Balancing Growth Amid Persistent Challenges
The October 2024 IMF report on Sub-Saharan Africa’s economic outlook reveals a steady yet cautious path forward, with growth projected at 3.6% in 2024 and inflation expected to ease from 18.1% to 12.3% by 2025. While fiscal policies have stabilized the region’s debt-to-GDP ratio at 58%, the high cost of debt servicing – consuming over 20% of revenues in many countries – limits resources for development. With rising food prices driving social unrest, and climate shocks intensifying, the report underscores the need for balanced policy adjustments. Sustained progress will depend on targeted reforms, social support mechanisms, and external funding to support economic resilience across diverse economies.
- Growth and Inflation:
- Real GDP growth for the region is projected at 3.6% in 2024, with expectations to slightly rise to 4.2% in 2025. Resource-intensive countries grow slower than others, with oil exporters facing the most challenges.
- Inflation has seen a decline due to policy tightening, with the region's headline inflation forecasted to reduce from 18.1% in 2024 to 12.3% in 2025.
- Resource-intensive countries like Tanzania are forecasted to grow below the regional average, constrained by tight external financing conditions and structural weaknesses affecting the business environment.
- Debt and Fiscal Balance:
- The median public debt-to-GDP ratio stabilized at 58% in 2024. However, debt service burdens remain high, consuming over 20% of revenues in a quarter of the countries, leading to reduced resources for development spending.
- For Tanzania, debt sustainability remains a concern as public debt continues to limit fiscal space for growth-stimulating investments.
- Fiscal consolidation has been a focus, with a reduction in the fiscal deficit by 1.3 percentage points of GDP across many countries in 2023. More countries are expected to further reduce deficits by 0.4 percentage points in 2024.
- Tanzania is expected to see additional consolidation in 2024, focusing on expanding tax revenues and controlling expenditures to stabilize the debt level. However, tight fiscal conditions pose challenges for financing social and infrastructure projects essential for sustainable development
- External Position:
- Median current account deficit is projected to narrow by 0.7 percentage points of GDP in 2024, helped by fiscal consolidation and adjustments in exchange rates.
- Social and Political Pressures:
- Social unrest is a rising concern due to high poverty, job scarcity, and inflation, especially in countries like Nigeria and Kenya. Food prices have risen sharply, with food price indexes up significantly since 2019.
- Tanzania, like other countries, faces potential social unrest if economic conditions do not improve, particularly for unemployed youth and low-income households impacted by rising costs. Effective fiscal management and equitable resource allocation are critical to addressing these pressures
- Key Risks:
- Climate risks, social unrest, and global market volatility are major threats. Political fragility, seen in the rising number of coups and conflicts, further complicates policy implementation.
- Tanzania faces heightened risks from climate-induced events such as droughts, affecting agriculture and food security, and contributing to inflation pressures. The IMF notes that climate adaptation will require significant resources, impacting budget allocation
- An IMF model suggests that a 150-basis-point rise in sovereign risk premiums could reduce growth by 0.7 percentage points in 2025–26, worsening investment and growth (AFRMOD model simulation).
- Debt and Financing: External financing remains tight, with rising interest rates and geopolitical tensions reducing access to affordable debt. Tanzania, with moderate reserves, may experience increased borrowing costs, further stressing its fiscal space.
- Global Market Risks: Regional exposure to global financial fluctuations adds to uncertainty, especially with tightening US monetary policy potentially increasing debt servicing costs for Tanzania. Additionally, regional conflicts and commodity price fluctuations may destabilize Tanzania's economic outlook
- Policy Recommendations:
- Tanzania’s need for continued fiscal discipline, inflation control, and resilience to social and climate-related pressures to stabilize and stimulate long-term growth in an increasingly challenging environment.
- Policymakers are advised to focus on stabilizing prices, ensuring debt sustainability, and building social protection frameworks. Measures include broadening tax bases, improving governance, and enhancing social inclusiveness to gain public support for reforms.
These efforts aim to foster resilience and inclusive growth but require balancing economic stabilization with social acceptance amid complex challenges.
