by Dr Hildebrand Shayo

Key indicators show Tanzania’s economy to be in a good position
President Samia’s improved economic diplomacy has helped Tanzania expand economically, diversify economically, and become more resilient. This has improved Tanzania’s standing with her trading partners and, if it continues, has the potential to propel Tanzania’s economic growth to new heights. The economic indicators suggest that Tanzania is a favourable choice as an investment destination and allow many investors to come and invest, which will in turn provide sources of taxes and sources of employment to young Tanzanians.

For the first quarter of 2024, inflation stayed constant at 3%. This stability is caused by a plentiful domestic food supply and lower import inflation brought about by a slowdown in global market pricing. Notably, core inflation, a significant factor influencing total inflation dynamics, rose from 3.2% to 3.7%, the highest level since February 2023. The primary cause of this outturn is the pass-through impact of changes in domestic energy costs.

Additional data analysis indicates that the country’s current inflation rate is within the intended range and in line with the standards established by the Southern African Development Community and the East African Community. The reduction of food prices is expected to maintain monthly bulleting inflation, which, looking at the data, is expected to stay constant and within the target range of 3-5% in the near and medium term, according to data analysis derived from the National Bureau of Statistics and Bank of Tanzania. However, OPEC+ continues to restrict oil production, and upside risk is still present in the case of geopolitical unrest and disruptions to the Red Sea supply.

Tanzania’s food inflation rate is still relatively low; however, it slightly increased to 1.8% in February 2024 from 1.5% the month before. This result is linked to a sufficient supply of food in the home markets and a decline in demand from nearby nations. The cost of staple food crops is likewise trending to decrease. The energy, fuel, and utilities inflation sub-group, which comprises fuel, charcoal, firewood, electricity, and water charges, among other items, recorded an increase in inflation to 7.2% from 6.6% in the preceding month. This performance emphasises how stable the domestic food market is, which supports stability in the economy.

Regarding money and credit, the amount of money in circulation and credit extended to the private sector have both demonstrated steady growth, which has helped Tanzania’s economy as a whole. The extended broad money supply (M3) rise was slightly higher in March at 13.1% compared to 12.8% the previous month. At 16.8%, the increase in private sector lending is vital but just slower than in the prior period. With a growth rate of 49.6%, credit to agricultural activities continues to record the fastest, followed by mining and quarrying. In the meantime, personal loans, which are mainly given to small and medium-sized firms and single proprietorships, continued to account for the majority of outstanding credit at 37.2%. Trade and agriculture came in second and third, respectively, at 13.6% and 10.2%. The sustained demand for loans indicates ongoing expansion in economic activities driven by favourable business conditions and supportive policies.

Regarding interest rates, the central bank rate (CBR) of 5.5% is still within a 200 basis point range for the 7-day interbank cash market rate. As a result, there has been no movement in the 7-day interest rate, which is currently sitting at 7.28% in February 2024, a slight increase from the 7.25% recorded in the previous month. Bank lending rates decreased in the first quarter of 2024; in February 2024, they averaged 15.44%, down from 15.96% in the same month in 2023. An improvement in credit risk, as shown by a decline in the percentage of non-performing loans falling below the Bank’s 5% threshold, is partially responsible for this dip.

Furthermore, in February 2023, the negotiated lending rates dropped from 13.75% to 13.40%. The average deposit rate, however, was relatively steady at 7.39% overall. Negotiated deposit rates did, however, somewhat rise from 9.37% to 9.52%. Between February 2023 and February 2024, the difference in one-year interest rates shrank even more, going from 8.07% points to 7.04% points.

Regarding the market for government securities, there is still a lot of interest in the government securities auctions. Up to this point, every auction has seen oversubscriptions, consistent with the market’s sufficient supply of shilling liquidity and reopening the previously issued Treasury bonds. Two Treasury bill auctions with a total tender size of TSh 164.2 billion will take place in Q1 2024 to support government funding and aid in price discovery. From 11.76% the previous month to 12.21% this month was the weighted average yield. In the meantime, TSh 148.8 billion and TSh 137.5 billion worth of 15- and 20-year Treasury bonds are being offered to meet government funding needs.

The combined bids for both auctions, which attracted oversubscription, totalled TSh 644.6 billion. The weighted average yield to maturity reached 13.66% and 15.83% for the 15- and 20-year Treasury bonds, respectively, from the rates registered in the previous auctions, and only bids totalling TSh 385.0 billion were accepted.

According to BOT figures for February 2024, domestic revenue from collections by the central and municipal governments was TSh 2,214.8 billion, or 92.8% of the monthly target. TSh 2,123.8 billion was the total revenue collected by the central government, of which TSh 1,817.8 billion came from tax collections and TSh 305.9 billion from non-tax sources. All main tax categories had lower revenue than expected, except income taxes, driven mainly by PAYE collections.

The government kept cutting back on spending while maintaining available resources. Preliminarily speaking, government spending in February 2024 was TSh 3,203.8 billion, of which TSh 2,289.2 billion and TSh 914.6 billion were for ongoing and development expenses, respectively.

