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| Economic Consulting Group

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Tanzania has successfully sustained inflation below the medium-term target of 5%, reflecting strong economic policies and favorable supply conditions. Headline inflation eased to 3.0% in October 2024, supported by declining energy costs, stable food prices, and prudent monetary management. This stability highlights Tanzania's resilience to global shocks and its commitment to fostering a predictable economic environment for growth and investment.

Headline Inflation

Energy and Fuel Inflation

A notable decline of 1.8 percentage points in energy and fuel inflation due to easing pump prices in the domestic market.

Core Inflation

Food Inflation

Factors Supporting Stability

1.                Improved Production:

2.                Price Trends:

3.            Global Wheat Prices:

Contributing Factors for Low Inflation

  1. Good Food Supply Conditions:
    • Favorable weather and input supply ensured adequate harvests.
  2. Moderation in Global Commodity Prices:
    • Decline in crude oil prices:
      • Brent Crude: $85/barrel (Q3 2024) vs. $90/barrel (Q2 2024).
  3. Prudent Monetary Policy:
    • Bank of Tanzania maintained a neutral stance to prevent inflationary pressures.
  4. Stable Exchange Rate Management:
    • Exchange rate stability against the USD (approximately 2,350 TZS/USD) prevented import cost escalations.

Overall Inflation Trend

Tanzania's inflation developments reveal the following insights:

1. Economic Stability and Effective Policy Management

2. Control Over Volatile Sectors

3. Underlying Inflation Pressures are Contained

4. Benefits of Global Market Dynamics

5. Favorable Domestic Conditions

6. Positive Signals for Growth

Conclusion

Tanzania's inflation trends in 2024 demonstrate a well-managed economy with robust mechanisms to ensure price stability. This reflects:

  1. Effective policy implementation.
  2. Resilience to external shocks.
  3. Sustained growth potential through stable economic conditions.

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)

2. Historical Averages (2003-2024)

3. Extreme Values

4. Insights from Changes

5. Implications for Borrowers and Businesses

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

1. Monetary Policy Trends

2. Credit Environment

3. Historical Context

4. Implications for Economic Growth

5. Signals to Stakeholders

As of 31 October 2024, the Bank of Tanzania reported a 0.70% growth in total assets, reaching TZS 26.04 trillion, up from TZS 25.86 trillion in September. Key drivers included a 2.56% increase in cash reserves to TZS 6.03 trillion and a significant 11.00% rise in advances to the government to TZS 4.92 trillion, highlighting active government financing. However, total liabilities grew by 1.02% to TZS 23.19 trillion, driven by a 19% increase in bank and non-bank deposits, while equity declined by 1.86% due to lower reserves. This financial position underscores the BoT's role in stabilizing the economy while adapting to fiscal demands.

1. Assets

Total Assets: Grew marginally from TZS 25,861,049,022 to TZS 26,040,992,974 (+0.70%).

2. Liabilities

Total Liabilities: Increased from TZS 22,951,123,876 to TZS 23,185,162,980 (+1.02%).

3. Equity

Summary

The Statement of Financial Position for the Bank of Tanzania (BoT) with key insights into the institution's financial health and operational activities as of October 2024.

1. Growth in Total Assets

The BoT is actively involved in supporting government financial needs while maintaining a stable and growing asset base. However, declines in foreign marketable securities and IMF quotas suggest reduced exposure or participation in international holdings.

2. Liabilities Growth Outpaces Equity

The BoT is leveraging more local deposits and reducing international liabilities, which could enhance financial stability but might reduce reserves, reflected in the equity decline.

3. Decline in Loans and Receivables

The BoT might be adopting a cautious approach to lending or focusing on other asset classes.

4. Currency in Circulation

Economic transactions are steady, aligning with controlled monetary policy.

5. Drop in Reserves and Equity

While the BoT remains solvent, reserve management might require attention to maintain long-term stability.

General Observations

Key Implication

The Bank of Tanzania's financial position reflects stability in monetary policy and active government support, but pressure on equity and reserves calls for prudent fiscal management to ensure long-term resilience.

From 2017 to 2023, the Tanzanian shilling consistently depreciated against the US dollar, with end-of-quarter rates rising from 1,629.6 to 2,175.3 TZS/USD. This gradual depreciation reflects economic pressures, including trade imbalances and inflation, impacting currency stability. The exchange rate trends raise concerns for import costs, inflation, and foreign debt repayment, indicating the importance of strategic policies to stabilize the currency and support sustainable economic growth.