The October 2024 Regional Economic Outlook for Sub-Saharan Africa from the IMF provides a mixed view of progress and challenges for economic stability and growth across the region.
- Economic Progress with Persistent Vulnerabilities:
- Growth in Sub-Saharan Africa remains steady at 3.6% but lacks momentum. Inflation is coming down in most countries due to stricter monetary policies, yet remains high in oil-dependent and resource-intensive economies.
- Fiscal efforts have improved debt stability, with debt-to-GDP ratios holding steady around 58%. However, the debt burden still strains public finances, with high debt servicing costs cutting into funds available for development.
- Social and Political Pressures:
- The region faces growing social unrest driven by high inflation, especially in food prices, job scarcity, and widespread poverty. These pressures make reform implementation difficult for policymakers, particularly in fragile countries with limited resources.
- Climate and Global Risks:
- Climate change impacts, including droughts and floods, severely threaten food security and economic stability. Additionally, global financial market volatility and geopolitical tensions pose risks to financing and growth.
- Strategic Recommendations:
- The IMF recommends that policymakers pursue balanced economic policies, carefully manage inflation, and focus on debt sustainability. Building stronger social safety nets and effective communication strategies are critical to maintaining public support for necessary reforms.
- Path Forward with IMF Support:
- The IMF emphasizes its commitment to aiding the region through concessional financing and capacity-building initiatives. Given the tough financing environment, it highlights the importance of external support and sustainable development strategies tailored to each country’s specific needs.
In summary, while Sub-Saharan Africa shows resilience in some areas, challenges like high inflation, limited financing, climate impacts, and social unrest highlight the need for carefully coordinated reforms that balance economic stability and social needs.
Sub-Saharan Africa's economic outlook for 2024 presents a picture of gradual recovery, with growth projected to rise from 2.4% in 2023 to 3% in 2024, and reaching 4% by 2025-2026. This recovery is driven by improving private consumption and investment, fueled by easing inflation, which is expected to decline from 7.1% in 2023 to 4.8% in 2024, allowing for potential monetary policy rate cuts. However, the region’s macroeconomic performance remains challenged by high public debt, estimated at 58% of GDP in 2024, and a fiscal deficit projected to improve to 3.3% of GDP. Risks to the outlook include conflict (e.g., in Sudan), climate-related disasters, and the region's vulnerability to external shocks, with 53% of low-income countries facing high risk of debt distress. Addressing these challenges requires fiscal reforms and targeted investments to ensure sustained growth and stability.
1. Growth Outlook in Sub-Saharan Africa:
- Growth Recovery: Economic activity in Sub-Saharan Africa is expected to grow by 3% in 2024, up from 2.4% in 2023, and further accelerate to 4% by 2025-2026.
- Per Capita Growth: Real income per capita is forecasted to grow by 0.5% in 2024 and 1.4% in 2025.
- Strong Performers: Countries like Côte d’Ivoire (6.5%), Uganda (6%), and Tanzania (5.4%) are among the top performers expected to post over 5% growth in 2024.
2. Growth Environment:
- Private Consumption and Investment: These are the main drivers of growth recovery, boosted by easing inflation which is expected to decline from 7.1% in 2023 to 4.8% in 2024.
- Inflation Decline: Inflation is declining across the region, with around 70% of countries expected to register lower inflation rates in 2024.
- Monetary Policy: As inflation cools, countries may pursue monetary policy rate cuts, fostering greater investment.
3. Sub-Saharan Africa's Macroeconomic Performance:
- Public Debt: Government debt remains high at around 58% of GDP in 2024. Sub-Saharan African countries are expected to pay US$19 billion in public external debt service, mostly to private creditors.
- Fiscal Balance: The median fiscal deficit is projected to decrease from 3.9% of GDP in 2023 to 3.3% of GDP in 2024, with efforts to raise revenue and reduce expenditure.
4. Risks to the Outlook:
- High Debt: An elevated debt burden reduces the fiscal space for governments to invest in critical infrastructure and human capital.
