In May 2025, the Bank of Tanzania’s medium-term inflation target of 5% remains a cornerstone for fostering sustainable economic development, balancing price stability with robust growth. According to the "Monthey Economic Review," headline inflation stood at a stable 3.2% in April 2025, down from 3.3% in March, aligning well within the 5% target and regional benchmarks of the East African Community (EAC) and Southern African Development Community (SADC). However, challenges persist with food inflation rising to 5.3% due to weather-induced supply volatility, prompting the National Food Reserve Agency (NFRA) to bolster food stocks to 557,228 tonnes, up from 340,102 tonnes in April 2024, and release 29,834 tonnes of maize to stabilize markets. The Central Bank Rate (CBR) held steady at 6%, supporting economic activity while addressing global uncertainties, such as a projected 2.8% global growth rate and a 6.7% decline in crude oil prices. This introduction explores how these figures reflect Tanzania’s efforts to maintain economic stability and the challenges in sustaining the 5% inflation target.

Alignment with Sustainable Economic Development Objectives

The Bank of Tanzania’s monetary policy objectives, are to maintain price stability (defined as a low and stable inflation rate over time) and support economic growth. The 5% medium-term inflation target aligns with these goals in the following ways:

1. Price Stability for Economic Predictability:
   • A stable inflation rate of around 5% fosters predictability in the economy, which is critical for sustainable development. Low and stable inflation ensures that businesses and consumers can plan investments and expenditures without the uncertainty of volatile price changes.
   • Figure: The document notes that headline inflation in April 2025 was 3.2%, well within the 5% target. This indicates that the Bank’s policy has been effective in maintaining inflation below the medium-term goal, creating a stable environment for economic planning.
   • By keeping inflation within the East African Community (EAC) and Southern African Development Community (SADC) benchmarks, Tanzania enhances its regional competitiveness, attracting investment and supporting trade integration, which are vital for long-term growth.
2. Supporting Economic Growth:
   • The 5% target strikes a balance between controlling inflation and allowing room for economic expansion. Excessively low inflation could stifle growth by limiting monetary flexibility, while high inflation erodes purchasing power and deters investment.
   • Figure: The Monetary Policy Committee’s decision to maintain the Central Bank Rate (CBR) at 6% in April 2025 reflects a strategy to support economic activities while keeping inflation in check. The document states this decision aims to maintain inflation within the 3.5% medium-term target (short-term adjustment) and smooth exchange rate volatility, which supports growth by stabilizing the cost of imports and exports.
   • Stable inflation supports consumer purchasing power, as evidenced by the decline in core inflation to 2.2% in April 2025 from 3.9% in April 2024. This reduction in underlying price pressures enhances affordability, boosting consumption and economic activity.
3. Food Security and Cost of Living:
   • Sustainable economic development requires affordable access to basic goods, particularly food. The 5% inflation target helps manage food inflation, which rose to 5.3% in April 2025, driven by high staple food crop prices due to weather-induced supply volatility. By aiming to keep overall inflation at 5%, the Bank mitigates the risk of runaway food prices, which could disproportionately affect low-income households.
   • Figure: The National Food Reserve Agency (NFRA) increased food stocks to 557,228 tonnes by April 2025 from 340,102 tonnes in April 2024, supporting food price stabilization. This aligns with the inflation target by ensuring supply-side interventions complement monetary policy, fostering inclusive growth.
4. Exchange Rate Stability and External Sector:
   • A stable inflation rate supports exchange rate stability, which is crucial for Tanzania’s external sector performance and economic development. The document highlights the Bank’s focus on smoothing exchange rate volatility, which reduces uncertainty for exporters and importers.
   • Figure: The global economic context, including a 6.7% decline in crude oil prices, could ease pressure on Tanzania’s import bill, supporting the external sector. Maintaining inflation at 5% ensures that exchange rate stability translates into predictable costs for trade, fostering export-led growth and foreign exchange reserve accumulation (e.g., leveraging gold exports, with prices at USD 3,000 per troy ounce in April 2025).

