In May 2025, credit to the private sector in Tanzania grew by 17.1%, a notable increase from 14.8% in April, reflecting robust lending activity (Bank of Tanzania, 2025). This growth, particularly in agriculture (29.8%), building and construction (27.9%), and transport and communication (25.6%), with personal loans comprising 35.7% of total credit, suggests a dynamic credit market. However, the extent to which this expansion supports economic development hinges on whether it fuels productive investments that enhance output, employment, and infrastructure, or if it is primarily absorbed by consumption, which may offer short-term benefits but limited long-term growth. This analysis examines the allocation of credit, its impact on key sectors, and its implications for sustainable economic development, drawing on the provided document and broader economic context.

• Credit Growth Overview:
  • Total Credit Growth: Private sector credit grew by 17.1% in May 2025, up from 14.8% in April 2025, indicating increased liquidity and banking sector confidence (Bank of Tanzania, 2025). This aligns with the Bank of Tanzania’s monetary policy stance, maintaining the Central Bank Rate at 6% to support economic activity amid global uncertainties.
  • Sectoral Distribution:
    • Agriculture: Credit growth reached 29.8%, reflecting significant investment in a sector critical to Tanzania’s economy, which employs about 65% of the workforce and contributes roughly 25% to GDP (World Bank, 2023).
    • Building and Construction: A 27.9% growth rate suggests strong investment in infrastructure, a key driver of economic development through job creation and improved connectivity.
    • Transport and Communication: With 25.6% growth, this sector benefits from credit supporting logistics and digital infrastructure, crucial for trade and innovation.
    • Personal Loans: Dominating at 35.7% of total credit, personal loans indicate a significant portion of credit is directed toward individual consumption or small-scale activities.
• Monetary and Financial Context:
  • Money Supply: Broad money (M2) growth supports credit expansion, with interbank cash market transactions rising to TZS 3,267 billion in May 2025 from TZS 2,111 billion in April, reflecting ample liquidity.
  • Interest Rates: The weighted average lending rate was 15.18% in May 2025, with a narrowed interest rate spread of 6.24% (down from 7.61% in May 2024), indicating improved credit affordability.
  • External Sector: A narrowing current account deficit to USD 2,117.5 million in May 2025, driven by strong export performance (e.g., gold and cashew nuts), supports economic stability, enabling banks to extend credit without external pressures.

Productive Investment vs. Consumption

1. Productive Investment:
   • Agriculture: The 29.8% credit growth in agriculture is promising, as it supports a sector vital for food security and rural livelihoods. Investments in irrigation, mechanization, or agro-processing could enhance productivity, reduce import reliance, and boost exports (e.g., cashew nuts, which contributed to a USD 578.5 million export increase in May 2025). However, the effectiveness depends on whether credit reaches smallholder farmers or is concentrated in large agribusinesses, as smallholders dominate Tanzania’s agricultural landscape.
   • Building and Construction: The 27.9% growth supports infrastructure projects, aligning with the government’s 2025/26 budget priorities for development spending (TZS 1,281.6 billion in April 2025). This can stimulate job creation and economic multipliers, enhancing long-term growth. For instance, infrastructure investments improve transport networks, reducing costs for businesses and supporting export growth (e.g., USD 5,360 million in foreign exchange reserves).
   • Transport and Communication: The 25.6% credit growth facilitates logistics and digital infrastructure, critical for Tanzania’s integration into regional markets like the EAC. Investments here could enhance trade efficiency, as evidenced by the improved current account surplus in Zanzibar (USD 396.2 million).
2. Consumption-Driven Credit:
   • Personal Loans: At 35.7% of total credit, personal loans dominate, suggesting a significant portion of credit is used for consumption or small-scale entrepreneurial activities. While personal loans can support micro-businesses or smooth household consumption, excessive reliance risks diverting funds from productive sectors. High consumption-driven borrowing may also strain repayment capacity, given the 15.18% lending rate, potentially increasing non-performing loans if incomes do not keep pace with inflation (3.2% in May 2025).
   • Risk of Over-Leveraging: The high share of personal loans raises concerns about debt sustainability, especially for informal sector workers (~80% of the workforce), who lack stable incomes. This could limit the transformative impact of credit on economic development if funds are not channeled into income-generating activities.
3. Economic Development Impacts:
   • Positive Contributions: Credit growth in agriculture, construction, and transport supports structural transformation. For example, agricultural credit aligns with government priorities to boost food production, potentially mitigating food inflation (3.9% in Zanzibar, p. 16). Infrastructure investments enhance connectivity, supporting Tanzania’s role as a regional trade hub. The narrowed current account deficit and stable reserves (4.2 months of import cover) provide a conducive environment for sustained credit growth.
   • Limitations: The dominance of personal loans suggests limited depth in productive investment. Without targeted policies to channel credit into high-impact sectors (e.g., manufacturing, which has lower credit growth), the economic multiplier effects may be constrained. Additionally, high lending rates (15.18%) could deter long-term investments in capital-intensive projects, limiting job creation and GDP growth.
   • External Context: Global uncertainties, such as geopolitical tensions and trade tariffs noted in the document, could dampen investor confidence, potentially reducing the effectiveness of credit in driving export-led growth. However, rising gold exports and stable oil prices provide some buffer.

Conclusion

Credit growth to the private sector in Tanzania, at 17.1% in May 2025, significantly supports economic development through substantial allocations to agriculture (29.8%), building and construction (27.9%), and transport and communication (25.6%). These sectors drive productivity, infrastructure, and trade, aligning with government priorities and contributing to economic stability, as evidenced by a narrowing current account deficit and robust reserves. However, the dominance of personal loans (35.7%) suggests a significant portion of credit is absorbed by consumption, potentially limiting long-term growth if not directed toward productive uses. To maximize economic development, policies should incentivize credit allocation to high-impact sectors like manufacturing and ensure smallholder farmers access agricultural loans, while managing risks of over-leveraging in the informal sector. This balanced approach can enhance the transformative impact of credit growth on Tanzania’s economy.

Below is a table summarizing key figures related to credit growth to the private sector in Tanzania and its implications for economic development, based on the provided Bank of Tanzania document (2025070510552448.pdf) and additional context from the previous analysis. The table focuses on critical metrics related to credit growth, sectoral allocation, and broader economic indicators to highlight their role in supporting economic development.

Notes:

• Credit Growth: The 17.1% growth in private sector credit (May 2025) reflects strong banking sector activity, supported by a stable monetary policy (Central Bank Rate at 6%) and increased liquidity (TZS 3,267B in interbank transactions).
• Sectoral Impact: High growth in agriculture (29.8%), building and construction (27.9%), and transport and communication (25.6%) supports productive investments, enhancing food security, infrastructure, and trade connectivity. However, personal loans (35.7%) suggest significant consumption-driven borrowing, which may limit long-term economic benefits.
• Economic Stability: A narrowed current account deficit (USD 2,117.5M) and robust reserves (USD 5,360M, 4.2 months of import cover) provide a stable environment for credit expansion. Stable inflation (3.2%) and declining food inflation in Zanzibar (3.9%) support purchasing power.
• Challenges: The dominance of personal loans and high lending rates (15.18%) may constrain productive investment, particularly in manufacturing, and pose risks of over-leveraging in the informal sector (~80% of workforce).
• Source: Figures are primarily from the Bank of Tanzania document (pages noted), with workforce and GDP data from World Bank (2023).

This table consolidates key figures to illustrate the extent to which credit growth supports economic development, highlighting both productive investments and consumption-driven challenges.