- Conflict and Climate Change: Ongoing conflict, such as in Sudan, and climate-related disasters, including floods and droughts, are key risks affecting growth and food security in the region.
The Africa's Pulse October 2024 report key points about Sub-Saharan Africa's economic outlook
Sub-Saharan Africa is experiencing a gradual recovery in economic growth, but significant challenges like high debt, conflict, climate change, and limited fiscal space present risks to sustained progress. The region needs to address these challenges through fiscal reforms, targeted investments, and efforts to enhance macroeconomic stability.
- Economic Growth Recovery: The region's economy is projected to grow by 3% in 2024, up from 2.4% in 2023, with further acceleration to 4% by 2025-2026. This is driven mainly by private consumption and investment, supported by easing inflation and anticipated interest rate cuts. However, the growth recovery remains modest compared to other global regions.
- Inflation and Consumption: Inflation is expected to decline from 7.1% in 2023 to 4.8% in 2024, improving the purchasing power of households, which in turn supports private consumption. This cooling of inflation allows for potential monetary policy easing, encouraging investment and economic activity.
- Macroeconomic Performance: Despite growth prospects, the region faces significant challenges:
- High Debt Levels: Public debt remains at 58% of GDP, with US$19 billion in debt service payments, mostly owed to private creditors. This reduces the fiscal space for essential investments in infrastructure and social services.
- Fiscal Balance: Fiscal deficits are improving slightly, from 3.9% of GDP in 2023 to 3.3% in 2024, thanks to revenue collection efforts and spending cuts. However, the region's debt burden continues to limit overall progress.
- Risks to the Outlook:
- Conflict and Climate Change: Ongoing conflicts, such as the war in Sudan, and extreme weather events (floods, droughts) are major risks to economic stability. These challenges undermine growth, disrupt food security, and exacerbate poverty in affected countries.
- Vulnerability: Over 53% of low-income countries in Sub-Saharan Africa are at high risk of debt distress, and many countries are vulnerable to external shocks due to their high reliance on global financing and commodity exports.
Source: Africa’s Pulse October 2024 report
Tanzania's economic outlook for 2024 shows strong growth potential, with a projected GDP increase of 5.4%, significantly higher than the 3% average for Sub-Saharan Africa (SSA). As part of the East African Community (EAC), which is forecasted to grow by 4.7% in 2024, Tanzania benefits from macroeconomic stability and strategic investments in infrastructure, particularly in energy, telecommunications, and transport. These investments, combined with stable inflation, are expected to boost private consumption and investment. However, Tanzania's public debt is projected to rise from 42.5% to 48.4% of GDP, reflecting infrastructure spending, while the fiscal deficit is expected to stabilize at 3.3% of GDP. Risks remain, especially around rising debt and climate-related challenges like droughts and floods, which could impact agriculture and economic stability. Despite these risks, Tanzania's growth prospects remain robust in comparison to other SSA countries.
1. Growth Outlook
- Tanzania is expected to experience GDP growth of 5.4% in 2024, outperforming the regional average growth of 3% for SSA.
- The East African Community (EAC), which includes Tanzania, is one of the strongest economic performers in SSA, with expected growth of 4.7% in 2024 and 5.7% by 2025–26.
2. Growth Environment
- Tanzania benefits from macroeconomic stability and rising investments in sectors like energy, telecommunications, and transport, which help enhance productivity. The country’s inflation rate is expected to stabilize, supporting private consumption and investment.
- Private consumption is expected to increase as inflation eases across SSA, with countries like Tanzania reaping benefits from stable inflation and favorable monetary policies, further bolstering growth.
3. Macroeconomic Performance
- Government debt in Tanzania is estimated to rise slightly from 42.5% of GDP in 2023 to 48.4% of GDP in 2024, reflecting investments in key infrastructure projects.
- In terms of sectoral performance, Tanzania’s growth is bolstered by services and infrastructure projects in energy and transport. Investment in these areas is critical for sustaining long-term growth.
- Fiscal Balance: Tanzania's fiscal deficit is expected to improve slightly, with a fiscal deficit of around 3.3% of GDP in 2024.
