The Bank of Tanzania’s August 2025 Monthly Economic Review shows that the financial market remained highly liquid in July 2025, supported by the recent reduction of the Central Bank Rate (CBR) to 5.75%. Government securities were in strong demand, with Treasury bill auctions oversubscribed nearly threefold (TZS 452.1 billion bids vs. TZS 162.0 billion offered) and a decline in the weighted average yield to 8.13% from 8.89% in June. In the bond market, investor preference shifted toward longer maturities, with the 10-year bond oversubscribed at a yield of 13.74%, while shorter tenors recorded slight yield increases. Meanwhile, interbank cash market (IBCM) activity surged, with turnover rising by 30% to TZS 3,746 billion, dominated by 7-day deals, while the average rate eased to 6.62% (from 7.93%), reflecting improved banking sector liquidity and effective monetary policy transmission.

1. Government Securities Market

• In July 2025, the Bank of Tanzania conducted two Treasury bill auctions with a total offer of TZS 162.0 billion.
  • Bids received: TZS 452.1 billion
  • Successful bids: TZS 158.9 billion
  • Weighted Average Yield (WAY): 8.13% (down from 8.89% in June 2025).
• Treasury Bonds:
  • Auctions for 2-, 5-, and 10-year bonds were held.
  • Tender sizes:
    • 2-year: TZS 117.05 billion
    • 5-year: TZS 136.2 billion
    • 10-year: TZS 162.8 billion
  • Bids received: TZS 396.4 billion, of which TZS 351.9 billion were accepted.
  • Yields:
    • 2-year: 12.17% (slight increase)
    • 5-year: 13.18% (slight increase)
    • 10-year: 13.74% (slight decrease).
  • Investor trend: Preference shifted toward longer-term bonds (10-year oversubscribed, while 2- and 5-year were undersubscribed).

2. Interbank Cash Market (IBCM)

• The IBCM continued to play a role in liquidity management.
• Turnover in July 2025: TZS 3,746 billion (up from TZS 2,873.9 billion in June 2025).
• Structure of transactions:
  • 7-day deals dominated: 65.9% of total turnover.
• Interest rates:
  • Overall IBCM rate eased to 6.62% (down from 7.93% in June 2025).
  • Within the Central Bank Rate (CBR) corridor of 3.75% – 7.75%.

Table 1: Treasury Bills Auction (July 2025)

Table 2: Treasury Bonds Auctions (July 2025)

(Arrows indicate direction vs. June 2025 yields)

Table 3: Interbank Cash Market (IBCM), July 2025

Economic Implications of the Financial Market Data (Government Securities and IBCM)

1. Government Securities Market

Government securities (Treasury bills and bonds) are key tools for the BOT and government to manage liquidity, finance budgets, and signal interest rate expectations. The July 2025 data shows strong demand overall, but with nuanced shifts in investor preferences.