Key Figures and Averages

  1. End of Quarter Rates:
    • In 2017, the exchange rate at the end of the fourth quarter was 1,629.6 TZS/USD.
    • By 2023, this rate reached 2,175.3 TZS/USD at the end of the fourth quarter, showing a cumulative increase over the period.
  2. Quarterly Average Rates:
    • For 2017, the quarterly average exchange rate was around 1,610.3 to 1,629.6 TZS/USD.
    • In 2023, quarterly averages ranged from 2,177.3 to 2,172.7 TZS/USD, indicating a steady increase throughout the period.
  3. Annual Average and Percentage Change:
    • From 2017 to 2023, the annual average exchange rate increased from 1,618 TZS/USD to approximately 2,175 TZS/USD, representing an average annual depreciation of the Tanzanian shilling by around 5-7%.

Breakdown of Observations

Insights

  1. Currency Stability Concerns: The steady depreciation suggests potential challenges in currency stability, which can impact import costs, inflation, and the purchasing power of consumers.
  2. Policy Implications: Monitoring exchange rate trends can help policymakers address the factors behind currency depreciation, such as managing inflation, promoting exports, or reducing dependency on imports.
  3. Investor Confidence: For foreign investors, a depreciating currency can be a double-edged sword; it may lower local asset values in USD terms, but it also reduces operational costs in local currency terms.

These exchange rate trends underline the importance of economic policies to stabilize the Tanzanian shilling, as ongoing depreciation could have long-term implications on inflation and economic growth

Tanzania’s exchange rate trends reveals important insights about the country’s economic environment and the challenges it faces in terms of currency stability:

  1. Gradual Depreciation of the Tanzanian Shilling: The consistent increase in exchange rates (depreciation of the Tanzanian shilling against the US dollar) suggests that the currency is under pressure. This depreciation may result from trade imbalances, where the demand for foreign currency to pay for imports outweighs the inflow from exports, as well as inflationary pressures within the domestic economy.
  2. Implications for Inflation: A depreciating currency can lead to higher import costs, driving up prices of goods and services in Tanzania. This imported inflation can reduce consumers’ purchasing power, making everyday goods more expensive and potentially affecting the cost of living. Policymakers may need to manage inflation through monetary policy tools to stabilize the shilling.
  3. Challenges for Foreign Debt Repayment: As the shilling weakens, Tanzania’s foreign debt obligations become more costly in local currency terms. This situation can strain government finances, as more Tanzanian shillings are needed to meet dollar-denominated debt repayments, potentially affecting fiscal stability.
  4. Impact on Investment: While a depreciating currency may make Tanzania’s exports more competitive, which is favorable for the export sector, it can create uncertainty for foreign investors. Currency instability could deter long-term investments, as investors may worry about returns eroding due to exchange rate fluctuations. However, for investors with local operations, a weaker currency could mean lower operational costs in USD terms.
  5. Need for Strategic Economic Policies: The trends suggest a need for policies aimed at stabilizing the exchange rate. Measures might include promoting exports, reducing import dependency, managing inflation, and attracting FDI to improve foreign exchange reserves. Such policies could help create a more stable economic environment and limit the negative impacts of depreciation on the broader economy.

Overall, these exchange rate trends reflect ongoing challenges in achieving currency stability, which has significant implications for inflation, debt management, consumer costs, and investment in Tanzania.

In October 2024, Tanzania’s economy showcased resilience and stability, with a GDP growth rate of 5.3% for Q2, fueled by trade (19.8%), financial services (11.4%), and transport (8.6%). Inflation on the Mainland remained low at 3.1%, while Zanzibar's inflation, at 5.1%, also declined, indicating effective price control across regions. Government revenue collection was robust, reaching TZS 2,539.3 billion in August, nearly 99% of the target, though expenditure exceeded revenue, adding to a national debt of USD 45.05 billion. Exports rose by 13.4%, driven by tourism and gold, contributing to a narrower current account deficit of USD 2.36 billion and foreign reserves sufficient for 4.4 months of imports, signaling economic resilience despite external pressures.

