In November 2024, the Bank of Tanzania maintained a cautious yet supportive monetary policy to ensure economic stability. With a 7-day Interbank Cash Market (IBCM) rate averaging 8.29%, slightly above the Central Bank Rate (CBR) of 6%, the policy aimed to balance liquidity amid high seasonal cash demands for crop purchases. The extended broad money supply (M3) grew by 13.6%, driven by foreign asset growth, while private sector credit expanded by 15.3%, highlighting strong economic activity, particularly in agriculture and SME financing. This measured approach reflects the Bank’s commitment to fostering sustainable growth and financial stability.

Policy Implementation

• The Bank of Tanzania maintained a 7-day Interbank Cash Market (IBCM) rate within a corridor of ±200 basis points around the Central Bank Rate (CBR), set at 6%.
• The 7-day IBCM rate averaged 8.29%, slightly above the CBR corridor, due to low liquidity in the banking sector influenced by seasonal cash demands for crop purchases.

Liquidity Management

• Reverse repurchase agreements (reverse repos) decreased to TZS 2,578.5 billion, from TZS 2,887.9 billion in October 2024.
• Lombard facility usage also declined to TZS 3,870.4 billion from TZS 5,601.1 billion in October.

Money Supply

• Extended broad money supply (M3) grew by 13.6%, driven by foreign asset increases in the banking sector.
• Private sector credit expanded by 15.3%, a slight deceleration from 17% in October and 18.3% in November 2023.

Figures

1. Interest Rates:
   • IBCM 7-day rate: Averaged 8.29% in November 2024.
   • Central Bank Rate (CBR): Set at 6%.
2. Monetary Transactions:
   • Reverse repos: TZS 2,578.5 billion.
   • Lombard facility: TZS 3,870.4 billion.
3. Money Supply Components:
   • M3: TZS 49,510.7 billion, growing at 13.6% annually.
   • Private Sector Credit: Grew at 15.3%.
4. Credit Allocation:
   • Significant growth in agriculture (41.9%), personal loans (19.2%), and building & construction (16.6%).

The monetary policy report highlights the Bank of Tanzania's actions and the state of monetary indicators in November 2024, offering insights into the economic environment

Policy Stance

1. Monetary Tightening:
   • The slightly elevated 7-day Interbank Cash Market (IBCM) rate (8.29%) compared to the Central Bank Rate (CBR) (6%) suggests tightened liquidity conditions. This reflects the seasonal cash demand for crop purchases, especially after a bumper harvest.
2. Controlled Liquidity Management:
   • The use of reverse repos and the Lombard facility to manage liquidity declined, indicating an improvement in banking sector liquidity.

Economic Activity Reflected Through Money Supply

1. Money Supply Growth (M3):
   • The 13.6% growth in M3 is healthy and suggests adequate liquidity in the economy to support economic activities.
   • The growth was driven primarily by foreign currency deposits, reflecting the importance of foreign inflows.
2. Private Sector Credit Growth:
   • A 15.3% expansion in private-sector credit shows strong credit demand and confidence in economic activities. However, the slight decline from previous months (17% in October) hints at moderating credit expansion.
3. Sectoral Focus:
   • The highest credit growth in agriculture (41.9%) signals robust demand for financing in the sector, likely tied to crop purchases and investment in production.
   • Personal loans dominate total credit (38.7%), reflecting their importance in consumption and SME financing.

Key Implications

1. Economic Resilience:
   • Despite seasonal liquidity pressures, the monetary system is effectively balanced, ensuring adequate support for economic activities without overheating.
2. Agriculture as a Driver:
   • The strong focus on agriculture financing suggests the sector's critical role in the economy, especially during harvest periods.
3. Sustainable Credit Growth:
   • Moderate private sector credit growth ensures economic expansion without excessive risks of inflation or non-performing loans.
4. Foreign Influence:
   • The prominence of foreign currency deposits highlights Tanzania's reliance on international trade, tourism, and remittances for liquidity.

Policy Outlook

The report suggests the Bank of Tanzania is maintaining a cautious yet supportive monetary stance, balancing liquidity to promote growth while containing inflationary pressures. The focus on agriculture and personal loans supports essential sectors of the economy.

Tanzania, as a key player among East African low-income countries, faces significant hurdles in achieving middle-income status. While progress in areas like agriculture and infrastructure development has been modest, the nation’s untapped potential in industrialization, tourism, and regional trade offers avenues for growth. By addressing challenges such as low productivity, poverty reduction, and governance reforms, Tanzania can emulate the successes of regional peers like Ethiopia and Rwanda to accelerate its economic transformation.