• Treasury Bills (Short-Term Securities):
  • Oversubscription and Yield Decline: The auctions offered TZS 162.0 billion but attracted TZS 452.1 billion in bids (nearly 2.8x oversubscribed), with only TZS 158.9 billion accepted (about 35% of bids). The weighted average yield (WAY) fell to 8.13% from 8.89% in June.
  • Economic Meaning: This indicates abundant liquidity in the banking system, as investors (primarily banks and institutional players) are eager to park excess funds in safe, short-term assets. The yield drop reflects the BOT's accommodative policy transmitting to lower short-term borrowing costs for the government. Economically, it signals:
    • Lower Government Financing Costs: Cheaper short-term debt helps ease fiscal pressure, allowing more budget allocation to growth-oriented spending (e.g., infrastructure, as noted in the document's budgetary operations section).
    • Stimulus to Credit and Growth: With yields falling, banks may redirect funds toward private sector lending, aligning with the BOT's goal of boosting credit growth (which was at 15.9% annually in July). This could support sectors like agriculture and manufacturing, contributing to GDP expansion.
    • Potential Risks: Persistent oversubscription might hint at risk aversion if investors prefer safe assets over riskier loans, though the document's strong money supply growth (19.9% for M3) suggests otherwise.
• Treasury Bonds (Medium- to Long-Term Securities):
  • Auction Details and Yield Movements: Tender sizes were TZS 117.05 billion (2-year), TZS 136.2 billion (5-year), and TZS 162.8 billion (10-year). Total bids reached TZS 396.4 billion (oversubscribed overall), with TZS 351.9 billion accepted. Yields rose slightly for 2-year (to 12.17%) and 5-year (to 13.18%) bonds but eased for 10-year (to 13.74%).
  • Investor Shift to Longer Tenors: The 10-year bond was oversubscribed, while shorter ones were undersubscribed, showing a preference for long-term instruments.
  • Economic Meaning: This points to evolving investor confidence and expectations of future rates.
    • Yield Curve Dynamics: The slight increase in short- to medium-term yields contrasted with a dip in long-term yields suggests a flattening yield curve. Investors may anticipate further policy easing (e.g., more CBR cuts) or stable inflation, making long-term bonds attractive for locking in returns. This reflects optimism about Tanzania's medium-term economic stability, supported by the document's notes on resilient global conditions and domestic inflation within the 3-5% target.
    • Confidence in Long-Term Outlook: The shift to 10-year bonds indicates reduced perceived long-term risks, possibly due to improving external factors (e.g., stable commodity prices like oil at USD 69.2/barrel) and strong export performance. It could lower the government's overall debt servicing costs over time, freeing resources for development (as seen in the document's external sector improvements).
    • Fiscal and Growth Implications: Higher acceptance rates (89% of bids) help fund budgetary operations without crowding out private credit. However, undersubscription in shorter bonds might signal caution on near-term liquidity or inflation risks from food price upticks (e.g., rice and millet, as detailed in the inflation section).

Overall, for Government Securities:

• Broad Implications: The market's robustness (high bids, easing yields) underscores effective monetary policy transmission, fostering lower interest rates economy-wide. This supports the BOT's dual mandate of price stability and growth, potentially reducing the cost of capital for businesses and households. From a macroeconomic perspective, it aligns with Tanzania's 2025 growth projections (around 6.5% per IMF estimates), driven by mining, tourism, and agriculture. However, if yields continue falling too sharply, it could encourage speculative borrowing or pressure the shilling (though it remained stable at TZS 2,666.79/USD).

2. Interbank Cash Market (IBCM)

The IBCM is a short-term lending market among banks, crucial for liquidity management and transmitting BOT policy signals. It operates within the CBR corridor (3.75%-7.75% in July).

• Increased Turnover and Easing Rates: Turnover rose ~30% to TZS 3,746 billion from TZS 2,873.9 billion in June, with 7-day deals dominating (65.9%). The overall rate eased to 6.62% from 7.93%.
• Economic Meaning: This reflects improved liquidity conditions in the banking sector, directly tied to the BOT's reverse repo operations (TZS 758.8 billion injected in July, per the document).
  • Ample Liquidity and Policy Effectiveness: Higher turnover and lower rates indicate banks have excess reserves to lend, reducing borrowing pressures. The rate staying within the corridor shows the BOT's success in steering short-term rates toward the CBR, promoting stability.
  • Boost to Banking and Credit: Easier interbank lending lowers funding costs for banks, which can pass savings to customers via cheaper loans. This complements the document's noted private sector credit growth (15.9%), potentially accelerating investment in key sectors.
  • Growth Support Amid Easing: The ~1.3% rate drop signals a loosening environment, encouraging economic activity without stoking inflation (which remained stable due to offsetting food and energy dynamics). It could help mitigate global risks like trade uncertainties (highlighted in the global section).

Summary of Broader Economic Significance

• Positive for Growth and Stability: The data portrays an easing financial environment, with lower yields and rates fostering cheaper credit, higher investment, and fiscal flexibility. This is consistent with the BOT's strategy to counter subdued global demand while maintaining inflation targets, potentially supporting Tanzania's 2025 GDP growth amid resilient exports (e.g., gold and cash crops).
• Liquidity-Driven Trends: Strong demand and easing conditions stem from policy measures like the CBR cut and reverse repos, indicating effective liquidity management. Investors' long-term preference suggests confidence in sustained recovery.
• Potential Challenges: While beneficial, excessive liquidity could lead to asset price inflation or currency depreciation if not monitored. The document's emphasis on stable commodity prices and external improvements mitigates this, but ongoing vigilance is key.
• Comparative Context: Compared to regional peers (e.g., EAC inflation within 8% benchmark), Tanzania's markets appear more liquid and investor-friendly, enhancing its attractiveness for foreign inflows.

