities.

6. Rising Foreign Currency Deposits (FCD)

• Increased from 7.35 trillion TZS in 2021 to 11.58 trillion TZS in 2024.
• Foreign deposits in USD reached 4.35 billion in 2024, showing growing confidence in Tanzania’s financial sector from international investors.

Key Takeaways:

✅ Tanzania's economy is expanding, with increased money supply, credit, and financial activity.
✅ Private sector growth is strong, showing businesses are investing and borrowing more.
✅ Government borrowing has increased, which could either boost development or create fiscal risks.
✅ Foreign reserves saw fluctuations, indicating external financial pressures but a recovery in 2024.
✅ Liquidity is improving, supporting higher economic participation.

Tax policies significantly influence Tanzania’s investment climate, affecting both local and foreign investors. While taxation is crucial for government revenue, an overly complex and high tax regime can discourage investments, limit capital inflows, and slow economic growth. This article explores how tax laws shape investment trends in Tanzania, presenting key figures, challenges, and potential solutions.

Tanzania’s Tax System and Investment Trends

1. Corporate Tax Rates and Regional Comparison

Tanzania imposes a 30% corporate tax rate on resident companies, one of the highest in East Africa. In contrast:

• Kenya: 25%
• Rwanda: 28%
• Ethiopia: 25%

The high tax rate discourages investments, as seen in 2022 when Tanzania attracted only $922 million in Foreign Direct Investment (FDI), compared to Kenya’s $2 billion and Ethiopia’s $3.1 billion.

2. Tax Compliance and Bureaucracy

Tanzania ranks 163rd out of 190 countries in the World Bank’s Ease of Doing Business Index (2020), reflecting long tax compliance procedures. Businesses spend an average of 240 hours per year filing tax documents, compared to 150 hours in Rwanda.

A survey conducted by TICGL in 2025 revealed:

• 72% of investors found Tanzania’s tax system too complex.
• 63% reported high corporate taxes as a barrier to business expansion.
• 55% believed frequent tax policy changes discouraged long-term investments.

3. Multiple Taxation and VAT Burden

Investors in Tanzania face multiple layers of taxation, including:

• Corporate tax (30%)
• Withholding tax (10-15%)
• Skills and Development Levy (4%)
• Value-Added Tax (VAT) (18%)

Tanzania’s VAT refund delays are a significant issue, with pending refunds amounting to TSh 1.4–1.5 trillion ($650 million) in 2025. Some businesses wait over 12 months for VAT refunds, severely affecting cash flow and expansion plans.

4. Case Studies: How Taxes Affect Investors

Mining Industry: Acacia Mining’s $190 Billion Tax Dispute

• In 2017, Tanzania’s Revenue Authority (TRA) imposed a $190 billion tax bill on Acacia Mining.
• The dispute lasted two years, causing a 70% stock price drop and a 30% decline in FDI in the mining sector.

Telecommunications: Vodacom Tanzania’s $2.5 Million Tax Case

• Vodacom was issued a TSh 5.8 billion ($2.5 million) tax bill in 2021, disrupting its planned 5G expansion.

Tourism Sector: Serena Hotels’ VAT Refund Issues

• Serena Hotels in Tanzania faced a two-year delay on VAT refunds worth TSh 2.1 billion ($900,000), leading to cash flow problems.

Recommendations for a Better Investment Climate

1. Lower Corporate Tax to 25%
   • Aligning with Kenya and Ethiopia could increase Tanzania’s FDI inflows.
2. Simplify Tax Compliance
   • Introduce a one-stop tax portal to reduce paperwork and compliance time.
3. Reduce VAT to 16%
   • This would enhance competitiveness and reduce operational costs for businesses.
4. Automate VAT Refund Processing
   • Ensuring refunds are processed within 30 days would improve business cash flow.
5. Introduce a 5-Year Tax Stability Framework
   • This would provide predictability and confidence for long-term investors.

Conclusion

Tanzania's current tax policies present significant barriers to investment. High corporate taxes, multiple taxation, VAT refund delays, and unpredictable policy changes discourage both local and foreign investors. If key reforms are implemented—such as lowering tax rates, simplifying compliance, and improving tax administration—Tanzania could increase FDI by 10-15% over the next five years, boosting economic growth and job creation.

