1. Global Economic Conditions and the Oil Shock

May 2026 was dominated by the spillover of the Middle East conflict into global energy markets. The closure of the Strait of Hormuz curtailed Gulf oil production and exports, pushing crude prices sharply higher from February 2026 before a partial easing in May. The Brent monthly average declined from USD 117.29/barrel in April 2026 to USD 107.14/barrel in May 2026 — still far above the pre-conflict level of roughly USD 63/barrel seen in late 2025.

Global growth is now projected to slow to 2.8 percent in 2026, with a prolonged closure of Gulf facilities capable of pushing this down to 2.1 percent in 2026 and 1.8 percent in 2027 — pushing several economies close to recession. Inflation accelerated in the United States (4.2%) and the Euro area (3.2%) on energy costs, while the UK held at 2.8 percent. China's inflation stayed subdued at 1.2 percent amid weak demand; India's rose to a sixteen-month high of 3.9 percent.

2. Domestic Inflation Developments

Tanzania's headline inflation rose to 4.2 percent in May 2026, from 4.0 percent in April and 3.2 percent a year earlier — still comfortably inside the national target band and SADC/EAC convergence criteria. The increase reflects the pass-through of elevated global fuel prices into transport costs, which alone jumped to 11.9 percent annual inflation in May 2026 (from 1.7% a year earlier). Core inflation, which strips out unprocessed food and energy, rose to 3.4 percent, up from 2.1 percent a year earlier, and remained the single largest contributor to the headline rate (2.6 percentage points of the 4.2%).

Food inflation eased marginally to 5.6 percent as sorghum, wheat, finger millet, beans and maize prices stabilised, and is expected to moderate further with the May/June 2026 harvest. National Food Reserve Agency stocks stood at a still-adequate 500,692 tonnes in May 2026, after releasing 10,234.5 tonnes of maize and paddy to traders during the month.

3. Monetary Policy and Money Supply

The Monetary Policy Committee kept the Central Bank Rate (CBR) at 5.75 percent for the quarter ending June 2026, and narrowed the CBR corridor to ±150 basis points (from ±200 bps) to sharpen policy transmission. The 7-day interbank cash market (IBCM) rate averaged 5.92 percent — comfortably within the corridor — while the Bank injected liquidity via reverse repos, which rose to TZS 399.5 billion in May from TZS 379.7 billion in April.

Extended broad money (M3) expanded by 25.2 percent year-on-year, up from 22 percent in April, driven by sustained private sector credit growth. Credit to the private sector grew 23.2 percent in the year to May 2026. Growth was broad-based: transport & communication led at 44.6 percent, followed by trade (35.0%) and agriculture (30.9%). Personal loans (MSME-linked) remained the largest share of outstanding credit at 34.7 percent.

4. Interest Rates

Interest rates were broadly stable, with modest declines on both lending and deposit sides. The overall lending rate was little changed at 15.32 percent (from 15.33% in April), while the negotiated rate for prime borrowers eased to 11.90 percent. The overall deposit rate fell to 8.43 percent, narrowing the one-year lending–deposit spread to 5.22 percentage points — the tightest spread in over a year, pointing to improving intermediation efficiency.

5. Financial Markets and the Shilling

The Government securities market performed well: two Treasury bills auctions (combined tender TZS 498.1 billion) were oversubscribed with bids of TZS 1,330.3 billion, and weighted average yields eased to 4.74 percent. Longer-dated 15- and 20-year Treasury bond auctions were undersubscribed relative to tender size, consistent with a steepening preference for short-dated paper. In the Interbank Foreign Exchange Market (IFEM), turnover rose to USD 119.3 million (from USD 64.6 million in April), supported by seasonal gold-export inflows; the Bank auctioned USD 44 million in support of orderly market conditions.

The Shilling depreciated slightly month-on-month to TZS 2,616.88/USD in May 2026 (from 2,612.46 in April), but on an annual basis it actually strengthened by 3.02 percent — a turnaround from the 3.82 percent depreciation recorded in May 2025, aided by strong gold export receipts and BOT market interventions.

6. Government Budgetary Operations and the FY2026/27 Budget

In April 2026 (the latest month with cheques-issued data), the Government collected TZS 3,242.3 billion — 7.1 percent above target — with tax revenue of TZS 2,690.6 billion (10.2% above target) driven by import duties and income tax. Total expenditure reached TZS 3,457.2 billion, of which TZS 2,696.6 billion was recurrent and TZS 760.6 billion development spending (well below the TZS 1,448.5 billion estimate, signalling execution lags on capital projects).

Tanzania's fiscal deficit target of 2.9% of GDP is the most conservative in the region, well below Kenya's 5.5% and Uganda's 6.9% — a deliberate fiscal-discipline signal ahead of the Dira 2050 push, though it also implies less fiscal space for public investment relative to peers.

7. Public Debt Developments

Tanzania's national debt stock stood at USD 51,492.5 million at end-May 2026, a marginal decline from the prior month, driven by lower external and domestic debt. External debt accounted for 70.8 percent of the total.

Multilateral institutions remain by far the dominant creditor (57.5%), with the largest use-of-funds share going to balance-of-payments/budget support and transport & telecommunications. The US dollar continues to dominate currency composition at 62.9 percent, though its share has been falling steadily (from 66.6% a year ago) as the debt portfolio diversifies. External loan disbursements totalled USD 125.9 million in May, against debt service payments of USD 189.4 million (USD 140 million in principal).

8. External Sector Performance

The current account deficit widened to USD 2,209.5 million in the year ending May 2026 (from USD 2,090.9 million a year earlier), as import growth (freight costs, refined petroleum) outpaced exports. Even so, the external position strengthened on the back of a gold-led export surge.

Gold exports surged 46.7 percent to USD 5,532.3 million, supported by both favourable global prices and rising domestic production; manufactured goods exports rose 38.3 percent on strong regional demand for iron, steel and glassware. Travel receipts (tourism) grew 9.5 percent to USD 4,419.1 million on a 5.9 percent rise in international arrivals (to 2,298,900), while transport receipts grew 16.0 percent, underscoring Tanzania's role as a regional logistics hub.

9. Zanzibar Snapshot

Zanzibar's headline inflation rose to 5.5 percent in May 2026 (from 4.2% a year earlier), driven by food and transport costs, even as non-food inflation eased to 2.1 percent. The Government's resource envelope reached TZS 133.3 billion (61.7% of target), while total expenditure of TZS 309 billion left an overall deficit of TZS 175.7 billion, financed domestically. On the external side, Zanzibar's current account surplus grew 21.2 percent to USD 864.8 million (year ending May 2026), powered by a 21 percent rise in tourist arrivals to 947,169 and record clove export values.

10. Selected Economic Indicators, 2018–2025

Source: Ministry of Finance and Planning, Bank of Tanzania, and Tanzania Revenue Authority. r = revised, p = provisional.