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.

Tanzania’s food inflation rose to 5.4% in March 2025, a slight increase from 5.0% in February, but still remains below the country’s long-term average of 7.7% recorded between 2010 and 2025. This moderate inflation level reflects relative price stability in the country’s food sector despite global and regional challenges. Compared to its East African neighbors, Tanzania ranks 8th, performing better than Kenya (6.6%) and Ethiopia (11.9%), but trailing behind Uganda (2.0%) and Rwanda (3.5%). On a continental scale, Tanzania stands in the middle tier, significantly outperforming high-inflation countries like South Sudan (106%), Zimbabwe (105%), and Malawi (37.7%), indicating a relatively stable macroeconomic and food supply environment.

Tanzania Food Inflation: March 2025

• Current Rate: 5.4% (year-on-year)
• Previous Month: 5.0%
• Historical Average (2010–2025): 7.7%
• Historical High: 27.84% in Jan 2012
• Historical Low: 0.10% in Mar 2019

This shows that Tanzania’s food inflation is currently below its long-term average, suggesting moderate food price pressures compared to historical trends.

Tanzania in Africa (Ranking)

Tanzania ranks 18th out of 42 African countries listed in terms of food inflation (from highest to lowest), placing it in the mid-range.

• Countries like South Sudan (106%) and Zimbabwe (105%) have extremely high food inflation.
• Djibouti (-2.9%) and Somalia (-1.5%) are currently experiencing food deflation.

Tanzania in East Africa

Tanzania compares with selected East African countries:

Tanzania ranks 8th among East African countries based on current food inflation. It is lower than Kenya (6.6%), but higher than Uganda (2%) and Rwanda (3.5%).

Top 10 African Countries with Highest Food Inflation (Mar 2025)

These countries are facing severe food price pressures, likely due to economic instability, currency depreciation, or supply chain issues.

Summary Insights:

• Tanzania's food inflation of 5.4% is moderate by African standards.
• It is below regional giants like Kenya and Ethiopia, but above Uganda and Rwanda.
• Compared to Africa’s average, Tanzania sits in the middle tier for food inflation.

Tanzania’s food inflation (5.4% in March 2025) with several important things at national, regional, and continental levels:

1. National Insights (Tanzania)

• Moderate Pressure: Tanzania's food inflation is relatively moderate compared to its historical average of 7.7%.
• Stability Compared to History: It’s far below its peak in 2012 (27.84%) and shows price stability in recent months.
• Rising Trend: There is a slight increase from 5.0% in the previous month, suggesting growing food cost pressures—possibly due to seasonal factors, fuel prices, or currency trends.

2. Regional Comparison (East Africa)

• Tanzania ranks 8th in East Africa in terms of food inflation.
• Lower than Kenya (6.6%) and Ethiopia (11.9%), meaning Tanzania is managing food prices better than some key neighbors.
• Higher than Uganda (2%) and Rwanda (3.5%), which may indicate areas for improvement in food supply chains or agricultural productivity.
• Suggests Tanzania’s inflation is under control, but with room for better performance compared to top regional performers.

3. Continental Position (Africa)

• Tanzania ranks 18th out of 42 African countries in food inflation – putting it in the middle of the pack.
• It’s far better than countries in crisis like Zimbabwe (105%), South Sudan (106%), Malawi (37.7%), and Ghana (26.5%).
• Indicates relative economic and price stability compared to many African nations struggling with hyperinflation or conflict.

Overall Interpretation

• Tanzania is in a stable but cautious position.
• Food prices are increasing, but not alarmingly.
• Compared to peers in East Africa and Africa:
  • Tanzania is doing better than many.
  • But it can still learn from countries with lower inflation, like Uganda or Rwanda, in managing supply and price controls.