Challenges in Maintaining the 5% Inflation Target

Despite the alignment with sustainable development, maintaining the 5% inflation target poses several challenges, as inferred from the document’s data and context:

1. Food Price Volatility:
   • Challenge: Food inflation rose to 5.3% in April 2025, exceeding the 5% target. The document attributes this to weather-induced supply volatility and logistics challenges, which are difficult to control through monetary policy alone.
   • Impact: High food inflation, as a significant component of the Consumer Price Index (CPI), could push headline inflation above the target, undermining purchasing power and economic stability. For example, Non-core inflation (including food) rising to 5.7% in April 2025, indicating persistent pressure from volatile components.
   • Mitigation: The NFRA’s release of 29,834 tonnes of maize helps stabilize supply, but sustained weather disruptions could require structural agricultural investments beyond monetary policy.
2. Global Economic Uncertainties:
   • Challenge: The document notes a projected global growth slowdown to 2.8% in 2025 and trade uncertainties due to U.S. tariffs. These external shocks could affect Tanzania’s export markets and commodity prices (e.g., tea and sugar prices rose by 8.2% and 3.9%, respectively), indirectly influencing domestic inflation.
   • Impact: External price pressures could make it challenging to maintain the 5% target, especially if import costs rise or export revenues decline, affecting the balance of payments and exchange rate stability.
   • Mitigation: Diversifying export markets and strengthening foreign exchange reserves (e.g., through gold exports) could help, but global volatility remains a significant risk.
3. Energy and Fuel Price Fluctuations:
   • Challenge: Although energy, fuel, and utilities inflation eased to 7.3% in April 2025 from 9.3% in April 2024 month-on-month fluctuations (e.g., 2.4% in April 2024, 1.9% in April 2025). These fluctuations could destabilize inflation if global oil prices reverse their 6.7% decline.
   • Impact: Energy price spikes could increase production and transportation costs, pushing inflation above the 5% target and hindering industrial development.
   • Mitigation: The Bank’s data-dependent monetary policy adjustments can respond to such shocks, but reliance on global commodity markets limits control.
4. Balancing Growth and Inflation Control:
   • Challenge: The document emphasizes the Bank’s dual mandate of price stability and supporting economic growth. Tightening monetary policy to curb inflation (e.g., raising the CBR above 6%) could slow economic activity, while loosening it risks inflation exceeding 5%.
   • Impact: For example, core inflation’s decline to 2.2% suggests room for accommodative policy, but rising non-core inflation (5.7% in April 2025, could force tighter measures, potentially constraining investment and growth.
   • Mitigation: The Bank’s use of instruments like repurchase agreements and the Lombard facility allows flexibility, but aligning these tools with growth objectives requires precise calibration.
5. Structural Constraints:
   • Challenge: Logistics challenges and supply-side issues, as noted in the document, contribute to price volatility. These structural factors are not directly addressed by monetary policy, limiting the Bank’s ability to maintain the 5% target.
   • Impact: Persistent supply chain inefficiencies could keep food and non-core inflation elevated, as seen in the 5.3% food inflation rate, challenging the target and affecting living standards.
   • Mitigation: Complementary fiscal policies, such as infrastructure investments, are needed to address these constraints, but coordination between monetary and fiscal authorities can be complex.

Conclusion

The Bank of Tanzania’s 5% medium-term inflation target aligns with sustainable economic development by fostering price stability, supporting economic growth, ensuring food affordability, and stabilizing the external sector. Figures from the document, such as the 3.2% headline inflation, 2.2% core inflation, and 557,228 tonnes of NFRA food stocks in April 2025, demonstrate the Bank’s success in maintaining a stable economic environment conducive to development. However, challenges like food price volatility (5.3% food inflation), global economic uncertainties (2.8% global growth forecast), energy price fluctuations (7.3% energy inflation), and structural constraints could push inflation above the target, risking economic stability. Addressing these challenges requires a combination of monetary policy precision, supply-side interventions, and regional cooperation to ensure sustainable development.

