Tanzania's Robust Economic Growth in Q3 2023: A Surge to 5.2% Fueled by Agriculture, Transportation, and Financial Sectors

Tanzania experienced positive economic growth, controlled inflation, challenges in the foreign exchange market, and fiscal deficits addressed through borrowing during the quarter ending September 2023. External factors, including global economic shocks, influenced the economic landscape.

Tanzania's economic performance for the quarter ending September 2023:

Economic Growth (GDP):

• The domestic economic performance shows a satisfactory growth rate of 5.2 percent in the quarter, an improvement from the 4.7 percent growth recorded in the corresponding quarter of 2022.
• The growth is attributed to the agriculture sector, transportation and storage, and financial and insurance services.

Inflation:

• The inflation rate remained within the country's target and regional benchmarks, averaging 3.3 percent. This is a decline from the 4.6 percent recorded in the same quarter of 2022.
• The slowdown in inflation is attributed to moderation in the prices of both food and non-food items, as well as items within the energy and fuels category.

Monetary Policy:

• The central bank implemented a less accommodative monetary policy to contain domestic inflationary pressures while safeguarding economic growth and financial stability.
• The conduct of monetary policy faced challenges, including an imbalance in foreign exchange supply due to sustained monetary policy tightening in advanced economies and an increase in global commodity prices.

Foreign Exchange Reserves:

• The Shilling recorded an annual depreciation of 4.8 percent during the quarter, reflecting challenges in the foreign exchange market.
• Despite global economic shocks, the current account balance improved, mainly due to increased earnings from tourism.
• Foreign exchange reserves remained adequate, covering 4.4 months of projected imports of goods and services, in line with the country benchmark of 4 months.

Fiscal Operations and Public Debt:

• Fiscal operations resulted in an overall deficit, driven by lower domestic revenue and grants.
• The deficit of TZS 1,054.5 billion was financed through a combination of domestic and external borrowing.
• Total debt at the end of September 2023 was TZS 39,815 million, within the statutory threshold. External debt constituted a significant portion, with public debt accounting for the largest share.

Government Budget Operations:

• Domestic revenue and grants amounted to TZS 6,987.7 billion, while government expenditure was TZS 8,255.3 billion.
• The overall deficit in the government budget was addressed through borrowing from both domestic and external sources.

The social impacts include potential improvements in employment, stability in the cost of living, and positive effects on the tourism sector. On the economic front, there are positive indicators such as overall GDP growth, but challenges in monetary policy and fiscal operations suggest a need for careful economic management to maintain stability and sustainability.

Social Impacts:

• Employment and Livelihoods: The robust economic growth, particularly in sectors like agriculture, transportation, and financial services, is likely to have positive social impacts by contributing to increased employment opportunities and supporting livelihoods.
• Inflation Moderation: The decline in inflation to 3.3% suggests that the cost of living may be more stable for Tanzanian citizens. This can positively impact the purchasing power of households, especially if the moderation is reflected in essential goods and services.
• Foreign Exchange Dynamics: The annual depreciation of the Shilling may have social implications, potentially affecting the cost of imported goods and services. This could influence the affordability of certain products for the population.
• Tourism Earnings: The increased earnings from tourism could have social benefits, as the tourism sector often contributes to local economies and provides employment opportunities in areas such as hospitality and services.

Economic Impacts:

• GDP Growth: The overall economic growth of 5.2% indicates a positive trend in the country's economic performance. This can lead to increased economic activities, business expansion, and a generally more prosperous environment.
• Monetary Policy Challenges: The challenges faced in implementing monetary policy, including the imbalance in foreign exchange supply and global commodity price increases, may have economic implications. These challenges could affect the stability of the currency and impact the cost of imported goods and services.
• Fiscal Deficits and Borrowing: The fiscal deficit and the need for borrowing, both domestically and externally, reflect the government's efforts to address economic challenges. While borrowing can support immediate financial needs, it also raises considerations about long-term debt sustainability.
• Public Debt Composition: The fact that a significant portion of the debt is external, with public debt being the largest share, indicates potential economic vulnerability. The country may need to carefully manage its debt levels to avoid adverse economic consequences.