As of February 28, 2025, the Bank of Tanzania’s total assets grew by 3.18%, reaching TZS 26.05 trillion, up from TZS 25.24 trillion in January. This growth was driven by a 15% increase in cash reserves (TZS 6.05 trillion) and a 10.2% rise in foreign currency marketable securities (TZS 8.53 trillion). Meanwhile, equity surged by 15.3%, supported by a 16% rise in reserves (TZS 2.41 trillion). However, advances to the government declined by 17.1%, reflecting tighter monetary policy, while currency in circulation fell by 1.4%, signaling a possible shift towards digital transactions or inflation control measures.

1. Total Assets:

• Total: TZS 26.05 trillion (increased from TZS 25.24 trillion in January 2025, a 3.18% increase).
• Main Asset Components:
  • Cash & Cash Equivalent: TZS 6.05 trillion (+15% from January's TZS 5.26 trillion).
  • Foreign Currency Marketable Securities: TZS 8.53 trillion (up from TZS 7.74 trillion, +10.2%).
  • Advances to Governments: TZS 4.70 trillion (declined from TZS 5.68 trillion, -17.1%).
  • Gold Holdings: TZS 87.12 billion (up from TZS 82.18 billion, +6%).
  • Quota in IMF: TZS 1.35 trillion (increased from TZS 1.29 trillion, +4.7%).
  • Government Securities: TZS 2.00 trillion (slight decrease from TZS 2.04 trillion, -1.7%).
  • Loans & Receivables: TZS 1.01 trillion (+6.8% from TZS 946.97 billion).

2. Total Liabilities:

• Total: TZS 23.53 trillion (up from TZS 23.06 trillion, +2%).
• Major Liabilities:
  • Currency in Circulation: TZS 8.04 trillion (slight decrease from TZS 8.15 trillion, -1.4%).
  • Deposits (Banks & Non-Bank Financial Institutions): TZS 4.04 trillion (up from TZS 3.51 trillion, +14.8%).
  • Deposits (Others): TZS 2.95 trillion (down from TZS 3.10 trillion, -4.8%).
  • Foreign Currency Financial Liabilities: TZS 4.61 trillion (+1.1% from TZS 4.56 trillion).
  • IMF-related Liabilities: TZS 1.17 trillion (no change).
  • Special Drawing Rights (SDRs) Allocation: TZS 1.94 trillion (up from TZS 1.86 trillion, +4.7%).

3. Equity:

• Total: TZS 2.51 trillion (up from TZS 2.18 trillion, +15.3%).
• Breakdown:
  • Paid-up Capital: TZS 100 billion (unchanged).
  • Reserves: TZS 2.41 trillion (up from TZS 2.08 trillion, +16%).

Key Takeaways:

✅ Increase in Assets (+3.18%), driven by growth in foreign marketable securities, loans, and cash reserves.
✅ Increase in Liabilities (+2%), with a rise in bank deposits and foreign currency liabilities.
✅ Growth in Equity (+15.3%), mainly due to an increase in reserves.
⚠️ Decline in Advances to Government (-17.1%), indicating reduced central bank lending to the government.
⚠️ Slight decrease in Currency Circulation (-1.4%), potentially reflecting economic factors like lower cash demand.

Analysis of the Bank of Tanzania's Financial Position (As of 28 February 2025)

The financial statement shows key trends in Tanzania’s monetary system and economic conditions.

1. Financial Stability and Growth

✅ Total Assets Increased (+3.18%)

• The growth in total assets to TZS 26.05 trillion suggests a stronger financial position for the central bank.
• The rise in foreign currency marketable securities (+10.2%) indicates increased foreign reserves, which enhances Tanzania’s ability to manage external shocks.
• Higher cash reserves (+15%) signal stronger liquidity and better financial sector stability.

✅ Increase in Equity (+15.3%)

• A rise in reserves (+16%) suggests that the central bank has improved its capital buffer, making it more resilient against financial risks.

2. Monetary Policy Implications

⚠️ Decline in Advances to Government (-17.1%)

• A reduction in lending to the government means the Bank of Tanzania is possibly tightening its monetary policy, aiming to control inflation or reduce fiscal dependency on central bank funding.

⚠️ Decrease in Currency Circulation (-1.4%)

• A drop in money circulation could suggest:
  • Lower cash demand, possibly due to increased digital transactions.
  • Slower economic activity, as businesses and individuals hold less cash.
  • Efforts to control inflation by reducing excess liquidity in the economy.