The table includes critical data points on inflation, monetary policy, food security, and external sector performance, as these are central to understanding the alignment and challenges discussed in the previous response.

Table: Key Economic Figures for Tanzania (May 2025 Economic Review)

Notes on the Table

• Inflation Figures: These highlight the stability of headline inflation (3.2% in April 2025) within the 5% medium-term target, but food inflation (5.3%) and non-core inflation (5.7%) exceed the target, posing challenges.
• Monetary Policy: The CBR at 6% and the 5% medium-term target reflect efforts to balance price stability and growth, with the short-term target of 3.5% indicating flexibility in policy adjustments.
• Food Security: The significant increase in NFRA food stocks (from 340,102 to 557,228 tonnes) and maize releases (29,834 tonnes) underscore efforts to stabilize food prices, supporting economic development.
• Global Context: Global growth slowdown (2.8%) and commodity price changes (e.g., crude oil -6.7%, gold USD 3,000) highlight external factors that could influence Tanzania’s inflation and external sector performance.

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

Headline Inflation Trend

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

Explanation:

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

Food Inflation Trend

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

Explanation:

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

Core Inflation Trend

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

Explanation:

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

Energy, Fuel, and Utilities Inflation Trend

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

Explanation:

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

Additional Context and Drivers

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

Conclusion

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

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

Notes:

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

In January 2025, the Tanzanian Shilling traded at an average of TZS 2,454.04 per USD, reflecting a 1.37% depreciation from TZS 2,420.84 in December 2024. However, on an annual basis, the Shilling appreciated by 2.6%, showing long-term stability. Foreign exchange market activity declined, with transactions dropping from USD 95.7 million in December 2024 to USD 16.3 million, while the Bank of Tanzania intervened by selling USD 7 million to stabilize the currency. Despite short-term pressures, foreign exchange reserves rose to USD 5,323.6 million, covering 4.3 months of imports, ensuring continued exchange rate stability.

1. Exchange Rate Movement: Slight Depreciation in January 2025

• In January 2025, the Tanzanian Shilling traded at an average of TZS 2,454.04 per USD, compared to TZS 2,420.84 per USD in December 2024.
• This reflects a monthly depreciation of approximately 1.37%, meaning the Shilling weakened slightly against the US dollar.
• However, on an annual basis, the Shilling appreciated by 2.6% compared to January 2024.

What It Means:

✅ The Shilling remains relatively stable, with only a minor depreciation (1.37%) month-over-month.
✅ Annual appreciation (2.6%) suggests a stronger Shilling compared to early 2024, reflecting better forex reserves and trade performance.
⚠ The slight monthly depreciation indicates short-term pressures, possibly due to increased import demand or external debt repayments.

2. Foreign Exchange Market Activity: Declining Transactions

• Total forex market transactions dropped to USD 16.3 million in January 2025, from USD 95.7 million in December 2024.
• The Bank of Tanzania intervened by selling USD 7 million to stabilize the market and prevent excessive depreciation.

What It Means:

✅ Lower forex market activity suggests reduced speculative trading, contributing to exchange rate stability.
✅ Bank of Tanzania’s intervention helped control excessive depreciation, ensuring Shilling stability.
⚠ A decline in foreign exchange market transactions could indicate lower foreign investment or trade activity.

3. Foreign Exchange Reserves Support Stability

• Foreign exchange reserves stood at USD 5,323.6 million in January 2025, compared to USD 5,107.1 million in January 2024.
• These reserves are sufficient to cover 4.3 months of imports, exceeding the national benchmark of 4 months.

What It Means:

✅ Stronger forex reserves contribute to Shilling stability by ensuring the country can meet external obligations.
✅ Sufficient reserves reduce pressure on the Shilling, helping manage exchange rate fluctuations.