The Tanzania Revenue Authority (TRA) demonstrated exceptional performance in the first half of the 2024/2025 fiscal year, consistently exceeding revenue targets with efficiency rates above 100% and achieving year-on-year growth ranging from 15% to 23.6%. With total collections peaking at TZS 3.587 trillion in December 2024, driven by strengthened economic activities and improved tax compliance, TRA's strategic initiatives have set a solid foundation for continued growth. Forecasts for January–June 2025 project sustained revenue momentum, reinforcing TRA's pivotal role in enhancing Tanzania’s fiscal stability and economic development.

1. Overview of Monthly Performance

The table shows the revenue collections compared to targets and highlights both efficiency (how much was collected compared to the target) and growth (how much collections increased compared to the previous year).

2. Key Observations

A. Efficiency (Target Achievement)

• July 2024: Revenue collection was 104.45% of the target (TZS 2.347 trillion collected against a target of TZS 2.247 trillion).
• October 2024: The highest efficiency was recorded at 107.45%, showing TRA’s strong performance in meeting and exceeding targets.
• December 2024: Efficiency was 103.52%, indicating slight overperformance relative to the target of TZS 3.465 trillion.

B. Growth (Year-on-Year Increase)

• July 2024: Revenue grew by 21.04% from TZS 1.939 trillion in July 2023/2024 to TZS 2.347 trillion in 2024/2025.
• October 2024: This month recorded the highest growth at 23.60%, a sign of increased economic activity or improved tax compliance mechanisms.
• December 2024: Growth was 17.61%, an improvement of TZS 0.537 trillion compared to December 2023/2024.

3. Breakdown of Key Drivers

1. Revenue Growth Factors
   • Improved economic activity during the year, particularly in key sectors like trade and services.
   • Strengthened tax administration and enforcement measures by TRA.
2. Efficiency in Exceeding Targets
   • Enhanced compliance through digital tax systems (e.g., EFDs).
   • Improved taxpayer education and monitoring contributed to high revenue performance.
3. Month-on-Month Trends
   • The largest revenue collection occurred in December 2024 (TZS 3.587 trillion), likely due to increased economic activity during the holiday season.
   • July 2024 saw a strong start with significant growth and efficiency, setting the pace for subsequent months.

4. Highlights and Takeaways

• Consistent Growth: Revenue growth ranged from 15% to 23.6%, demonstrating resilience in collections despite possible economic challenges.
• Exceeding Targets: TRA consistently achieved over 100% efficiency, showing effective planning and execution.
• Peak Collection: December was the strongest month in absolute collections, reflecting seasonal economic patterns.

Forecast for revenue collections by the Tanzania Revenue Authority (TRA) for the next six months (January–June 2025), based on the average growth rate observed between July and December 2024/2025:

Key Observations:

1. January 2025: Forecasted collections are TZS 3.97 trillion, an increase from December 2024 due to consistent growth momentum.
2. June 2025: Collections are projected to reach TZS 6.60 trillion, reflecting significant month-on-month growth.
3. Trend: Revenue is expected to grow steadily due to sustained improvements in tax compliance and economic activities.

Tanzania Revenue Authority (TRA) for July–December 2024/2025 and the forecast for January–June 2025 offers key insights into the efficiency, growth, and trends of revenue collections:

1. Efficiency (Target Achievement)

• TRA consistently exceeded revenue targets, achieving efficiency rates above 100% across all months, with a peak of 107.45% in October 2024.
• This indicates robust tax collection strategies, improved taxpayer compliance, and effective administrative measures.
• Even in December, where targets are typically ambitious, TRA managed to collect 3.587 trillion TZS, surpassing the target by 3.52%.

2. Growth (Year-on-Year Comparison)

• Revenue collections showed steady growth compared to the previous fiscal year, ranging from 15.01% in September to a high of 23.60% in October.
• The high growth rates suggest:
  • Strengthened economic activity, particularly in trade and services.
  • Enhanced enforcement of tax compliance and digital systems like EFDs.

3. Seasonal Trends and Peaks

• July 2024: Marked a strong start with 21.04% growth, setting a positive trajectory for subsequent months.
• December 2024: Registered the highest collections in absolute terms (3.587 trillion TZS), attributed to increased holiday-related economic activity.

4. Key Drivers Behind Performance

• Economic Growth: Expansion in key sectors such as trade and services contributed to rising tax revenues.
• Technological Integration: Use of digital tax systems and improved enforcement mechanisms enhanced compliance.
• Taxpayer Education: Increased awareness among taxpayers likely reduced evasion and improved voluntary compliance.