✅ Increase in Bank Deposits (+14.8%)

• This indicates stronger banking sector liquidity, suggesting that banks have more funds available for lending to businesses and individuals, which can drive economic growth.

3. External Sector and IMF Involvement

✅ Increase in IMF Quota & Special Drawing Rights (SDRs) (+4.7%)

• Tanzania’s higher quota and SDRs mean increased access to IMF financial support if needed, enhancing the country’s external financial stability.

✅ Increase in Foreign Currency Liabilities (+1.1%)

• This could indicate external borrowing or obligations, possibly linked to foreign exchange market interventions or debt management.

4. Potential Risks & Considerations

⚠️ Reduction in Government Securities (-1.7%)

• This could signal lower investment in domestic government debt, potentially affecting fiscal financing.

⚠️ Deposits from Other Sources Dropped (-4.8%)

• A decrease in non-bank deposits might indicate lower private sector liquidity or withdrawals from certain institutional accounts.

Conclusion

✅ The Bank of Tanzania’s financial position is strong, with rising reserves, improved liquidity, and controlled government lending.
⚠️ However, the decline in cash circulation and advances to the government may indicate monetary tightening and a possible slowdown in cash-based economic activities.
💡 Recommendation: Monitor government borrowing and liquidity trends to ensure balanced growth without excessive tightening.

Borrowing Patterns, Debt Service, and Sustainability Risks

As of December 2024, Tanzania’s total public debt stood at USD 46.6 billion, with external debt accounting for 70.7% (USD 32.9 billion). The government relied heavily on multilateral lenders (55.4%) and commercial loans (35.6%), increasing exposure to market-driven interest rates. While 21.2% of borrowed funds supported transport and telecommunications infrastructure, 19.4% was used for budget support, highlighting fiscal dependence on borrowing. With debt service payments reaching USD 185.4 million in December, managing repayment risks and prioritizing productive investments is crucial for long-term sustainability​

Debt Developments in Tanzania – December 2024

Tanzania’s total public debt stock reached USD 46,562.1 million at the end of December 2024, reflecting a 0.5% monthly increase. Of this, external debt accounted for 70.7% (USD 32,928.4 million), while domestic debt stood at TZS 32,649.3 billion. The rise in external debt was attributed to new disbursements amounting to USD 376.8 million, mainly to finance government projects and budgetary support​.

1. External Debt Stock and Composition

• Total external debt stock at the end of December 2024 was USD 32,928.4 million, reflecting a 1.8% decrease from USD 33,528.6 million in November 2024.
• The Central Government held 77.4% of the external debt (USD 25,488.3 million), while the private sector accounted for 22.6% (USD 7,436.4 million).
• The decrease in external debt was due to higher debt service payments (USD 185.4 million in December 2024), including USD 111.2 million in principal repayments​.

2. External Debt Stock by Creditor

Tanzania’s external debt is held by multilateral, bilateral, commercial, and export credit lenders. The composition as of December 2024 was as follows:

• Multilateral institutions (55.4%) remain the largest creditors, providing concessional loans with lower interest rates.
• Commercial loans (35.6%) have grown, increasing exposure to market-driven interest rates, which could raise debt service costs in the future.
• Bilateral and export credit debt (9.1%) mainly finances infrastructure projects​.

3. Disbursed Outstanding Debt by Use of Funds (Percentage Shares)

Tanzania’s external debt is allocated across various sectors, primarily transport, energy, social services, and budget support.

• The transport sector (21.2%) and energy (14.6%) received the largest funding, supporting infrastructure expansion projects.
• Social services (20.3%) include education and healthcare investments, improving human capital development.
• Budget support (19.4%) shows the government's reliance on external borrowing to cover fiscal gaps​.

Key Takeaways:

1. External debt dominates Tanzania’s public debt (70.7% of total debt).
2. Multilateral institutions are the main creditors (55.4%), but commercial loans (35.6%) are rising, increasing debt servicing risks.
3. Most funds go to transport (21.2%), social services (20.3%), and budget support (19.4%), reflecting a focus on infrastructure and fiscal stability.
4. The government must manage rising debt service payments (USD 185.4 million in December 2024) to ensure long-term sustainability.