Summary of Key Trends

Economic Implications of Shilling Stability

🔹 Positive Signs:
✅ Annual appreciation (+2.6%) shows long-term strength of the Shilling.
✅ Sufficient foreign exchange reserves (USD 5.3 billion) provide stability.
✅ Bank of Tanzania’s intervention controlled excessive depreciation.

🔸 Challenges:
⚠ Short-term depreciation (-1.37%) suggests forex market pressure.
⚠ Declining forex market activity may indicate lower trade or investor participation.
⚠ Heavy reliance on USD (68.1% of external debt) increases exchange rate risks.

Key Insights from Tanzania’s Shilling Stability (January 2025)

1. The Shilling Depreciated Slightly in the Short Term (-1.37%)

• The exchange rate moved from TZS 2,420.84 per USD in December 2024 to TZS 2,454.04 per USD in January 2025, showing a 1.37% depreciation.
• This suggests increased demand for USD, possibly for imports, debt servicing, or foreign investment repatriation.
• The Bank of Tanzania sold USD 7 million to stabilize the exchange rate, preventing excessive depreciation.

What it Means:

✅ The depreciation is minimal, meaning the Shilling remains largely stable.
⚠ Increased USD demand could signal rising import costs or capital outflows.
✅ Central Bank intervention helped prevent sharp currency fluctuations.

2. Long-Term Strength: The Shilling Appreciated by 2.6% Year-on-Year

• Compared to January 2024, the Shilling strengthened by 2.6%, meaning it performed better than the previous year.
• This suggests stronger forex reserves, improved exports, or controlled inflation.

What it Means:

✅ Tanzania’s economy is stable enough to maintain long-term Shilling strength.
✅ A stronger Shilling benefits businesses by reducing the cost of imported goods and debt repayments.

3. Forex Market Activity Dropped Significantly

• Forex market transactions declined from USD 95.7 million in December 2024 to USD 16.3 million in January 2025.
• Lower trading volume suggests reduced foreign exchange demand from businesses and investors.

What it Means:

⚠ Reduced forex transactions could indicate lower trade activity or reduced foreign investment inflows.
✅ Lower speculation in the forex market contributes to exchange rate stability.

4. Strong Forex Reserves Support Stability

• Foreign exchange reserves stood at USD 5,323.6 million, enough to cover 4.3 months of imports, above the national target of 4 months.

What it Means:

✅ Sufficient reserves reduce exchange rate risks, ensuring the government can manage forex fluctuations.
✅ The Shilling has a strong backup, reducing the likelihood of a major devaluation.

Overall Economic Implications

🔹 Positive Signs:
✅ The Shilling remains stable overall, with only minor fluctuations.
✅ Long-term appreciation (+2.6%) shows economic resilience.
✅ Strong forex reserves (USD 5.3 billion) help maintain stability.

🔸 Challenges:
⚠ Short-term depreciation (-1.37%) could indicate temporary pressure on the currency.
⚠ Declining forex market transactions suggest lower trade or investor activity.
⚠ High USD-denominated debt (68.1%) makes the economy vulnerable to exchange rate fluctuations.

The Bank of Tanzania's Statement of Financial Position as of January 2025 shows a 1.6% increase in total assets, reaching TZS 25.24 trillion from TZS 24.85 trillion in December 2024. This growth is driven by a 25.3% rise in government advances (TZS 5.67 trillion) and a 6.6% increase in foreign currency marketable securities (TZS 7.74 trillion), highlighting stronger financial buffers. However, currency in circulation declined by 6.0% (TZS 8.15 trillion), signaling possible shifts towards digital transactions or controlled liquidity. Meanwhile, foreign reserves improved, with gold holdings rising by 12.5% (TZS 82.18 billion) and Special Drawing Rights (SDRs) surging by 260% (TZS 27.48 billion), reflecting increased international financial support. Despite a 21.8% increase in equity (TZS 2.18 trillion), the central bank’s growing advances to the government raise concerns about fiscal sustainability.

Breakdown of the Bank of Tanzania Statement of Financial Position

1. Assets (Total: TZS 25.24 Trillion)

Assets grew from TZS 24.85 trillion (Dec 2024) to TZS 25.24 trillion (Jan 2025), an increase of TZS 393.5 billion.