5. Forecast for January–June 2025

• Forecasted collections project sustained growth, with revenues rising from 3.97 trillion TZS in January to 6.60 trillion TZS in June 2025.
• The steady increase indicates momentum in tax collection strategies and economic performance.
• By June 2025, collections are expected to reflect nearly 66% growth compared to January 2025, showcasing robust monthly expansion.

6. Overall Insights

1. Consistency in Exceeding Targets: TRA’s ability to consistently exceed revenue targets demonstrates strong institutional efficiency.
2. Sustained Growth: Growth rates of 15–23.6% suggest resilience in economic activities despite potential challenges.
3. Strategic Focus: December’s peak collections and the upward forecast highlight the importance of seasonal and economic patterns in TRA’s strategies.
4. Future Prospects: The optimistic forecast for January–June 2025 underscores TRA's capability to leverage momentum and maintain revenue collection growth.

Digital loans have experienced significant growth in Tanzania, driven by mobile technology, increased phone ownership, and partnerships between banks, microfinance institutions, and mobile network operators (MNOs).

Key Statistics

1. Total Number of Digital Loan Accounts:
   • The number of digital loan accounts in Tanzania skyrocketed by 198% from 32.09 million in 2022 to 95.89 million in 2023.
   • This dramatic increase highlights a growing trend of digital borrowing, especially among low-income and rural populations who find traditional banking inaccessible.
2. Amount of Digital Credit Issued:
   • The total amount of digital credit issued in Tanzania surged from TZS 26.79 billion in 2022 to TZS 126.03 billion in 2023, marking a 370% increase.
   • This indicates that while the number of loans has grown significantly, the total value of loans issued has also risen, suggesting an increasing demand for larger loans.
3. Demographic Trends:
   • Men represent 66.5% of all digital loan borrowers, while women account for 33.5%. However, the number of women accessing digital loans is steadily increasing, indicating greater financial empowerment among women.
   • Youth and young adults (primarily those aged 18–35) make up a large proportion of digital loan borrowers, as they are more likely to use mobile phones and digital financial services.
4. Active Mobile Money Accounts:
   • The increase in mobile money accounts (from 38.34 million in 2022 to 51.72 million in 2023) has contributed to the growth of digital loan services, as digital loan products are typically linked to mobile wallets.
   • The growth in mobile money accounts and the availability of National Identification Numbers (NINs) have made it easier for more people to access mobile financial services.

Key Drivers of Growth

1. Technology and Mobile Penetration:
   • The expansion of 3G and 4G network coverage and the increased availability of smartphones have made digital loans more accessible to Tanzanians, particularly in rural areas.
   • The ease of instant loans via mobile platforms has allowed users to access credit without needing a bank account or physical collateral.
2. Partnerships between Banks and MNOs:
   • Many financial institutions have partnered with mobile network operators (MNOs) to offer digital loans. These partnerships leverage MNOs' extensive mobile money networks, enabling quicker disbursement and repayment of loans.
   • Artificial Intelligence (AI) is used to assess the creditworthiness of borrowers, allowing for faster loan approval processes based on transaction history and mobile phone usage.
3. Government Support:
   • Regulatory changes by the Bank of Tanzania (BoT) and other financial authorities have helped create a favorable environment for digital lending, supporting the development of mobile loan platforms and enhancing financial inclusion.

Impact of Digital Loans

1. Financial Inclusion:
   • Digital loans have significantly improved financial inclusion by providing access to credit for underserved populations, particularly in rural areas where traditional banks have limited reach.
   • The increased access to instant loans has enabled individuals to meet urgent financial needs, such as healthcare, education, or emergency expenses.
2. Economic Growth:
   • By giving small businesses and individuals access to capital, digital loans contribute to economic activity, especially for MSMEs and entrepreneurs who may otherwise struggle to access credit from traditional financial institutions.

Challenges and Opportunities

1. Challenges:
   • Despite their growth, digital loans often carry high-interest rates, which can burden borrowers, especially those in low-income segments.
   • There is also concern over the sustainability of digital lending models, as some borrowers may struggle to repay loans on time, leading to over-indebtedness.
2. Opportunities:
   • The growth of digital credit presents opportunities for further product innovation in micro-lending, especially targeting women and youth.
   • There is potential for regulatory improvements to balance the rapid growth of digital lending with consumer protection to ensure long-term stability and sustainability.

