1. Government Securities Market (July 2024)

• Treasury Bills Auctions:
  • Tender Size: TZS 253.3 billion
  • Total Bids Received: TZS 198.2 billion
  • Successful Bids: TZS 102.9 billion
  • Weighted Average Yield: Increased from 6.75% in June 2024 to 8.81% in July 2024.
• Treasury Bonds:
  • Total Bids Received: TZS 674.7 billion
  • Successful Bids: TZS 628.8 billion
  • 15-Year Treasury Bond Yield to Maturity: 15.05%
  • 20-Year Treasury Bond Yield to Maturity: 15.17%

2. Interbank Cash Market (IBCM)

• Total Transactions (July 2024): TZS 2,375.4 billion, a sharp increase from TZS 1,277.6 billion in June 2024.
• 7-Day Transactions: Accounted for 33.3% of total market turnover.
• Overnight Transactions: Increased to 32.6% of total market activity.
• IBCM Interest Rate: Slight decrease to 7.24% from 7.36% in June 2024.

3. Interbank Foreign Exchange Market (IFEM)

• Transactions in IFEM (July 2024): USD 15.3 million, up from USD 9.3 million in June 2024.
• Net Sale of Foreign Exchange by the Bank: USD 2.5 million.
• Average Exchange Rate (July 2024): TZS 2,663.76 per USD, compared to TZS 2,626.07 in June 2024.
• Annual Shilling Depreciation: 12.6% against the USD.

4. Foreign Exchange Earnings and Exports

• Major Contributors:
  • Gold Exports remained the largest contributor.
  • Increased foreign exchange from tourism (seasonal) and crop exports.
• Imports declined, contributing to the improved current account balance.

5. Expectations Moving Forward

• Foreign exchange inflows are expected to rise due to:
  • High gold prices in the global market.
  • Tourism growth, thanks to promotion measures.
  • Exports of cash crops (cashew nut, tobacco, coffee, cotton) and food crops (maize, rice).
• Foreign exchange demand will decrease, driven by:
  • Lower imports of fertilizer, edible oil, and sugar.
  • A domestic payments policy requiring settlements in shillings.

Summary of Key Figures:

• Treasury Bills Auction Success: TZS 102.9 billion at 8.81% yield.
• Treasury Bonds: 15.05% - 15.17% yield to maturity.
• IBCM Transactions: TZS 2,375.4 billion.
• IFEM Transactions: USD 15.3 million with an exchange rate of TZS 2,663.76 per USD.

Focusing on Tanzania’s economic development, trends and implications

Tanzania's financial markets are supporting its economic development by attracting investment, facilitating liquidity in the banking system, and improving foreign exchange inflows. However, careful management of inflation, liquidity, and exchange rate stability will be necessary to maintain momentum in economic growth.

1. Government Securities Market

• Increased Interest in Long-Term Bonds: Investors are showing more interest in long-term instruments like the 15-year and 20-year Treasury bonds, which have high yields (15.05% and 15.17%, respectively). This suggests confidence in the long-term stability of Tanzania’s economy.
• Rising Yields on Treasury Bills: The increase in the weighted average yield for Treasury bills (from 6.75% to 8.81%) reflects rising costs for government borrowing, indicating possible inflationary pressures or an increased need for financing.
• Implication for Economic Development: High yields on government securities can attract both domestic and foreign investors, providing the government with necessary funds for infrastructure, public services, and other development projects.

2. Interbank Cash Market (IBCM)

• Substantial Increase in Transactions: The large rise in interbank cash transactions (from TZS 1,277.6 billion in June to TZS 2,375.4 billion in July) shows increased liquidity and activity in the banking sector. This is essential for ensuring that banks have adequate resources to lend to businesses and consumers, which supports economic activity.
• Shift to Shorter-Term Transactions: The increase in overnight transactions (32.6% of total market activity) points to banks managing short-term liquidity more conservatively due to recent liquidity constraints. This signals temporary pressures in the financial system that could slow lending.
• Implication for Economic Development: Improved liquidity management by banks can support business operations and consumption, but liquidity constraints may need addressing to prevent limiting economic growth.

3. Interbank Foreign Exchange Market (IFEM)

• Increased Foreign Exchange Transactions: The rise in foreign exchange transactions (from USD 9.3 million in June to USD 15.3 million in July) reflects a boost from tourism, gold exports, and crop exports. The seasonal uptick in tourism and strong gold exports are important contributors to foreign exchange earnings.
• Stable but Depreciating Shilling: The steady depreciation of the shilling (by 12.6% annually) suggests some pressure on Tanzania’s external accounts, but not severe misalignment in the exchange rate. A weaker currency can help exports but might increase the cost of imports, particularly essential goods.
• Implication for Economic Development: Increased foreign exchange earnings from exports, especially from tourism and mining, can strengthen Tanzania's external position and boost reserves. However, the shilling’s depreciation could lead to higher import costs, affecting inflation and consumption.

4. Future Expectations

• Growing Foreign Exchange Inflows: The forecasted rise in foreign exchange from mining, tourism, and agriculture (cash crops like cashew nuts, tobacco, and coffee) highlights sectors critical to Tanzania’s economic growth.
• Lower Import Costs: Reducing imports of fertilizer, edible oil, and sugar, along with policies promoting the use of the shilling for domestic payments, will ease pressure on the foreign exchange market, improving the balance of payments and making more resources available for development.
• Foreign Investment: A stable macroeconomic environment is expected to attract more foreign direct investment (FDI), especially in mining, agriculture, and infrastructure. Increased FDI is vital for creating jobs and accelerating industrial growth in Tanzania.

Overall Implications for Economic Development

• Investment in Infrastructure and Development Projects: The government can use funds from Treasury bonds to finance long-term projects, boosting infrastructure and public services.
• Increased Export Revenues: The strength of gold and agricultural exports provides a steady source of foreign exchange, supporting national development plans.
• Challenges from Inflation and Currency Depreciation: The rising yields on government securities and depreciation of the shilling could signal inflationary pressures that may impact purchasing power and import costs.
• Support from Foreign Direct Investment: Continued FDI inflows are essential for diversifying the economy and achieving sustainable development goals.