The provided insights from the Bank of Tanzania's Monthly Economic Review (September 2025) on the Financial Markets—specifically the Government Securities Market and Interbank Cash Market (IBCM)—paint a picture of a stable and liquid financial system supporting broader economic expansion. When viewed alongside the broader context in the attached document (e.g., Q3 2025 GDP growth estimated above 6%, headline inflation at a low 3.4%, and 21% y-o-y growth in broad money supply M3), these developments signal positive momentum in Tanzania's economic development. They reflect effective monetary policy transmission, investor confidence, and fiscal resilience amid global headwinds like trade uncertainties and moderating commodity prices.

1. Government Securities Market

• Treasury Bills (T-bills)
  • In August 2025, the Bank of Tanzania conducted two Treasury bill auctions with a total tender size of TZS 163.6 billion.
  • The auctions attracted bids worth TZS 409.7 billion, showing high demand.
  • Out of these, TZS 162.9 billion were successful bids.
  • The overall weighted average yield (WAY) declined to 6.83%, down from 8.13% in July 2025, reflecting adequate market liquidity.
• Treasury Bonds (T-bonds)
  • Auctions for 15-year and 25-year bonds were also conducted:
    • 15-year bond tender size: TZS 213.1 billion.
    • 25-year bond tender size: TZS 293.7 billion.
  • These auctions were significantly oversubscribed, highlighting strong investor appetite.
  • Total bids submitted reached TZS 2,256.4 billion, but only TZS 867.7 billion were accepted.
  • Weighted average yields fell to:
    • 13.91% (15-year bonds)
    • 14.42% (25-year bonds).
• Government Borrowing (Domestic Market)
  • In total, the Government borrowed TZS 1,644.1 billion from the domestic market in August 2025.
    • TZS 1,480.7 billion came from Government bonds.
    • TZS 163.5 billion from Treasury bills.
  • Domestic debt stood at TZS 37,129.8 billion at the end of August 2025, an increase of 5% from July, driven mainly by issuance of bonds.

2. Interbank Cash Market (IBCM)

• The IBCM remained vital in redistributing liquidity among banks.
• Turnover:
  • August 2025: TZS 2,374.5 billion
  • July 2025: TZS 3,746 billion (higher previous month).
  • About 60% of transactions were 7-day deals.
• Interest Rates:
  • The average IBCM rate declined to 6.48% in August, down from 7.35% in July 2025, due to adequate liquidity and its alignment with the Central Bank Rate (CBR) of 5.75%.
  • By maturity category (August 2025):
    • Overnight: 6.15%
    • 2–7 days: 6.52%
    • 8–14 days: 6.71%
    • 15–30 days: 6.87%
    • 31–60 days: 6.90%
    • 91–180 days: 7.00%

Financial Market Key Figures – Tanzania (August 2025)

Implications for Tanzania's Economic Development

1. Government Securities Market: Signs of Fiscal Confidence and Lower Borrowing Costs

• Key Observations Recap: Auctions for Treasury bills (T-bills) and bonds were oversubscribed (e.g., T-bill bids at TZS 409.7 billion vs. TZS 163.6 billion tender; bond bids at TZS 2,256.4 billion vs. TZS 506.8 billion tender), leading to declining weighted average yields (T-bills: 6.83% from 8.13%; 15-year bonds: 13.91%; 25-year bonds: 14.42%). Total domestic borrowing hit TZS 1,644.1 billion, pushing domestic debt to TZS 37,129.8 billion (up 5% m-o-m).
• Implications for Economic Development:
  • Enhanced Fiscal Space and Infrastructure Investment: Lower yields indicate abundant liquidity and strong domestic investor appetite (e.g., from banks and pension funds), reducing the government's cost of funding. This aligns with the document's note on rising credit to construction (14.8% y-o-y growth) and mining (3.2%), enabling more public spending on infrastructure like the Standard Gauge Railway expansions or Bagamoyo Port upgrades. The World Bank’s 2025 Tanzania Economic Update emphasizes that cheaper domestic borrowing could free up 1-2% of GDP for capital projects, supporting the 6%+ growth trajectory.
  • Investor Confidence and Financial Deepening: Oversubscription (over 4x for bonds) signals trust in Tanzania's macroeconomic stability, bolstered by low inflation (within 3-5% target) and exchange rate steadiness. This could attract more foreign portfolio investment, as seen in recent inflows to East African bonds. However, the 5% debt stock rise warrants monitoring; IMF projections for 2025 peg public debt at ~45% of GDP (sustainable under 55% threshold), but sustained issuance could crowd out private credit if not balanced.
  • Risks: If global oil prices (noted as moderating in the document) rebound, energy import costs could pressure fiscal balances, potentially reversing yield declines.

2. Interbank Cash Market (IBCM): Effective Liquidity Management and Policy Transmission

• Key Observations Recap: Turnover dipped to TZS 2,374.5 billion (from TZS 3,746 billion in July), but average rates fell to 6.48% (from 7.35%), aligning closely with the CBR of 5.75%. Shorter maturities (e.g., overnight at 6.15%) show efficient redistribution, with 60% of deals at 7 days.
• Implications for Economic Development:
  • Monetary Policy Effectiveness and Credit Expansion: The rate convergence to the CBR (lowered in July per the document) demonstrates smooth policy easing, injecting liquidity via reverse repos and full allotments. This fueled 21% M3 growth and 16.2% private credit expansion, particularly in high-growth sectors like agriculture (30.1% credit rise) and trade (29.2%). As per the African Development Bank's 2025 outlook, such liquidity supports SME financing, critical for Tanzania's 7 million+ micro-enterprises contributing 30% to GDP.
  • Banking Sector Stability and Financial Inclusion: Lower IBCM rates reduce interbank borrowing costs, encouraging banks to lend more to underserved areas (e.g., rural agriculture). Turnover decline isn't alarming—it's typical post-injection stabilization—and reflects ample reserves (reserve money M0 up 24.5% y-o-y). This ties into the document's emphasis on personal loans (36% of credit) for MSMEs, fostering inclusive growth amid 5.5% unemployment.
  • Broader Economic Resilience: In a global context of elevated policy uncertainty (Chart 1.1a), Tanzania's liquid IBCM buffers shocks like food price volatility (unprocessed food drove 0.2 ppt inflation rise). Recent Reuters reports (October 2025) note this liquidity helped absorb El Niño impacts on harvests, maintaining food stocks at NFRA.

Overall Summary and Forward Outlook

These financial market dynamics imply a virtuous cycle for Tanzania's development: ample liquidity lowers costs, boosts credit and investment, and sustains 6%+ growth while keeping inflation anchored. The document's projections (stable inflation, moderate oil prices) reinforce this, with fiscal borrowing financing pro-growth spending without derailing stability. Compared to EAC peers (e.g., Kenya's higher 7-8% yields amid debt concerns), Tanzania's metrics highlight relative strength.

However, watchpoints include managing debt buildup (aim for <50% GDP) and external risks like fertilizer price spikes (elevated per Chart 1.5), which could hit agriculture (28% of GDP). The IMF's October 2025 Regional Economic Outlook praises Tanzania's policy mix but urges digital financial reforms to deepen IBCM participation. If trends hold, expect Q4 2025 growth to exceed estimates, potentially hitting 6.8% annually.