Conclusion

The surge in digital loans in Tanzania, with a 198% increase in loan accounts and a 370% rise in the value of loans, demonstrates the country's rapid adoption of mobile financial services. While digital loans have opened up new opportunities for financial inclusion, they also present challenges related to affordability and long-term sustainability. Continued innovation, coupled with regulatory oversight, will be key to maximizing the benefits of digital lending in Tanzania's evolving financial landscape.

Between 2019 and 2023, Tanzania's financial landscape experienced remarkable growth, with total financial access points increasing by 130%, from 609,956 in 2019 to 1,402,609 in 2023. This expansion was driven by a 116% rise in mobile money agents (from 573,444 to 1,240,106) and a 365% growth in bank agents (from 28,358 to 106,176). The country’s financial inclusion rate improved from 65% in 2017 to 76% in 2023, showcasing the success of digital innovations and policy reforms under the National Financial Inclusion Framework. This growth underscores Tanzania's commitment to bridging the financial access gap, particularly in underserved areas.

Financial Services Providers Landscape in Tanzania

Tanzania's financial services landscape is diverse and rapidly growing, driven by digital innovations and regulatory improvements. The sector comprises banking institutions, microfinance, insurance, capital markets, and payment service providers:

Access to Financial Services

• Banking Services:
  • Number of bank agents grew from 28,358 in 2019 to 106,176 in 2023.
  • Banking access points increased to 107,238 in 2023, driven by reforms in agent banking.
• Microfinance Institutions (MFIs):
  • Access points reached 51,253 in 2023, marking a 31% annual growth.
  • Community Microfinance Groups (CMGs) dominate with 48,659 access points, reflecting a formalization trend.
• Payment Services:
  • Mobile money agents grew by 19.4% to 1.24 million in 2023.
  • Mobile money accounts increased by 34.9% to 51.72 million.

Usage of Financial Services

• Savings:
  • Banking sector savings reached TZS 6.99 trillion, an 18.1% increase.
  • Savings accounts in SACCOs decreased in value to TZS 870 billion, as some members preferred borrowing.
• Credit:
  • Total bank loans grew by 24.4% to TZS 33.10 trillion.
  • SACCOs' loans amounted to TZS 1.12 trillion, a 3.7% increase.
• Insurance:
  • Policyholders increased by 94.4% to 7.68 million, mainly due to mandatory motor insurance and health coverage expansion.
• Capital Markets:
  • Investors in securities increased by 12.5% to 907,969, supported by technology-enabled platforms.

Growth Drivers

1. Digital Financial Services: The rise of mobile money and online platforms improved accessibility and efficiency.
2. Policy Frameworks: The National Financial Inclusion Framework (2023-2028) prioritized underserved populations.
3. Regulatory Enhancements: New guidelines fostered innovations, such as digital insurance platforms and microfinance formalization.
4. Government Programs: Local Government Authority loans provided TZS 24.02 billion to women and TZS 19.92 billion to youth in 2023.

Total Number of Financial Access Points in Tanzania (2019–2023)

The number of financial access points in Tanzania grew significantly between 2019 and 2023, driven by expansion across banking, microfinance, insurance, and payment systems:

Overall Growth

• In 2019, Tanzania had 609,956 financial access points.
• By 2023, this number increased to 1,402,609, representing a 130% growth over the period.

Yearly Breakdown of Access Points

Sector-wise Contribution

1. Banking Services:
   • Grew from 29,371 access points in 2019 to 107,238 in 2023.
   • Bank agents contributed most to this increase, quadrupling during the period.
2. Microfinance Services:
   • Increased from 6,241 access points in 2019 to 53,371 in 2023, driven by the formalization of Community Microfinance Groups (CMGs).
3. Insurance Services:
   • Access points rose from 795 in 2019 to 1,495 in 2023, a 88% growth, fueled by digital platforms and bancassurance agents.
4. Payment Systems (Non-Bank):
   • Dominated the landscape, growing from 573,444 access points in 2019 to 1,240,106 in 2023, representing 116% growth.
   • Mobile money agents were the largest contributors.
5. Capital Markets Services:
   • Modest growth from 91 access points in 2019 to 380 in 2023, reflecting a focus on investment advisory and fund management.
6. Social Security Services:
   • Grew slightly from 14 access points in 2019 to 19 in 2023, limited by the niche nature of this sector.