4. Risk Outlook
- High Debt: Public debt remains a key risk in Tanzania, as in many other SSA countries. The rising debt levels could strain fiscal resources, especially in a region where debt service obligations are already significant.
- Climate Change and Conflict: Tanzania is exposed to climate risks and ongoing economic volatility in the region, which could affect agriculture and food security. Extreme weather events such as droughts or floods are persistent risks across the region.
Tanzania's economic position relative to other Sub-Saharan African (SSA) countries
Tanzania's economy is performing well relative to other Sub-Saharan African countries, with solid growth prospects and important investments. However, the country must address challenges related to debt and climate change to ensure that growth is sustainable.
- Tanzania’s Strong Growth Outlook: With a projected GDP growth of 5.4% in 2024, Tanzania is set to grow much faster than the Sub-Saharan African average of 3%. This positions Tanzania as one of the leading economies in the region, especially within the East African Community (EAC) where growth is also expected to be robust.
- Growth Environment: Tanzania benefits from macroeconomic stability and is making significant investments in energy, transport, and telecommunications. These investments are crucial for reducing productivity bottlenecks and fostering economic expansion. Stable inflation will also boost private consumption and investment, further enhancing growth.
- Macroeconomic Performance: Tanzania's debt level is rising but remains relatively manageable. The government is using this debt to finance critical infrastructure, which is essential for long-term economic development. The country’s fiscal deficit is also improving, suggesting prudent fiscal management.
- Risk Outlook: Despite its positive growth outlook, Tanzania faces risks related to its rising debt levels, which could become a burden if not managed properly. Additionally, climate-related risks such as droughts and floods, which are common in SSA, pose threats to Tanzania’s agricultural sector and overall economic stability.
Source: Africa’s Pulse October 2024 report
Tanzania's economy is projected to grow at a solid rate of 5-6% in 2024, outpacing Sub-Saharan Africa’s average growth of 3.5%. Key drivers of this growth include agriculture (28% of GDP), mining, and a recovering tourism sector. While global inflation, energy prices (with oil at $84 per barrel), and fiscal pressures pose risks, Tanzania’s inflation is expected to remain moderate compared to regional peers. Public debt remains sustainable, supported by large infrastructure projects like the Standard Gauge Railway. However, climate risks and global trade disruptions could impact future growth if not managed carefully.
1. Regional Context: Sub-Saharan Africa (SSA)
- Sub-Saharan Africa’s growth is projected to reach 3.5% in 2024, slightly up from 3.0% in 2023. The region is expected to experience continued growth, hitting 4.0% by 2026.
- Tanzania, as part of this region, shares similar growth dynamics, heavily influenced by commodity prices, fiscal policies, and global trends like inflation and interest rates.
2. Tanzania’s Growth Outlook
- The World Bank forecast that Tanzania will maintain solid economic growth, particularly in sectors like agriculture, mining, and tourism.
- Growth in Tanzania is typically higher than the regional average. It has been projected to grow at around 5-6% annually, reflecting its diversified economy. Key growth drivers include:
- Agriculture: Contributing about 28% of GDP, agriculture remains a vital part of Tanzania’s economy. Global trends in agricultural prices, projected to stabilize, could benefit Tanzania’s export revenues.
- Mining: Tanzania is a significant exporter of gold, and global gold prices are expected to remain stable or grow slightly, which will support the mining sector.
- Tourism: After a sharp decline during the pandemic, Tanzania’s tourism industry is recovering, contributing to higher GDP growth projections.
3. Inflation and Fiscal Pressures in Tanzania
- Like many countries in Sub-Saharan Africa, Tanzania is expected to face moderate inflation pressures, influenced by global commodity prices, especially in food and energy. The region's inflation is expected to be higher than the global average but will stabilize in 2024.
- Tanzania’s inflation has been relatively moderate compared to some of its regional peers, thanks to government interventions and policies aimed at maintaining price stability. However, risks remain from:
- Global energy prices: The report projects oil prices to average $84 per barrel in 2024, which could affect fuel import costs and inflation.
