Credit rating upgrade brightens up Tanzania’s economic outlook

Moody’s assigned Tanzania a B1 rating, while Fitch awarded a B+, placing the country above its East African counterparts Kenya, Uganda and Rwanda.

Speaking in Parliament on November 1, Finance minister Mwigulu Nchemba said as of June 2024, the government debt had reached Sh96.88 trillion, with external and domestic debts at Sh64.93 trillion and Sh31.95 trillion, respectively.

However, a sustainability assessment shows that the debt remains manageable within internationally accepted ranges.

“Tanzania’s positive credit rating outcomes from both Moody’s and Fitch Ratings are a testament to our government’s efforts to foster economic growth and create a resilient financial environment,” Dr Nchemba said.

Moody’s credit rating upgrade aligns Tanzania with other African nations with promising economic prospects such as Namibia, Benin, and Senegal, all of which have also received a B1 rating.

The ranking now places Tanzania among the top five economies in sub-Saharan Africa behind Botswana (A3), Mauritius (Baa3), Côte d’Ivoire (Ba2) and South Africa (Ba2).

This impressive ranking reflects Tanzania’s position as a leading economy in East Africa, outpacing regional peers Kenya (B3), Uganda (B2) and Rwanda (B2).

 In the Southern African Development Community (Sadc) region, Tanzania joins Namibia in the B1 rating category, outranking several fellow member states.

Dr Nchemba said structural reforms in key sectors are enhancing Tanzania’s business environment and driving investment flows.

“We have implemented impactful reforms to improve the ease of doing business, attract foreign direct investments and increase private sector participation in key industries,” he said.

The Finance ministry has particularly emphasised reforms in public financial management, tax collection and efforts to promote transparency, factors that have influenced Moody’s favourable assessment.

The country’s recent commitment to major infrastructural projects, including the Mwalimu Nyerere Hydropower Project and standard gauge railway (SGR), reflects the government’s commitment to creating a supportive environment for economic activity.

Speaking to The Citizen, economists weighed in on the significance of the latest ratings.

Senior financial analyst Thobias Swai said Tanzania's positive credit ratings from Moody’s (B1) and Fitch (B+) reflect effective fiscal management by the government.

He noted that the country has been able to borrow on favourable terms and if current policies are maintained, the long-term outlook remains positive.

“However, it’s important to keep the focus on enhancing tax revenue collection, increasing exports and investing in key sectors that drive economic growth,” Dr Swai said.

He also stressed the need for the government to improve infrastructure and link it more effectively with productive sectors.

“Proper fiscal discipline and careful management of public spending are crucial to maintaining this positive trajectory,” he said.

 Dr Swai also pointed out that a solid credit rating boosts the country's reputation, making it more attractive for business and investment.

University of Dar es Salaam economist Wilhelm Ngasamiaku said such ratings imply that our economy is doing well in most of the macroeconomic fundamentals such as GDP growth, inflation, current account balance and sustainability of the nation’s debt.

“This has the potential of attracting FDIs or foreign capital and/ or investors in our country. Also, the country also becomes friendly in attracting foreign borrowing in foreign markets at reasonable rates either by floating bonds such as Euro bonds or through concessional loans because the economy is strong and robust enough to repay the loans,” he said.

Dr Ngasamiaku also pointed out that better credit ratings help to bolster Tanzania's foreign exchange reserves, stabilising the exchange rate against hard currencies.

“Such ratings also help to attract multinationals to countries with strong and robust economies and favourable business environments,” he said.

Dr Lutengano Mwinuka of the University of Dodoma (Udom) noted that the institutions issuing these ratings generally provide forward-looking credit opinions, which are beneficial for the country and various sources of capital.

"The rating Tanzania has achieved reflects the stability across different sectors and their performance. This is meaningful because, over an extended period, the country has experienced relatively strong and consistent economic growth, which is driven by the performance of key sectors," he said.

Dr Mwinuka added that the ratings reflect the country's internal capacity to withstand market shocks and other dynamics, based on the performance of macroeconomic indicators such as inflation and current account balances.

"Such ratings indicate Tanzania’s ability to manage external challenges, showcasing the resilience of its economy," he said.