With total public debt at USD 46.6 billion, debt sustainability remains a critical concern, requiring effective fiscal management and prioritization of productive investments​

The debt developments in Tanzania for December 2024 reveal key trends in borrowing patterns, creditor composition, and the sustainability of external debt.

These figures indicate both opportunities and risks for fiscal management and economic stability

1. External Debt Remains the Largest Share of Public Debt

• External debt accounts for 70.7% (USD 32.9 billion) of total public debt (USD 46.6 billion).
• The government is highly reliant on external borrowing, particularly from multilateral lenders (55.4%) and commercial lenders (35.6%).
• While multilateral loans are concessional (low interest, long-term), the growing share of commercial loans (USD 11.7 billion) exposes Tanzania to higher borrowing costs and foreign exchange risks.

Implication:
✅ Multilateral financing provides stable, low-cost funding.
⚠️ High commercial debt increases vulnerability to global interest rate changes, raising repayment costs.

2. Debt Service Obligations Are Increasing

• In December 2024, the government made debt service payments of USD 185.4 million, including USD 111.2 million in principal repayment.
• The growing debt requires more foreign exchange reserves for repayment, increasing exposure to shilling depreciation risks.

Implication:
⚠️ Future fiscal space may shrink as more funds are allocated for debt repayment instead of public services or development.
✅ If borrowed funds are well-invested, economic growth could offset repayment pressures.

3. Most Borrowed Funds Are Used for Infrastructure and Budget Support

• 21.2% of external debt funds are directed to transport and telecommunications, supporting infrastructure expansion (roads, railways, ports).
• 20.3% is allocated to social services (health & education), improving human capital.
• 19.4% goes to budget support, indicating the government’s reliance on borrowing to fund recurrent expenditures.

Implication:
✅ Investing in infrastructure can boost economic growth, improving debt repayment capacity.
⚠️ Using loans for budget support suggests fiscal weaknesses, as the government borrows to cover recurrent expenses instead of productive investments.

4. Debt Sustainability Risks and Management Needs

• Public debt reached USD 46.6 billion, requiring careful management to avoid over-indebtedness.
• The growing commercial loan share increases interest rate risks, requiring improved revenue mobilization to cover repayments.
• Tanzania’s debt remains below the IMF/World Bank risk threshold (55% of GDP), but a rising trend requires close monitoring.

What Needs to be Done?
🔹 Shift borrowing towards productive sectors (e.g., manufacturing, agriculture) to generate returns.
🔹 Reduce reliance on commercial loans and prioritize concessional financing.
🔹 Enhance revenue collection to reduce reliance on budget support loans.
🔹 Strengthen fiscal discipline to ensure borrowed funds are effectively utilized.

Overall Takeaway

📌 Tanzania’s external debt remains dominant (70.7%), with a shift toward commercial borrowing (35.6%).
📌 Debt service payments (USD 185.4 million) are rising, limiting future fiscal flexibility.
📌 Infrastructure investment (21.2%) supports economic growth, but reliance on budget support loans (19.4%) is a concern.
📌 Debt sustainability requires a shift to revenue-driven fiscal policies, careful borrowing, and economic diversification.

While Tanzania’s debt is still within manageable limits, a proactive approach is needed to prevent future fiscal risks​

Tanzania has maintained stable inflation rates, averaging around 3% from December 2023 to December 2024, with minor increases to 3.1% during mid-2024. This consistency, compared to higher rates in neighboring countries like Kenya (8%) and Uganda (7.5%), underscores Tanzania's strong economic management. The 2025 forecast predicts continued stability, with inflation rates ranging between 3.05% and 3.97%, creating a favorable environment for investment and economic growth.

Tanzania's Inflation Rate: A Detailed Analysis

1. Current Trends (2023-2024):

The inflation rate in Tanzania has remained relatively stable. Below are the key observations and figures:

• 2023 (December): The inflation rate was 3%, reflecting stable prices.
• 2024:
  • From January to March 2024, the rate held steady at 3%.
  • Slight increases occurred from April to June 2024, where the rate rose to 3.1% due to seasonal and market factors.
  • The latter half of 2024 saw fluctuations between 3% and 3.1%, closing the year at 3.1% in December.

