2023 growth on track to surpass 5 percent, says central bank

Dar es Salaam. The Bank of Tanzania (BoT) has expressed confidence that economic growth this year will surpass the projected five percent.

The bank’s Monetary Policy Committee (MPC), which met on Monday, says in a statement that the global economic outlook has been relatively weak for most of 2023, largely due to geopolitical tensions, tighter financial conditions and high energy prices, but Tanzania’s key economic indicators are favourable for the second half of the year.

The outlook might be even better in 2024 in the hope that geopolitical tensions will ease, energy prices will drop in the world market and monetary policies in advanced economies will be relaxed.

“Despite the spillover effects of the global shocks, the performance of the economy was satisfactory in 2023 and is expected to further improve in the subsequent year on account of the implementation of growth-enhancing policies and increased private sector investment,” says the statement signed by BoT governor Emmanuel Tutuba.

“Specifically, growth in the first and second quarters of 2023 was 5.4 percent and 5.2 percent, respectively, bolstered by the diversified nature of economic activities. Given this performance, combined with leading economic indicators for the second half of the year, growth outturn for the entire year might be above the projection of five percent.”

After rebounding modestly to 4.9 percent in 2021, Tanzania’s real GDP growth weakened to 4.7 percent in 2022, reflecting the impact of an unfavourable global economic environment and weak growth in agriculture due to low rainfall.

However, the International Monetary Fund (IMF) said last month that recovery is expected to pick up in 2023 despite global headwinds such as volatile commodity prices, subdued growth and tighter financial conditions.

“Business environment and governance reforms are key to unlocking the potential of the Tanzanian economy. In this regard, the authorities will continue to implement the Blueprint for Regulatory Reforms, focusing on streamlining regulations and strengthening governance. Efforts to reduce climate change risks by investing in mitigation and adaptation policies will help build a strong foundation for resilient and sustainable growth,” IMF mission chief for Tanzania Charalambos Tsangarides said  after talks with government officials.

The MPC notes in its statement that economic activities have been picking up in Zanzibar on the back of the recovery of tourism and an increase in public and private investment.

“As a result, growth was five percent in the second quarter and is expected to reach the annual target of 7.1 percent in 2023.”

The central bank will adopt a new monetary policy framework in January 2024, which will focus on targeting short-term interest rates rather than reserve money to control inflation and support economic growth.

In the context of the expected low inflationary environment and improving business conditions, the MPC decided to sustain the implementation of a less accommodative monetary policy in December 2023 after considering the unfavourable global economic conditions.

It further notes in its statement that the financial sector remained stable as the banking sector was adequately capitalised and liquid.

Asset quality continues to improve as reflected by a decline in non-performing loans to 5.3 percent in October 2023 from 7.2 percent during the corresponding period in 2022.

Tanzania faced shortages of foreign currency, specifically the US dollar, but the MPC says foreign exchange reserves remained adequate at about $5 billion in November 2023, sufficient to cover more than four months of imports.

The exchange rate depreciated by around 7.8 percent, year-on-year, reflecting foreign currency liquidity problems, but foreign reserves will remain adequate, according to the statement

Fiscal performance was satisfactory, the MPC says.

In the first four months of 2023/24, revenue performance was 96 percent of the target and expenditure continued to be aligned with the available resources.

Revenue performance in Zanzibar was almost on target in all categories, except tax on imports and non-tax revenue.

According to the team, the current account improved slightly, mainly on account of an increase in foreign exchange earnings from traditional export crops and tourism.

The deficit narrowed to $3.26 billion in the year ending October 2023 compared with $4.99 billion in the corresponding period in 2022 and is expected to continue improving.