Key Components of Assets:

• Cash and Cash Equivalent: Decreased from TZS 5.78 trillion to TZS 5.26 trillion (-8.9%).
• Holdings of Special Drawing Rights (SDRs): Increased significantly from TZS 7.64 billion to TZS 27.48 billion (+260%).
• Gold Reserves: Increased from TZS 73.08 billion to TZS 82.18 billion (+12.5%).
• IMF Quota: Grew from TZS 1.23 trillion to TZS 1.29 trillion (+4.8%).
• Foreign Currency Marketable Securities: Increased from TZS 7.26 trillion to TZS 7.74 trillion (+6.6%).
• Government Securities: Increased slightly from TZS 2.03 trillion to TZS 2.04 trillion.
• Advances to Government: Grew significantly from TZS 4.53 trillion to TZS 5.67 trillion (+25.3%).
• Loans and Receivables: Slight increase from TZS 940.37 billion to TZS 946.97 billion (+0.7%).
• Equity Investments: Increased from TZS 143.63 billion to TZS 150.39 billion (+4.7%).
• Inventories: Increased sharply from TZS 453.64 billion to TZS 561.78 billion (+23.8%).
• Deferred Currency Cost: Slight decrease from TZS 114.34 billion to TZS 112.07 billion (-2.0%).
• Other Assets: Dropped significantly from TZS 1.25 trillion to TZS 320.20 billion (-74.4%).
• Property, Plant & Equipment: Slight decrease from TZS 1.01 trillion to TZS 1.009 trillion.
• Lease & Intangible Assets: Minimal changes.

2. Liabilities (Total: TZS 23.06 Trillion)

Liabilities remained stable at TZS 23.06 trillion, with minor fluctuations.

Key Components of Liabilities:

• Currency in Circulation: Decreased from TZS 8.67 trillion to TZS 8.15 trillion (-6.0%).
• Deposits (Banks & Non-Banks): Increased from TZS 3.34 trillion to TZS 3.51 trillion (+5.1%).
• Other Deposits: Increased from TZS 2.82 trillion to TZS 3.10 trillion (+9.9%).
• Foreign Currency Financial Liabilities: Slight increase from TZS 4.51 trillion to TZS 4.56 trillion (+1.1%).
• BoT Liquidity Papers: Increased slightly from TZS 537.54 billion to TZS 547.39 billion.
• Provisions & Other Liabilities: Decreased from TZS 163.33 billion to TZS 133.64 billion (-18.2%).
• IMF Related Liabilities: Constant at TZS 1.17 trillion.
• SDR Allocations: Increased from TZS 1.77 trillion to TZS 1.86 trillion (+4.8%).

3. Equity (Total: TZS 2.18 Trillion)

Equity rose from TZS 1.79 trillion to TZS 2.18 trillion (+21.8%).

Key Components of Equity:

• Reserves: Increased significantly from TZS 1.69 trillion to TZS 2.08 trillion (+23.1%).
• Authorized & Paid-up Capital: Constant at TZS 100 billion.

Key Observations & Figures

1. Increase in Total Assets: TZS 393.5 billion (+1.6%).
2. Growth in Equity: TZS 389.9 billion (+21.8%) due to a rise in reserves.
3. Decrease in Currency in Circulation: TZS 519.2 billion (-6.0%).
4. Significant Increase in Advances to Government: TZS 1.15 trillion (+25.3%).
5. Surge in Special Drawing Rights (SDRs): TZS 19.8 billion (+260%).
6. Foreign Currency Marketable Securities Grew: TZS 480.6 billion (+6.6%).
7. Major Drop in Other Assets: TZS 931.1 billion (-74.4%).