  1. Inflation:
    • Mainland Tanzania: The 12-month headline inflation rate was 3.1% in September 2024, slightly lower than previous months, influenced by food and non-core factors.
    • Zanzibar: Headline inflation in September 2024 was 5.1%, down from 5.6% in August. Food and non-food inflation were primary contributors, with core inflation at 3.8%​.
  2. Interest Rates:
    • The overall lending rate in Tanzania increased to 15.53% in September 2024, with a negotiated lending rate at 12.92%.
    • Deposit Rates saw a rise, with the average overall deposit rate at 8.20%. Short-term lending rates narrowed to 6.49% due to banking competition​.
  3. Monetary Policy:
    • The Bank of Tanzania kept the Central Bank Rate (CBR) at 6% for Q3 2024. However, the 7-day interbank cash market rate reached 8.58%, reflecting higher seasonal cash demands​.
  4. Financial Markets:
    • Treasury Securities: The weighted average yield for Treasury bills rose to 10.85%, with government bond yields on the rise as well.
    • Foreign Exchange: The Tanzanian Shilling depreciated by 10.1% year-on-year, trading at approximately TZS 2,727 per USD​.
  5. Government Budgetary Operations:
    • Revenue: In August 2024, total government revenue reached TZS 2,539.3 billion, representing 98.8% of the target. Tax revenue amounted to TZS 2,064.8 billion.
    • Expenditure: Total spending in August was TZS 3,219.8 billion, with TZS 1,945.6 billion in recurrent expenditure​.
  6. Debt Developments:
    • Total National Debt: Stood at USD 45.05 billion in September 2024, with external debt making up 73%. The domestic debt decreased to TZS 32.6 trillion, dominated by Treasury bonds (78.9%)​.
  7. External Sector Performance:
    • The current account deficit was USD 2.36 billion in the year ending September 2024, down from USD 3.39 billion in 2023.
    • Exports: Goods and services exports totaled USD 15.35 billion, up by 13.4%, driven by increased tourism and commodity exports, notably gold​.
  8. Economic Performance of Zanzibar:
    • GDP Growth: Zanzibar’s GDP grew by 4.6% in Q2 2024, with notable growth in the trade, financial services, and construction sectors.
    • Budgetary Operations: Zanzibar’s government revenue collections reached TZS 56.2 billion in August, meeting 88.6% of its target. Tax revenues were the largest contributor at TZS 48.7 billion​.

The economic data reflects a generally stable and resilient economy but highlights areas of both strength and concern

  1. Inflation Control:
    • The controlled inflation rates in both Mainland Tanzania and Zanzibar, particularly Mainland’s low 3.1%, indicate effective management of price stability amid global inflationary pressures. Zanzibar’s slightly higher rate of 5.1% reflects regional differences but still aligns with manageable levels. This stability in prices suggests consumers are less impacted by volatile prices, particularly for essential goods.
  2. Interest Rates and Monetary Policy:
    • The increase in lending rates to 15.53% and the slight narrowing of the deposit-lending spread indicates tighter credit conditions, likely aimed at controlling inflation. The Bank of Tanzania’s cautious monetary policy with the 6% Central Bank Rate (CBR) signals an intent to stabilize liquidity in the economy, especially considering seasonal demands. Higher lending rates, however, may slightly discourage borrowing and investment, especially in small enterprises.
  3. Government Revenue and Spending:
    • The government nearly met its revenue target in August (98.8%), showing strong tax compliance and collection efficiency. However, with total spending surpassing revenue, there is a budget deficit, indicating reliance on borrowing. Prioritizing essential expenditure and fiscal consolidation efforts reflects a balanced approach to managing resources.
  4. Debt Management:
    • The national debt reaching USD 45.05 billion (with 73% as external debt) is a point of concern. While manageable in the short term, it emphasizes Tanzania’s reliance on foreign funding, which could be risky if global financing conditions worsen. However, the controlled growth in domestic debt reflects prudent management of internal resources and risk.
  5. External Sector Performance and Trade:
    • Tanzania’s current account deficit narrowed significantly, supported by a strong export performance, particularly in tourism and commodity exports (e.g., gold). The tourism sector's robust recovery and increased exports contribute positively to foreign exchange reserves, which remain above the 4-month import benchmark. This performance strengthens Tanzania’s economic resilience and external stability, though the shilling’s depreciation signals pressures on the currency.
  6. Zanzibar's Economic Health:
    • Zanzibar’s growth in sectors like trade, financial services, and construction suggests diversification and steady economic development. The revenue collection in Zanzibar reaching 88.6% of its target also reflects improved fiscal management, though budget deficits still exist. This performance points to Zanzibar’s gradual but steady economic progression in line with Mainland Tanzania, driven by tourism and trade.
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