Improved Trade Balance and Strengthened Reserves Amid Economic Growth

External Sector Performance Overview

The external sector performance of Tanzania has shown notable improvements due to several factors:

1. Current Account Deficit

• June 2024: USD 2,501.3 million
• June 2023: USD 4,955.6 million

The current account deficit decreased significantly from USD 4,955.6 million in June 2023 to USD 2,501.3 million in June 2024. This represents a reduction of approximately 49.5% year-on-year. The current account deficit reached its lowest point since July 2023.

2. Foreign Exchange Reserves

• End of June 2024: USD 5,345.5 million

Foreign exchange reserves improved to USD 5,345.5 million by the end of June 2024. This level of reserves is adequate to cover 4.4 months of projected imports of goods and services, aligning with both national and East African Community (EAC) benchmarks.

3. Current Account Breakdown

Here’s a closer look at the different components of the current account for June 2024 compared to previous periods:

Goods Account

• June 2024: USD -303.8 million
• June 2023: USD -415.6 million
• Change: Improvement from a deficit of USD 415.6 million to USD 303.8 million.

Exports increased from USD 623.9 million in June 2023 to USD 704.2 million in June 2024, an increase of approximately 12.9%.
Imports decreased from USD 1,039.6 million in June 2023 to USD 1,008.0 million in June 2024, a decrease of approximately 3.1%

Services Account

• June 2024: USD 434.8 million
• June 2023: USD 343.75 million
• Change: Improvement from a surplus of USD 343.75 million to USD 434.8 million.

Receipts rose from USD 515.3 million in June 2023 to USD 609.6 million in June 2024, an increase of approximately 18.3%.
Payments remained relatively stable, increasing slightly from USD 171.6 million in June 2023 to USD 174.8 million in June 2024.

1. Goods and Services

• June 2024: USD 131.0 million
• June 2023: USD -71.9 million
• Change: Turned from a deficit to a surplus.

Exports of goods and services increased from USD 1,139.3 million in June 2023 to USD 1,313.8 million in June 2024, an increase of about 15.3%.
Imports of goods and services decreased from USD 1,211.2 million in June 2023 to USD 1,182.8 million in June 2024, a decrease of approximately 2.3%.

1. Primary Income Account

• June 2024: USD -181.1 million
• June 2023: USD -132.6 million
• Change: Worsened from a deficit of USD 132.6 million to USD 181.1 million.

Receipts increased slightly from USD 13.5 million in June 2023 to USD 17.5 million in June 2024.
Payments also increased from USD 146.1 million in June 2023 to USD 198.6 million in June 2024.

1. Secondary Income Account

• June 2024: USD 45.0 million
• June 2023: USD 102.7 million
• Change: Declined from a surplus of USD 102.7 million to USD 45.0 million.

Inflows decreased from USD 111.2 million in June 2023 to USD 56.8 million in June 2024.
Outflows increased from USD 8.5 million in June 2023 to USD 11.7 million in June 2024.

Summary of Key Figures

• Current Account Deficit: Reduced by 49.5% from USD 4,955.6 million in June 2023 to USD 2,501.3 million in June 2024.
• Foreign Exchange Reserves: Increased to USD 5,345.5 million, enough to cover 4.4 months of imports.
• Export of Goods and Services: Increased by 14.9% from USD 12,780.4 million in 2023 to USD 14,680.7 million in 2024.
• Import of Goods and Services: Decreased by 5.6% from USD 16,980.4 million in 2023 to USD 16,027.0 million in 2024.

The external sector performance and Tanzania's economic development

1. Improved Balance of Payments

The significant reduction in the current account deficit—from USD 4,955.6 million in June 2023 to USD 2,501.3 million in June 2024—suggests that Tanzania's balance of payments is improving. This is a positive sign for the country's economic stability and growth prospects. A lower current account deficit means that the country is importing less relative to its exports, which can be beneficial for economic sustainability.

2. Enhanced Foreign Exchange Reserves

With foreign exchange reserves increasing to USD 5,345.5 million, Tanzania is in a stronger position to manage its external payments and financial obligations. The reserves are sufficient to cover 4.4 months of projected imports, which is in line with the recommended benchmarks for economic stability. This level of reserves can help buffer against external shocks and provide confidence to investors and international markets.

3. Export Performance

The increase in exports of goods and services—from USD 12,780.4 million in 2023 to USD 14,680.7 million in 2024—indicates a positive trend in Tanzania's external trade. Stronger export performance can contribute to higher foreign exchange earnings and support economic growth. This improvement reflects positively on the country’s trade policies and competitiveness in international markets.

4. Import Management

The decrease in the import bill—from USD 16,980.4 million in 2023 to USD 16,027.0 million in 2024—suggests effective import management and possibly enhanced domestic production. Lower imports relative to exports can help reduce the current account deficit and support economic growth by reducing dependence on foreign goods and services.

5. Sectoral Performance

• Goods Account: The improvement in the goods account deficit (from USD -415.6 million in June 2023 to USD -303.8 million in June 2024) indicates better trade performance in terms of goods. This could be due to increased production, better terms of trade, or successful export diversification.
• Services Account: The rise in the services account surplus (from USD 343.75 million to USD 434.8 million) shows that Tanzania is benefiting from services exports, such as tourism, financial services, or transport. This is a positive indicator of the country's growing service sector.

6. Primary Income and Secondary Income Accounts

• Primary Income Account: The worsening deficit in the primary income account (from USD -132.6 million to USD -181.1 million) suggests increased payments for primary income, such as interest, dividends, and wages. This may indicate a higher level of foreign investment or debt servicing costs.
• Secondary Income Account: The decline in the secondary income surplus (from USD 102.7 million to USD 45.0 million) points to reduced remittances or transfers. This could impact the overall disposable income and spending power of households that rely on such inflows.

Implications for Economic Development

1. Economic Stability: The reduction in the current account deficit and improvement in foreign exchange reserves suggest that Tanzania is making progress toward economic stability. This stability is crucial for attracting foreign investment and sustaining economic growth.
2. Growth Prospects: Improved export performance and controlled imports indicate that Tanzania is on a path of economic growth. Enhanced trade balance and export earnings can provide the necessary resources for development projects and infrastructure improvements.
3. Policy Effectiveness: The positive trends reflect the effectiveness of economic policies related to trade, export promotion, and import management. Continued focus on these areas can further strengthen economic performance.
4. Investment Climate: A more stable external sector and higher foreign exchange reserves can improve investor confidence, potentially leading to increased foreign direct investment and development in various sectors of the economy.
5. Challenges Ahead: While the external sector is performing well, challenges such as primary income deficits and declining secondary income surpluses need to be addressed to ensure balanced and sustainable economic development.