The Bank of Tanzania's Statement of Financial Position (Jan 2025) reveals key insights into the country's monetary, fiscal, and financial stability

1. Monetary and Economic Trends

• Currency in Circulation Declined (-6.0%)
  → This could indicate reduced cash demand, possibly due to increased digital transactions, lower inflationary pressure, or economic slowdown affecting consumer spending.
• Increase in Foreign Currency Marketable Securities (+6.6%)
  → Suggests higher foreign reserves, improving exchange rate stability and economic resilience against external shocks.
• Growth in Gold Reserves (+12.5%)
  → Shows the Bank of Tanzania is strengthening its gold holdings as a hedge against currency fluctuations and inflation.
• Advances to Government Increased Sharply (+25.3%)
  → The government borrowed more from the central bank, likely for budget support, infrastructure projects, or debt servicing.
• Special Drawing Rights (SDRs) Surge (+260%)
  → The country received more IMF support, which could be used to boost reserves or finance balance-of-payments needs.

2. Financial Sector Stability

• Bank Deposits Increased (+5.1%)
  → Confidence in the banking sector is improving as financial institutions hold more deposits with the central bank.
• Reduction in Other Assets (-74.4%)
  → Suggests a shift in asset management, possibly due to debt repayments, asset reclassification, or balance sheet restructuring.
• Rise in Government Securities (+0.4%)
  → Indicates continued investment in domestic bonds, helping to finance government projects while maintaining liquidity.
• Growth in IMF-related Liabilities (+4.8%)
  → Reflects ongoing international obligations and external financing reliance.

3. Fiscal and Policy Implications

• Equity (Reserves) Increased (+23.1%)
  → The central bank is strengthening financial buffers, which enhances economic resilience.
• Foreign Currency Financial Liabilities Slightly Up (+1.1%)
  → Indicates controlled external debt exposure, ensuring manageable foreign obligations.
• Drop in Provisions & Other Liabilities (-18.2%)
  → May reflect reduced outstanding liabilities, signaling better financial discipline.

What It Means for Tanzania

1. The economy is stabilizing, but government borrowing is increasing.
   • The rise in advances to government suggests higher fiscal spending, which can stimulate economic growth but raises concerns about debt sustainability.
2. The central bank is strengthening reserves and foreign asset holdings.
   • Increased foreign securities, SDRs, and gold reserves show an effort to stabilize the Tanzanian shilling (TZS) and prepare for external shocks.
3. Monetary policies are shifting towards liquidity control and financial sector stability.
   • The reduction in currency circulation and rise in bank deposits indicate a move towards digital transactions and reduced inflationary pressure.
4. Increased IMF-related assets and liabilities show continued reliance on international financing.
   • This highlights Tanzania’s need for external support to balance fiscal and monetary policies.

Final Thought: Growth with Fiscal Caution

Tanzania’s financial position is improving, but government borrowing and external financing remain key risks. If these trends continue, careful monetary and fiscal management will be needed to sustain growth without increasing debt vulnerabilities.

Liquidity Trends, Government Borrowing, and Exchange Rate Movements

In December 2024, Tanzania’s financial markets showed notable shifts in liquidity, government borrowing, and currency performance. Interbank cash market rates fell to 7.41% from 8.06%, signaling improved liquidity among banks. The government securities market saw Treasury bill yields rise to 12.86%, reflecting higher borrowing costs. Meanwhile, the Tanzanian shilling appreciated by 9.3%, trading at TZS 2,420.84 per USD, supported by strong inflows from cashew nut, tobacco, and gold exports. These developments indicate a stable financial system, easing monetary conditions, and a strengthening currency, which could have mixed effects on borrowing costs, investment, and trade​

The financial market in Tanzania, as reported in the Bank of Tanzania’s Monthly Economic Review (January 2025), showed notable developments in the Government Securities Market, Interbank Cash Market, and Interbank Foreign Exchange Market during December 2024.