Key Drivers of Growth

• Digital Transformation: Mobile money platforms and digital payment systems rapidly increased access.
• Policy and Regulation: The implementation of the National Financial Inclusion Framework (NFIF) facilitated formalization and innovation.
• Public-Private Partnerships: Collaboration with stakeholders such as banks, microfinance institutions, and insurers expanded reach.

Implications

The steady increase in financial access points reflects Tanzania's progress in financial inclusion, ensuring more adults live within a 5 km radius of financial services (89% in 2023, up from 86% in 2017).

Insights from Tanzania's Financial Services Providers Landscape (2023) and Financial Access Points (2019–2023)

1. Strong Progress in Financial Inclusion

The rapid growth in financial access points and the diversification of financial service providers illustrate Tanzania's consistent strides in financial inclusion. The financial inclusion rate increased from 65% in 2017 to 76% in 2023, demonstrating that more Tanzanians are accessing formal financial services.

2. Dominance of Digital Financial Services

• The exponential growth in mobile money agents (from 573,444 in 2019 to 1,240,106 in 2023) highlights how digital financial services dominate the financial landscape.
• Digital innovations, such as mobile money, are bridging the gap in rural and underserved areas, making financial services more accessible and affordable.

3. Role of Policy and Regulation

• The implementation of frameworks like the National Financial Inclusion Framework (NFIF-3, 2023–2028), along with regulatory reforms for digital platforms, insurance, and microfinance, has created an enabling environment for growth.
• This alignment between public and private stakeholders reflects a focused approach to tackling barriers to financial access.

4. Significant Growth in Banking Services

• The growth in banking agents (from 28,358 in 2019 to 106,176 in 2023) shows that agent banking reforms have effectively decentralized banking, bringing services closer to people, especially in rural areas.

5. Increased Focus on Underserved Segments

• Initiatives targeting women, youth, MSMEs, and smallholder farmers have driven tailored products, like women-friendly savings accounts and micro-loans, showcasing a shift towards inclusive financial services.

6. Opportunities in Microfinance and Capital Markets

• The formalization of Community Microfinance Groups (CMGs) and the growth of capital markets (e.g., fund managers and collective investment schemes) indicate untapped potential for rural financing and investment.

7. Persistent Challenges

• Despite improvements, certain challenges persist:
  • Social security services access points remain limited (only 19 access points in 2023).
  • Urban-rural disparities still exist, as infrastructure in rural areas lags behind urban centers.
  • Low uptake of advanced financial services like pensions and insurance, indicating a need for more public awareness and tailored products.

8. Economic and Social Impacts

• Economic Growth: With credit values increasing by 24.4% in banks and 3.7% in SACCOs in 2023, the financial sector has become a key driver of economic growth by mobilizing savings and enabling trade.
• Social Benefits: Financial inclusion efforts have empowered previously underserved populations, enhancing their ability to save, invest, and access credit.

Key Takeaways

1. Growth with Innovation: The financial services landscape in Tanzania is becoming increasingly diversified, with digital financial services leading the charge.
2. Policy as a Catalyst: The alignment of policy, innovation, and private-sector initiatives ensures sustainable growth in financial inclusion.
3. Targeted Efforts are Essential: Continued focus on underserved segments like rural populations and MSMEs is crucial for equitable economic growth.

In September 2024, Tanzania's bank lending rate rose slightly to 12.92% from 12.79% in August, reflecting cautious adjustments in monetary policy. This rate, slightly below the long-term average of 13.09%, highlights the Bank of Tanzania's efforts to manage inflation and stabilize the economy while maintaining a moderately high cost of borrowing for businesses and consumers.

1. Current Trends (2024)

• In September 2024, the bank lending rate increased to 12.92%, up slightly from 12.79% in August 2024.
• This indicates a monthly increase of 0.13 percentage points, reflecting a tightening of credit conditions or adjustments to monetary policy.

2. Historical Averages (2003-2024)

• Over the last 21 years, the average bank lending rate in Tanzania has been 13.09%.
• This average suggests that the current lending rate of 12.92% is slightly below the long-term trend, signaling a relatively moderate borrowing cost in the historical context.