Tanzania’s Position Relative to East Africa and LICs

1. Economic Growth:
   • Per capita GDP growth in LICs, including Tanzania, has been slow. Median growth for LICs was just 1.5% (2000-09), dropping further to 1.3% (2010-19), and 0.1% (2020-24)​.
   • Among East African countries, Ethiopia and Rwanda outpaced others, with annual per capita growth rates of 6.5% and 4.6%, respectively, over the same periods​.
2. Poverty Reduction:
   • LICs, including many in East Africa, saw a decline in extreme poverty by 17 percentage points since 2000, slower compared to middle-income transitions​.
   • In Tanzania, agriculture and services remain key sectors but lag in productivity compared to industrialized sectors​.
3. Structural Transformation:
   • The share of agriculture in employment remains high across LICs, averaging 28% of GDP, higher than in transitioning middle-income nations, which show more balanced outputs between agriculture, industry, and services​.
4. Productivity and Employment:
   • Agricultural productivity in LICs grew slower than in other sectors, while service and industrial sectors showed more dynamism in countries like Kenya and Uganda, highlighting Tanzania's potential for improvement​.

Key Regional Comparisons

• Ethiopia and Rwanda have experienced robust structural changes driven by policy reforms and investment in industrialization, making them standout performers in East Africa.
• Kenya's growth is supported by better trade openness and service sector expansions​.
• Tanzania's economic prospects are tied closely to its agricultural productivity and untapped potential in industrialization and tourism.

Recommendations for Tanzania

• Sectoral Reforms:
  • Accelerate industrial development to reduce the over-reliance on agriculture.
  • Improve governance to attract more investments and integrate regional trade opportunities.
• Poverty and Productivity:
  • Invest in agricultural modernization to boost productivity and reduce poverty more effectively.
  • Leverage youthful demographics for labor-intensive sectors.

The challenges and opportunities facing low-income countries (LICs), including Tanzania, and provides a context for understanding its position within East Africa and globally.

1. Economic Position of LICs:

• LICs are struggling to achieve middle-income status, with slow economic growth and high levels of poverty.
• Tanzania, as an LIC, shares similar challenges with other East African nations, such as reliance on agriculture, limited industrialization, and weak institutional frameworks.

2. East Africa’s Economic Standouts:

• Ethiopia and Rwanda demonstrate strong growth due to structural reforms, investment in infrastructure, and industrial policies.
• Kenya benefits from a more diversified economy, trade openness, and vibrant services sector.
• Tanzania, while progressing, lags behind these countries in structural transformation and industrial growth.

3. Challenges for Tanzania:

• Low Productivity in Agriculture: Agriculture accounts for a large share of GDP but remains low in productivity, limiting income growth.
• Limited Industrialization: Tanzania has not transitioned enough labor and output into higher productivity sectors like manufacturing.
• Poverty Stagnation: Extreme poverty reduction has slowed, with a significant portion of the population still living on less than $2.15 a day.

4. Opportunities for Tanzania:

• Demographics: A youthful population can drive economic growth if educated and employed productively.
• Natural Resources: Abundant resources, such as minerals and tourism potential, can fuel growth if managed effectively.
• Regional Integration: Leveraging East African Community (EAC) trade and infrastructure projects can enhance competitiveness and market access.

5. Lessons from East Africa:

• Ethiopia and Rwanda: Investments in industrial parks, export-oriented policies, and agricultural modernization have spurred growth.
• Kenya: A strong private sector and focus on trade services have boosted economic resilience.
• Tanzania’s Potential: By learning from these successes, Tanzania can prioritize:
  • Infrastructure development.
  • Agricultural productivity reforms.
  • Policies to attract foreign investment and foster industrialization.

6. Policy Recommendations:

• Investment in Human Capital: Enhance education and healthcare to build a productive workforce.
• Structural Reforms: Simplify business regulations, improve governance, and foster public-private partnerships (PPPs).
• Climate Adaptation: Address vulnerabilities to climate shocks by investing in resilient infrastructure and sustainable practices.

7. Global Context:

• LICs like Tanzania face external pressures such as declining global trade growth, high debt burdens, and geopolitical tensions.
• International assistance (e.g., concessional financing and debt relief) is critical for Tanzania to sustain investments in growth and poverty reduction.

Implications for Tanzania:

Tanzania has significant growth potential but must address critical bottlenecks in governance, productivity, and industrialization. Learning from regional peers and leveraging its demographic and resource advantages could fast-track its transition to middle-income status. This requires strategic investments, effective policies, and stronger regional and global integration.

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.