1. Government Securities Market

• The Bank of Tanzania conducted two Treasury bill auctions in December 2024, with a combined tender size of TZS 252.8 billion to support government budgetary needs.
• Total bids received amounted to TZS 239.5 billion, of which TZS 217.8 billion were successful.
• The weighted average yield (WAY) on Treasury bills increased to 12.86%, up from 12.68% in November 2024, indicating rising government borrowing costs.
• In the Treasury bond market:
  • The 10-year bond auction was canceled due to undersubscription.
  • The 20-year bond was in high demand, with total bids of TZS 244.9 billion, out of which TZS 211.9 billion were accepted.
  • The yield on the 20-year bond increased to 15.71% from 15.64%, reflecting higher investor expectations for returns​.

2. Interbank Cash Market (IBCM)

• The Interbank Cash Market plays a key role in distributing liquidity among banks.
• In December 2024, total transactions in the IBCM reached TZS 1,616.8 billion, slightly lower than TZS 1,650 billion in November 2024.
• The overnight segment represented 12% of total market turnover, while 7-day transactions accounted for 43.9%.
• The overall IBCM interest rate decreased to 7.41%, down from 8.06% in November 2024, reflecting improved liquidity conditions in the banking sector​.

3. Interbank Foreign Exchange Market (IFEM)

• The foreign exchange market showed a significant improvement in liquidity, driven by increased foreign exchange inflows from exports of cashew nuts, tobacco, mining, and tourism receipts.
• Total transactions in IFEM reached USD 95.7 million in December 2024, up from USD 17.1 million in December 2023, showing a more active market.
• The Bank of Tanzania intervened, purchasing USD 0.5 million and selling USD 2 million.
• The Tanzanian shilling appreciated significantly, reversing the depreciation trend observed in previous months:
  • The exchange rate strengthened to TZS 2,420.84 per USD, compared to TZS 2,659.03 per USD in November 2024, representing a monthly appreciation of 9.3%.
  • On an annual basis, the shilling appreciated by 3.8%, a notable improvement from the 6.3% depreciation recorded in the previous month​.

Key Takeaways:

• The government securities market saw increased yields, indicating rising government borrowing costs and investor demand for higher returns.
• The interbank cash market experienced lower interest rates, suggesting improved liquidity and reduced short-term borrowing costs for banks.
• The foreign exchange market saw strong inflows, leading to Tanzania Shilling appreciation by 9.3% in one month, supported by rising exports and monetary policy adjustments.

The developments in Tanzania's financial markets provide key insights into liquidity conditions, investor sentiment, and monetary policy effectiveness

1. Government Securities Market: Rising Yields & Demand Shift

• The increase in Treasury bill yields to 12.86% (from 12.68%) and 20-year bond yields to 15.71% (from 15.64%) suggests that investors demand higher returns, possibly due to:
  • Perceived risk of government debt.
  • Tighter liquidity conditions in the market.
  • Expectations of inflation or monetary tightening in the future.
• The 10-year bond cancellation due to low demand signals that investors prefer shorter or longer maturities, possibly due to uncertainties over medium-term economic policies.

Implication: The government may face higher borrowing costs, affecting fiscal planning and debt sustainability.

2. Interbank Cash Market (IBCM): Improved Liquidity, Lower Rates

• The IBCM interest rate fell to 7.41% (from 8.06%), and total transactions reached TZS 1,616.8 billion, indicating:
  • Improved liquidity in the banking system.
  • More confidence among banks to lend to each other.
• The fact that 7-day transactions accounted for 43.9% of turnover shows that banks are shifting towards slightly longer borrowing periods rather than relying solely on overnight liquidity.

Implication: The banking system has adequate liquidity, reducing pressure on short-term funding costs and supporting credit expansion to businesses and individuals.

3. Interbank Foreign Exchange Market (IFEM): Stronger Shilling & Increased Transactions

• The shilling appreciated by 9.3% in one month, trading at TZS 2,420.84 per USD (from TZS 2,659.03 in November 2024).
• Foreign exchange transactions increased significantly to USD 95.7 million, up from USD 17.1 million in December 2023, driven by:
  • Higher export earnings from cashew nuts, tobacco, and gold.
  • Tourism inflows and mining revenues.
  • Easing global interest rates, which reduced capital outflows.