3. Extreme Values

• Highest Rate: The lending rate peaked at 17.91% in September 2017, likely due to monetary tightening or inflation control measures.
• Lowest Rate: The lending rate hit a record low of 7.53% in March 2004, reflecting favorable credit conditions and possibly expansive monetary policy.

4. Insights from Changes

• The recent uptick in 2024 may indicate cautious monetary policy adjustments, aiming to balance economic growth with inflation control.
• Historical fluctuations reflect responses to various economic conditions, including:
  • Inflation trends: High lending rates often align with inflationary pressures.
  • Monetary policy stance: Changes in the Central Bank’s policies to control liquidity and stabilize the Tanzanian shilling.
  • Economic growth phases: Lower rates during growth-supportive periods and higher rates during economic cooling.

5. Implications for Borrowers and Businesses

• At 12.92%, borrowing costs remain significant for businesses and consumers.
• Compared to the record high of 17.91%, the current rate offers some relief, but it’s still far from the record low of 7.53%.

The bank lending rate data for Tanzania tells several important economic and monetary policy stories:

1. Monetary Policy Trends

• Current Tightening: The slight increase from 12.79% to 12.92% in September 2024 suggests that the Bank of Tanzania is either:
  • Managing inflation risks.
  • Controlling excessive credit growth.
• This indicates a cautious tightening or stabilization phase in monetary policy.

2. Credit Environment

• Borrowing Costs: A lending rate of 12.92% reflects a relatively high cost of borrowing, which can:
  • Discourage excessive credit growth, curbing inflation.
  • Limit small businesses and consumers’ ability to access affordable loans.
• Compared to historical lows (7.53% in 2004), current rates make credit more expensive, potentially affecting economic activity.

3. Historical Context

• Long-Term Average (13.09%):
  • The current rate is slightly below the historical average, suggesting that borrowing conditions are moderately stable but not overly restrictive.
• Extreme Variations:
  • The record high (17.91% in 2017) occurred during a period of high inflation and stringent monetary policy.
  • The record low (7.53% in 2004) reflects a time of looser monetary policy aimed at boosting economic growth.

4. Implications for Economic Growth

• For Businesses:
  • High lending rates increase the cost of capital, particularly for sectors dependent on bank loans, such as SMEs and agriculture.
  • Limits expansion plans and investment in capital-intensive projects.
• For Consumers:
  • Higher rates increase borrowing costs, impacting personal loans, mortgages, and spending power.

5. Signals to Stakeholders

• To Policymakers: The Bank of Tanzania might be balancing inflationary pressures against the need to support economic growth. Maintaining rates slightly below the long-term average reflects a careful approach.
• To Investors: A moderately high lending rate suggests a relatively stable financial system, but caution is needed in sectors sensitive to borrowing costs.
• To the Public: Fluctuations in rates can affect consumer confidence, especially if they expect prolonged high borrowing costs.

As of September 2024, Tanzania's total external debt reached USD 32.89 billion, accounting for 73% of the country’s total national debt. The central government held the largest share of external debt at USD 25.43 billion (78.1%), with funds directed toward critical sectors like transport (21.5%) and social welfare (20.8%). Domestically, the government owed TZS 32.62 trillion, with Treasury bonds dominating at 78.9%. Despite strategic investments, reliance on the USD (67.4% of external debt) and limited funding for agriculture (5.1%) and tourism (1.6%) pose challenges to debt sustainability and inclusive economic growth.

1. External Debt

Key Figures

• Total External Debt Stock (Sept 2024): USD 32,890.0 million.
• Proportion of National Debt: 73%.
• Main Components:
  • Disbursed Outstanding Debt: USD 31,425.6 million.
  • Undisbursed Debt: USD 5,042.7 million.

Debt Stock by Borrowers

• Central Government: USD 25,428.6 million (78.1% of external debt).
• Private Sector: USD 5,993.2 million (21.9% of external debt).
• Public Corporations: USD 3.8 million (negligible share).

Use of Funds (Disbursed Outstanding Debt)

• Transport and Telecommunications: 21.5% – Largest allocation, highlighting the government's priority on improving connectivity and mobility.
• Social Welfare and Education: 20.8% – Significant focus on human capital development.
• Balance of Payments Support: 17.9% – Indicates reliance on external financing for stabilizing the country's foreign exchange reserves.
• Energy and Mining: 14.8% – Focus on infrastructure for energy and resource exploitation.
• Agriculture: 5.1% – Low share considering Tanzania's agriculture-driven economy.
• Industries: 3.7%.
• Finance and Insurance: 4.0%.
• Tourism: 1.6% – Surprisingly low given its economic importance.
• Real Estate and Construction: 4.8%.
• Other Uses: 5.8%.