Regarding the national debt, the stock rose 0.8% to US$ 44,963.4 million from its level the previous month. Both internal and foreign borrowing was blamed for the rise. Remarkably, 72.7% of the total stock was made up of external debt. The external debt the central government due was US$ 23,164.3 million, followed by public businesses (US$ 11.8 million). In February 2024, the federal government was disbursed US$ 79.3 million of the US$ 110.2 million in external debt. The total amount paid towards servicing external debt was US$ 59.3 million.

Comparing exports of goods and services to the same time in 2023, they increased by 14.7% to reach US$ 14,274 million. The primary drivers were revenue from tourism, traditional items, and minerals, particularly gold. Exports of conventional commodities totalled US$ 1,022.7 million, up from US$ 748.7 million the year before. The goods and services imported decreased to US$ 16,087.2 million from US$ 16,928.3 million in the previous year. Fertilisers, plastic products, and refined white petroleum products were the leading causes of the decline. On the other hand, there was a rise in the importation of machinery, industrial transport equipment, and passenger cars.

Tanzania’s credit rating marked upwards
The credit rating agency, Moody’s announced in March that it was upgrading the Government of Tanzania’s long-term issuer ratings to B1 from B2 and changing the outlook to stable.

“The upgrade to B1 reflects Tanzania’s track record of economic resilience throughout multiple external shocks in recent years, providing confidence in its shock absorption capacity going forward,” read the announcement. Tanzania, Moody’s said, is specifically credited for a diversified economic base and exports, stable debt burden and limited contingent liabilities. As such, Moody’s expect that the country’s continuation of conservative fiscal policy supports the rating at the B1 level.

“Moody’s is sending a message to the international community – which includes the lenders – that Tanzania is financially disciplined,” said economics professor, Semboja Haji. “It means that since, as a country, we use development funds for the intended purpose, then lenders should have faith in us. This is a message to the international community that there is stability, sustainability and predictability in Tanzania’s development strategy,” he said.

In its statement, Moody’s said Tanzania was taking tangible steps to improve institutional strength and foster an improving business environment. Although progress remains gradual and in the early stages, Moody’s says, initial signs of improvements in the business environment were materialising as evidenced through an increase in private sector lending and increasing investment, both foreign and domestic.

Banking: CRDB posts record profit in 2023
CRDB Bank’s net profit grew by 21% last year to demonstrate another strong financial performance of one Tanzania’s leading financial institutions. Unaudited financial results released in January indicated that profit after tax increased to TSh 424bn in 2023 up from TSh 353bn in 2022.

The full-year results showed that total assets saw a notable 14 per cent increase from TSh 11.6tri to TSh 13tri.

CRDB Group CEO and Managing Director, Abdulmajid Nsekela, said “the impressive financial results reflect our commitment to delivering value to our stakeholders.” He explained that delivery of the bank’s new medium-term strategy (2023 – 2027) has been a key catalyst for achieving the record-breaking performance, highlighting strategic investments in digital transformation that are yielding significant returns.

In the past year, CRDB significantly broadened its horizons by extending its reach into new territories, such as the Democratic Republic of Congo (DRC) and venturing into the insurance sector with the establishment of CRDB Insurance Company.

“CRDB is well-positioned for the future, and we remain committed to delivering value to our customers, shareholders, and the communities we serve,” Mr Nsekela said. (Daily News)

Economy grows, poverty persists
Tanzania is facing the challenge that strong economic growth is failing to translate into poverty reduction while at the same time grappling with rapid population growth. This is according to the World Bank, which launched the 20th edition of the Tanzania Economic Update in Dar es Salaam in March.

The latest data shows that 3 million Tanzanians fell into poverty during and after the Covid-19 pandemic. In 2018, around 14 million Tanzanians were living in poverty, but by December 2023, the number had risen to 17.3 million. Population projections suggest the number of people in Tanzania could reach around 140 million by 2050, driven by high birth rates. World Bank country director, Nathan Belete, said this surge could intensify demand for education and healthcare services beyond the economy’s capacity, and will lead to challenges in job creation.

Mr Belete added that Tanzania can nevertheless attain a demographic dividend, which is the potential economic growth that can take place when a country undergoes a rapid improvement in health outcomes accompanied by a decline in fertility.

This includes intensifying efforts to expand access and strengthen completion of secondary education for girls and scaling up family planning services.

“For Tanzania to benefit from demographic dividend, three pre­conditions need to be in place. The first is a rapid decline in mortality followed by a rapid decline in fertility. The second pre-condition is investment in human capital to create a healthy, well-educated and skilled labour force and lastly is the creation of good jobs and economic opportunities for this skilled labour force,” said World Bank human development leader Aneesa Arur.

Planning and Investment minister Kitila Mkumbo said at the launch that the government has prioritised youth-focused and rural-oriented policies, with human investment being at the centre of President Samia Suluhu Hassan’s agenda.

“Education remains key in terms of going forward as it correlates with low fertility rates. This goes hand in hand with family planning and reproductive health education,” he said.

Prof Mkumbo added that the government has also made education and rural economic transformation a top priority through revision and repositioning of the education policy and curriculum.

The World Bank also noted that while the economic outlook for Tanzania was broadly positive, several significant threats remained on the horizon. This includes the possibility of a global recession, faltering domestic reforms, and the effects of global heating on key sectors such as agriculture and tourism. (The Citizen)