The minor changes suggest a well-managed inflation environment with limited external shocks.

2. Factors Influencing Inflation in Tanzania:

• Food Prices: As food has a significant weight in Tanzania's Consumer Price Index (CPI), fluctuations in harvest seasons directly impact inflation.
• Fuel Costs: Changes in global oil prices affect transportation and energy costs, which can trickle into overall inflation.
• Exchange Rates: The Tanzanian Shilling's stability has contributed to controlled imported inflation.
• Monetary Policy: The Bank of Tanzania's efforts to maintain inflation within its medium-term target of 3-5% have been successful.

3. Historical Comparison:

Tanzania has maintained a low and stable inflation rate compared to other Sub-Saharan African countries, where double-digit inflation is common in some economies. For example:

• Kenya's Inflation (2024): Averaged 8%.
• Uganda's Inflation (2024): Averaged 7.5%.

4. Forecast for 2025 (January-December):

Using historical data and current trends, the projected inflation rates for 2025 are:

5. Key Observations for 2025:

• Seasonal Fluctuations: Minor variations occur due to predictable economic cycles, like agricultural harvests and fiscal policy adjustments.
• Controlled Environment: Inflation is expected to remain within the central bank's target range of 3-5%.

6. Long-Term Outlook:

Tanzania's consistent inflation management strengthens investor confidence and supports economic growth. Continued focus on:

• Enhancing agricultural productivity.
• Stabilizing fuel and food imports.
• Maintaining prudent monetary policy.

The analysis of Tanzania's inflation rates tells us the following key issues

1. Stability in Inflation

• Low and Stable Rates: Tanzania has maintained a stable inflation rate around 3%, indicating effective monetary and fiscal policies. This stability benefits:
  • Consumers: Stable prices mean predictable costs for essential goods like food and fuel.
  • Businesses: Low inflation reduces uncertainty, encouraging investments.
  • Investors: A controlled inflation rate is attractive for both domestic and foreign investments.

2. Factors Driving Stability

• Effective Policy Measures:
  • The Bank of Tanzania keeps inflation within its target range of 3-5%, ensuring economic predictability.
• Controlled Costs of Essentials:
  • Food prices are a major driver of inflation, and stable agricultural production helps prevent sharp price increases.
  • Fuel and energy prices, though influenced by global markets, are managed to reduce local volatility.
• Stable Exchange Rates: This reduces imported inflation for goods and services sourced from outside Tanzania.

3. Regional Context

• Compared to neighbors like Kenya (8% inflation) and Uganda (7.5%), Tanzania's inflation rate is among the lowest in the region. This highlights:
  • Resilience to external shocks, such as rising global commodity prices.
  • Effective management of domestic supply chains to prevent price spikes.

4. Implications for 2025

• Slight Seasonal Variations: Forecasted rates for 2025 (3.05%-3.95%) suggest minor fluctuations influenced by agricultural harvests, demand cycles, and market adjustments.
• Inflation Stability Supports Growth:
  • Promotes economic confidence for businesses and investors.
  • Reduces the cost of living, aiding poverty reduction and consumer spending.

5. Long-Term Economic Significance

• Predictability: Low inflation signals strong governance and macroeconomic stability, which are critical for attracting long-term investments.
• Economic Growth Potential: With stable prices, Tanzania can focus on accelerating growth in sectors like manufacturing, services, and agriculture without major inflationary pressures.

Tanzania’s inflation rates tell a story of economic discipline, resilience, and opportunity for sustained growth, with careful policy adjustments ensuring continued stability.

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.

In October 2024, the Tanzania Shilling showed signs of stabilization, appreciating slightly against the US Dollar after months of depreciation. This shift can be attributed to improved foreign exchange liquidity from key export sectors such as cashew nuts, gold, and tourism, alongside strategic interventions by the Bank of Tanzania. Despite a gradual depreciation trend over the years, recent developments suggest a positive turn in external sector performance and effective exchange rate management.

