Tanzania is advancing towards the top and it seems nothing can stop it. The nation’s central bank (BoT) report, Economic Bulletin for the Quarter ending March 2021, showcased how the country is navigating through different sections of the economy, including its stringent monetary policies, public finance, financial market developments and external sector (imports and exports).
The bank highlighted that the economy is projected to grow by 5.7 per cent this year, propelled by public investment and normalization of global trade and investment.
At the moment Tanzania is proving to be courting investment, by adjusting its investment climate, setting the right tone to attract investors and forging strong partnerships—Kenya and Tanzania’s recent business agreement and the profitable East African Crude Oil Pipeline (EACOP) between Tanzania and Uganda evidence how serious is Tanzania about business.
According to the report, Tanzania has managed to sustain the flow of its economy amid different economic storms, including the COVID-19 pandemic, which hurt the country’s lucrative sectors, the tourism and hospitality industry.
The report paints an interesting narrative on how the future of Tanzania might be pivoted as a new regime under the sixth president, Samia Suluhu Hassan, picks up and reshuffles economic strategies after the sudden demise of President John Magufuli.
Tanzania maintained inflation at least within tolerable limits, according to the report. Headline inflation remained low and within the country target for 2020/21, standing at 3.3 per cent in the quarter ending March 2021, lower than 3.6 per cent in the same quarter last year.
“This was reinforced by the adequate domestic food supply, stable exchange rate, moderate oil prices in the world market, and subdued demand pressure. Food inflation—food and non-alcoholic beverages inflation—slowed to an average of 3.7 per cent from 5.6 per cent, mainly on account of a decrease in prices of beans, rice, wheat and sorghum,” the report read in part.
However, core inflation—which BoT argues accounts for the largest share in the consumer price index, stood at 3.7 per cent in the Q1 2021, compared to 2.1 per cent in Q1 2020. This change is argued by the cost increase on health, information and communication, recreation, sports and culture.
Also energy, fuel, and utility inflation dropped to 1.4 per cent from 3.4 per cent, the central bank report noted due to “a decline in prices of gas and fuel, following a subdued demand for these products amidst the effects of COVID-19 pandemic”.
As Tanzania works towards ascending the economic ladder, the report concluded by arguing that headline inflation is projected to remain within the medium term of 3.5 per cent for 2020/21, reinforced by an adequate supply of food, controlled demand pressure for goods and services, stability of exchange rate and stable power supply.
Production of Gold and Diamonds
Tanzania is well–known across the region for its vital minerals earning millions from the international sale of its natural wealth.
According to the report, the value of gold produced by large scale miners decreased to $44.5 million in Q1 2021 from $454.4 million over the same period in 2020.
“The slowdown in the value of gold is attributed to decreasing price of gold in the world market associated with investors’ intensified selling of gold, which had been used as a haven to cushion against the impact of COVID-19 and the unexpected resurgence of the dollar following the rise in interest rates in the US,” the report argued.
Tanzania stands to draw billions more in gold production as mines are open now compared to the period of closure due to the pandemic.
Monetary Supply and Credit
The central bank has placed the economy in safe hands as its accommodative monetary policy during the Q1 2021, having supported economic activity through bank lending to the private sector.
The report argued that “extended broad money supply (M3) increased to $13 billion from $12.1 billion in March 2020, equivalent to annual growth of 6.8 per cent. Meanwhile, broad money supply grew at an annual rate of 9.3 per cent to $9.9 billion from $9.06 billion in Q1 2020.”
Domestic credit, extended to the private sector and the central bank, ascended to an annual rate of 10.6 per cent in the reporting period, compared to 6.5 per cent over the same period last year.
“Credit extended by banks to the government through the purchase of government securities, grew at an annual rate of 8.7 per cent at the end of Q1 2021, which is within the borrowing limit set in the 2020/21 budget. Meanwhile, private sector credit increased by $200 million, equivalent to annual growth of 2.3 per cent compared to 8.6 per cent recorded in March 2020,” the report argued.
However, the report noted that economic operations that recorded positive credit growth include personal activities, representing lending by banks to micro, small and medium enterprises, which is followed by hotels, restaurants, transport and communication.
Interest rates indicate unexpected changes. The report showed that the rate charged by banks on loans declined, which was argued to be a passive response to accommodative monetary conditions and regulatory measures implemented by the central bank.
Overall lending interest rate was an average of 16.63 per cent in the quarter ending March 2021 from 16.81 per cent over the same period last year, while the one-year lending rate remained almost unchanged at an average of 15.87 per cent compared with 15.72 per cent in the same period.
The report shows Tanzania to be safe on financial markets. Domestic financial markets remained sufficiently liquid in the reporting period as reflected by stable and low domestic money market interest rates.
The foreign exchange aspect was also covered in the report; the forex market was stable during the period, and supported by a low and stable inflation rate, moderate current account deficit, coupled with prudent fiscal and monetary policies.
Tanzania has been keeping a strong stance on its budgeting books, especially collection and spending of funds. However, the report says that during the quarter ending March 2021, the resource bracket, made up of domestic revenue and grants stood at $2.2 billion, while government expenditure was recorded at $2.6 billion.
Additionally, Tanzania has been keeping a watchful eye on revenue collection hitting historical targets, such as in January 2020, when the Tanzanian Revenue Authority scored $900 million in collections.
During the period leading to March 2021, the resource pool was around $2.2 billion of which domestic revenue was around $2 billion and grants amounted to at least $54 million. Further, the bulletin said that domestic revenue made up central government collections of $1.8 billion and around $83 million from local government sources.
“Central government collections comprised tax revenue amounting to $1.7 billion and $297 million non-tax revenue” the report stated.
Over the reporting period, the value of exports decreased by 5.4 per cent which is around $1.2 billion, when compared with the amount recorded in the corresponding quarter in 2020.
Traditional exports declined to $93.6 million from $311.0 million recorded in the corresponding quarter in 2020, owing to a decrease in exports of cashew nuts, tobacco and coffee.
Further, the value of imports decreased slightly to $2,116.3 million over the reporting period, from $2,151.8 million in Q1 2020.
All categories of imports registered a decline save for transport equipment, raw materials and consumer goods.