Implication: A stronger shilling reduces import costs, helping to contain inflation, but could make exports less competitive if the trend continues.

Overall Takeaway:

1. Monetary policy is effectively stabilizing liquidity, as reflected in lower interbank rates and an active foreign exchange market.
2. The government is facing rising borrowing costs, which may impact fiscal planning.
3. The shilling is strengthening, showing strong foreign exchange inflows, but policymakers should balance this to avoid hurting exports.

These trends suggest that Tanzania’s financial markets are active and responsive to policy changes, investor sentiment, and external economic factors​

Implications for Credit, Savings, and Economic Growth

In December 2024, Tanzania’s interest rates showed mixed movements, reflecting shifts in monetary policy and banking sector dynamics. The overall lending rate declined to 15.17% from 15.67%, making credit more affordable, while deposit rates rose to 8.33% from 8.18%, incentivizing savings. The spread between short-term lending and deposit rates narrowed to 6.12 percentage points, down from 7.02% in December 2023, signaling increased banking sector efficiency. These trends suggest a pro-growth monetary policy stance, aimed at boosting investment and economic activity while maintaining financial stability​

The interest rates in Tanzania, as reported in the Bank of Tanzania's Monthly Economic Review (January 2025), are as follows:

Lending and Deposit Interest Rates (December 2024)

1. Overall Lending Rate:
   • 15.17%, down from 15.67% in November 2024.
2. Negotiated Lending Rate:
   • 12.83%, up from 12.77% in November 2024.
3. Overall Deposit Rate:
   • 8.33%, up from 8.18% in November 2024.
4. Negotiated Deposit Rate:
   • 10.39%, up from 10.14% in November 2024.
5. Short-term Lending Rate (Up to 1 Year):
   • 15.74%, compared to 15.56% in November 2024.
6. Savings Deposit Rate:
   • 2.84%, up from 2.69% in November 2024.
7. 12-Month Time Deposit Rate:
   • 9.62%, slightly lower than 9.63% in November 2024.

Interest Rate Spread

• The spread between short-term lending and deposit rates narrowed to 6.12 percentage points from 7.02 percentage points in December 2023.

The changes in interest rates reflect key economic and monetary policy dynamics in Tanzania

1. Declining Lending Rates (15.17% from 15.67%)

• A lower lending rate means credit is becoming cheaper, making it easier for businesses and individuals to borrow.
• This suggests monetary easing, where the Bank of Tanzania (BoT) is supporting economic growth by making loans more accessible.
• The increase in negotiated lending rates (12.83%), however, indicates that some banks are charging higher rates based on risk assessment, suggesting credit risk concerns in certain sectors.

2. Rising Deposit Rates (8.33% from 8.18%)

• Higher deposit rates encourage savings, helping banks to attract more funds.
• The increase in negotiated deposit rates (10.39%) suggests that banks are competing more for deposits, possibly due to:
  • Higher demand for liquidity.
  • The need to fund loan growth.

3. Narrowing Interest Rate Spread (6.12% from 7.02%)

• A lower spread means the difference between lending and deposit rates is shrinking, which usually implies:
  • More efficiency in the banking system.
  • Increased competition among banks, forcing them to offer better rates to depositors while reducing borrowing costs.

4. Implications for the Economy

• Encourages borrowing: More businesses and individuals can take loans for investment and consumption.
• Supports economic growth: Easier access to credit can drive investments, job creation, and productivity.
• Sustains inflation stability: If lending is growing without excessive inflation, the economy can expand sustainably.
• Indicates liquidity adjustments: BoT is managing liquidity by influencing rates, ensuring banks have enough funds to lend.

Overall Takeaway

The trend suggests a pro-growth monetary policy stance, with lower borrowing costs stimulating economic activities, while banks adjust their deposit rates to maintain liquidity and profitability. However, higher negotiated lending rates in some cases suggest that banks remain cautious about credit risks in certain sectors.