1. Exchange Rate Movements:

• October 2024:
  • Average exchange rate: TZS 2,719.91 per USD
• September 2024:
  • Average exchange rate: TZS 2,727.41 per USD
• Annual depreciation rate: 8.98% (improved from 10.11% in September 2024)

The Tanzania Shilling showed a slight improvement in October 2024, appreciating by 0.28% compared to September 2024. This indicates a stabilization trend after several months of depreciation. The depreciation rate over the past year has decreased, suggesting that external pressures on the currency may be easing.

2. Key Factors Affecting the Exchange Rate:

A. Improved Foreign Exchange Liquidity:

Several key export sectors have contributed to increased foreign exchange inflows, which helped stabilize the Shilling:

1. Cashew Nut Exports: This is a significant foreign exchange earner for Tanzania. The increased demand for cashew nuts on the global market likely contributed to stronger inflows of foreign currency.
2. Gold Exports: Tanzania is one of the top gold producers in Africa, and higher gold prices globally have boosted foreign currency inflows.
3. Tourism Earnings: As the tourism sector continues to recover post-pandemic, the influx of foreign currency from tourism has provided additional support to the Shilling.

B. Bank of Tanzania Intervention:

1. Limited Market Participation: The central bank has limited its participation in the foreign exchange market in October, intervening less than in previous months.
2. Net Purchase of USD 4.5 Million: The Bank of Tanzania made a modest net purchase of USD 4.5 million in October, which indicates a targeted, cautious approach to stabilizing the currency without overextending reserves.
3. Purpose: The Bank’s primary objective was to mitigate excessive exchange rate volatility. Their strategy seems to have been effective, contributing to the Shilling’s stabilization in October.

3. Historical Exchange Rate Data (2017-2023):

A look at historical data reveals a gradual depreciation trend of the Tanzania Shilling over the years, but with some periods of relative stability:

• 2017: TZS 2,228.9 per USD
• 2018: TZS 2,263.8 per USD
• 2019: TZS 2,288.2 per USD
• 2020: TZS 2,294.1 per USD
• 2021: TZS 2,297.8 per USD
• 2022: TZS 2,303.1 per USD
• 2023: TZS 2,382.1 per USD

From 2017 to 2023, the Shilling depreciated steadily, with the rate increasing by about TZS 150 per USD over the period. This is consistent with inflationary pressures and a growing trade deficit.

4. Interbank Foreign Exchange Market (IFEM) Activity:

The Interbank Foreign Exchange Market (IFEM) activity shows significant changes in the volume of transactions:

• October 2024: USD 50.7 million in transactions
• September 2024: USD 8.35 million in transactions

The sharp increase in market activity reflects growing demand and supply for foreign exchange in the market, indicating heightened foreign exchange transactions. This could be tied to the improved liquidity from exports and the increasing demand for USD in the economy.

5. Summary and Key Insights:

1. Gradual Depreciation Trend: Over the past few years, the Tanzania Shilling has faced a consistent depreciation trend against the US Dollar. However, the pace of depreciation has slowed in recent months, particularly in October 2024.
2. Recent Improvement in Exchange Rate Stability: The exchange rate improved in October 2024, with the Shilling appreciating slightly from September, signaling a positive shift in external sector performance.
3. Reduced Depreciation Pressure: The improved foreign exchange liquidity from key exports like cashew nuts, gold, and tourism earnings helped ease pressure on the Shilling. This has reduced the depreciation pressure that has been prevalent over the past several years.
4. Effective Market Management: The Bank of Tanzania’s careful intervention in the market (with a net purchase of USD 4.5 million) and its efforts to reduce volatility appear to have been effective in stabilizing the Shilling.
5. Growing Market Activity in IFEM: The notable increase in IFEM transactions, from USD 8.35 million in September to USD 50.7 million in October, indicates a more active foreign exchange market. This may suggest more participation by businesses and financial institutions in currency transactions, potentially contributing to exchange rate stabilization.

6. Conclusion:

The recent appreciation of the Tanzania Shilling and the improved annual depreciation rate suggest that external sector performance is improving. Factors such as strong export performance, particularly in cashew nuts, gold, and tourism, have bolstered foreign exchange liquidity. Additionally, the Bank of Tanzania's careful market interventions have contributed to the exchange rate’s stability, easing pressure on the Shilling.