Moody’s affirms Tanzania at B1, flags political risks despite 6pc growth outlook

The rating agency projects real GDP growth of at least 6 percent going forward, supported by manufacturing, mining, processing industries, tourism and transport services.

In 2024, the economy expanded by 5.5 percent, while inflation closed the year at 3.1 percent. The fiscal deficit stood at 3 percent of GDP.

For sovereign debt markets, the affirmation effectively stabilises Tanzania’s external risk premium.

Commenting on the rating, Stanbic Bank Tanzania chief executive Mr Manzi Rwegasira said: “In simple terms, international creditors have assessed that Tanzania’s fiscal credibility and situation remain stable and broadly positive.

“This speaks to the country’s finances and economic outlook. The cost of borrowing from abroad should remain constant. It is not rising,” he said.

General government debt has climbed to just below 50 per cent of GDP, reflecting infrastructure investment, social spending and arrears clearance. While moderate compared to many B-rated peers, debt servicing pressures are increasing.

Interest payments now consume 16 percent of government revenue, amid reduced access to concessional financing. Moody’s expects the debt ratio to stabilise at current levels, supported by strong nominal GDP growth and improved revenue mobilisation.

Revenue performance is emerging as a key credit strength. Non-grant revenue rose from 13.7 percent of GDP in the 2020/21 financial year to 15.9 percent in 2025/26, and is projected to exceed 17 percent in the current fiscal year.

The gains have been driven by tax administration reforms, digitalisation and higher non-tax income, including dividends from state-owned enterprises.

The current account deficit stood at 2.9 per cent of GDP in 2024, while external debt measured 44.5 percent of GDP — levels Moody’s considers manageable within the B1 category.

The 2025 election unrest elevated Tanzania’s political risk profile, but Moody’s said stability has since been restored, with limited near-term economic disruption.

The agency maintained that underlying social pressures linked to low income levels and rapid population growth remain structural constraints.

A downgrade following the October 29, 2025 election period would have materially altered Tanzania’s funding outlook.

“Any downgrade by Moody’s post-October 29, 2025 would have created even more pressure from development partners, some of whom were expecting this to go in a negative direction,” said a debt management expert familiar with sovereign financing discussions.

“But this endorsement is very strong for investors planning to invest in Tanzania, as well as funders and lenders.”

Moody’s also cited improvements in exchange rate flexibility and foreign exchange market functioning, which have reduced reliance on central bank reserves and eliminated the parallel market.

Inflation has remained below 5 percent since 2018, reinforcing macroeconomic stability.

Upgrade and downgrade triggers

An upgrade would require sustained revenue gains that reduce the debt and interest burden, stronger household income growth and a durable easing of political risk.

“A credible and durable easing of domestic political risks following the 2025 election violence would also be credit positive, such as through government reconciliation efforts and an opening of the civic space that supports access to concessional financing,” the report reads in part.

According to Moody’s, downward pressure on the rating would arise from further episodes of domestic social and political instability that weigh on investor confidence, exports or access to funding.

For now, the agency’s assessment suggests the country remains investable — and, crucially, not more expensive to finance than before last year’s political turbulence.