Currency Composition

• US Dollar: 67.4% – Reflects high exposure to exchange rate fluctuations against the USD.
• Euro: 16.6%.
• Chinese Yuan: 6.3%.
• Other Currencies: 9.7%.

2. Internal (Domestic) Debt

Key Figures

• Total Domestic Debt Stock (Sept 2024): TZS 32,615.7 billion.
• Month-on-Month Change: Decreased by TZS 144.5 billion.
• Main Instruments:
  • Treasury Bonds: 78.9% – Dominates domestic debt instruments, preferred for their longer maturity periods.

Domestic Debt by Creditor

• Commercial Banks: 29.7% (TZS 9,678.8 billion) – Largest creditors, showing banking sector's key role in funding government activities.
• Bank of Tanzania: 20.5% (TZS 6,696.3 billion) – Central bank’s significant share indicates monetary policy alignment.
• Pension Funds: 27.6% (TZS 8,991.4 billion) – Reflects government reliance on long-term funds.
• Insurance Companies: 5.8% (TZS 1,904.2 billion).
• BOT’s Special Funds: 1.2% (TZS 389.0 billion).
• Others: 15.2% (TZS 4,956.0 billion) – Includes various smaller creditors.

Insights

1. Debt Composition: External debt forms a significant majority (73%), exposing the economy to foreign exchange risks, especially given the dominance of USD (67.4%).
2. Focus Areas of Debt Use: Prioritization of transport, telecommunications, social services, and energy aligns with Tanzania's development goals, though agriculture and tourism receive relatively smaller allocations.
3. Domestic Financing: Treasury bonds dominate, with commercial banks and pension funds as major participants, reflecting a stable domestic borrowing market.

The key insights into Tanzania's fiscal and economic dynamics:

1. Heavy Reliance on External Debt

• External Borrowing: Makes up 73% of total debt, indicating significant dependency on international sources for financing development projects and budgetary needs.
• Risks: High exposure to currency exchange rate fluctuations, especially with 67.4% of external debt denominated in USD. Any depreciation of the Tanzanian shilling could increase the cost of servicing the debt.

2. Focused Use of Funds

• Priority Sectors:
  • Transport, telecommunications, and social welfare (education and health) receive a combined 42.3% of external debt funding. This reflects strategic efforts to improve infrastructure and human capital.
  • Energy and mining account for 14.8%, essential for supporting industrialization and reducing power shortages.
• Underfunded Areas:
  • Agriculture (5.1%) and tourism (1.6%) receive smaller shares, despite their significance in Tanzania's GDP and employment. This could suggest underprioritization of these critical sectors or reliance on other forms of financing for them.

3. Dominance of Treasury Bonds in Domestic Debt

• Treasury bonds constitute 78.9% of domestic debt, reflecting:
  • A preference for long-term instruments that reduce refinancing risks.
  • A relatively well-developed domestic bond market to absorb government debt.
• Impact: Stable borrowing through domestic sources reduces reliance on volatile external sources but concentrates risk within the local financial system.

4. Key Domestic Creditors

• Commercial Banks and Pension Funds: Together hold over 57% of domestic debt, showing reliance on institutional investors for funding.
• Central Bank Role: The Bank of Tanzania (20.5%) plays a critical role in supporting government borrowing, reflecting alignment with monetary policy goals.

5. Debt Sustainability and Macro Risks

• Short-Term Indicators: While the focus on productive sectors like transport and energy could boost long-term growth, the high proportion of debt (external and domestic) demands careful management to avoid repayment challenges.
• Diversification Needs: The small allocation to tourism and agriculture may limit potential contributions from these sectors, which are key to inclusive growth and export earnings.
• Debt Service Pressures: Heavy USD dependency can amplify costs if global financial conditions tighten (e.g., rising interest rates or strengthening dollar).

Key Messages

• Opportunities: Investment in infrastructure, energy, and education positions Tanzania for future economic growth.
• Challenges: Managing debt sustainability, diversifying financing sources, and balancing sectoral priorities remain crucial to minimize risks and maximize development impact.