- Food inflation: Tanzania’s agricultural sector could benefit from stable grain prices, helping to moderate food price inflation.
4. Public Debt and Investment
- Tanzania’s public debt remains sustainable, but global financing conditions, including rising interest rates, pose risks. Tanzania, like other EMDEs, could face higher borrowing costs if global interest rates remain high, as expected (around 4% through 2026).
- The report emphasizes the importance of public investment in driving growth in emerging markets, and Tanzania's focus on infrastructure projects, such as the Standard Gauge Railway (SGR) and energy projects, will be crucial for sustained growth.
5. Risks to Tanzania’s Economic Growth
- Geopolitical risks and global trade disruptions could impact Tanzania’s export sectors, especially in minerals and agricultural products.
- Climate-related risks are significant for Tanzania, where agriculture relies heavily on favorable weather conditions. Extreme weather events could disrupt food production, affecting both inflation and growth.
- Debt distress risks in Sub-Saharan Africa remain elevated, with about 40% of EMDEs at risk. Although Tanzania is not currently in debt distress, careful fiscal management is essential to maintain sustainability.
6. Tanzania’s Policy Responses
- To mitigate risks, Tanzania will need to focus on:
- Strengthening public investment efficiency to ensure that infrastructure projects deliver high returns.
- Diversifying its export base to reduce vulnerability to global commodity price swings.
- Implementing fiscal policies that support growth while maintaining debt sustainability.
Key Figures for Tanzania (based on SSA and global trends):
- Growth: Projected at 5-6% in 2024, higher than the SSA average of 3.5%(GEP-June-2024).
- Inflation: Expected to remain moderate but subject to global food and energy price fluctuations.
- Oil prices: $84 per barrel in 2024 could increase import costs for Tanzania, affecting inflation.
- Public investment: Tanzania’s large infrastructure projects are key to sustaining growth but require efficient management and fiscal responsibility.
Summary:
- Tanzania’s economy is expected to continue growing at a solid rate, outperforming the regional average. Growth drivers include agriculture, mining, and tourism.
- Risks from global inflation, commodity prices, and debt sustainability are present, but with sound policies, Tanzania can navigate these challenges.
Source: Global Economic Prospects June 2024 report
Global growth is projected to stabilize at 2.6% in 2024, rising to 2.7% by 2025-2026, which is slower than the pre-COVID average of 3.1%. Emerging Market and Developing Economies (EMDEs) are forecasted to grow at 4.0% in 2024, with Sub-Saharan Africa growing at 3.5%. Global inflation is expected to moderate to 3.5%, though it will remain above pre-pandemic levels, especially in EMDEs. Oil prices are set to average $84 per barrel in 2024, while non-energy commodity prices remain stable. Risks to growth include geopolitical tensions and high debt distress in 40% of EMDEs.
- Global Growth:
- Global GDP growth is projected to stabilize at 2.6% in 2024, with an expected increase to 2.7% in 2025-2026. This growth is slower than the 3.1% average in the decade before COVID-19.
- By 2026, 80% of the world’s population will experience slower growth compared to pre-pandemic levels.
- Regional Growth:
- Emerging Market and Developing Economies (EMDEs) are forecast to grow at 4.0% in 2024, down from 4.2% in 2023. China’s growth is expected to slow to 4.8% in 2024.
- Sub-Saharan Africa is expected to grow at 3.5% in 2024, with a rise to 4.0% in 2026.
- Global Inflation:
- Inflation is projected to moderate to 3.5% globally in 2024, but it will remain higher than pre-pandemic levels.
- Inflation in EMDEs is expected to decline but will remain challenging for many regions due to commodity price fluctuations.
- Commodity Prices:
- Oil prices are projected to be slightly higher in 2024, averaging $84 per barrel, but lower than 2023 prices.
- Prices for non-energy commodities are expected to remain stable.
- Risks to Global Growth:
- Escalating geopolitical tensions and trade fragmentation pose significant risks to global growth.
- Debt distress risks remain high for 40% of EMDEs, with many economies vulnerable to shocks.
Source: Global Economic Prospects June 2024 report