What sharp rise in Tanzania cross-border payments means

The value of outgoing cross-border transactions surged by 86.52 percent, reaching Sh116.1 trillion in 2024, up from Sh62.2 trillion in 2023. In contrast, inflows grew at a much slower pace of 35.61 percent, reaching Sh32.7 trillion from Sh24.1 trillion in the same period.

This means that for every one shilling entering the country through formal cross-border channels, more than three shillings left.

The disparity in financial flows marks a significant shift in Tanzania’s economic landscape, prompting economists and policymakers to weigh the potential consequences on the country’s foreign reserves, current account balance, and currency stability.

Economists attribute the surge in outflows to several factors, including a growing import bill, increased foreign investments by Tanzanian businesses, and a rising demand for international services.

Speaking with The Citizen, economic analyst Abel Kinyondo said the increase in imports is driven by the country’s expanding economy and the need for capital goods.

“As Tanzania’s economy grows, there is a higher demand for machinery, equipment, and other capital goods that are not produced locally. This necessitates increased imports, leading to higher outflows,” he said.

Prof Kinyondo added that Tanzanian businesses are increasingly seeking investment opportunities abroad, contributing to the rise in outflows.

“With globalization, local businesses are looking beyond domestic markets to diversify their investments and tap into new opportunities. This outward investment trend is reflected in the increased cross-border transactions.”

The widening gap between cross-border payment outflows and inflows has significant implications for Tanzania’s economy. While increased outflows can indicate a robust and outward-looking economy, they may also lead to a trade deficit and put pressure on the country’s foreign exchange reserves.

Research on Poverty Alleviation (Repoa) executive director Donald Mmari emphasised the need for a balanced approach.

“While it’s encouraging to see Tanzanian businesses engaging internationally, we must also focus on boosting exports and attracting foreign direct investment to balance the outflows. A sustained trade deficit could lead to depreciation of the Tanzanian shilling and other macroeconomic challenges,” he said.

Dr Mmari called for policies aimed at enhancing the competitiveness of Tanzanian exports and creating a favourable environment for foreign investors.

The BoT’s report highlights the role of digital platforms in facilitating cross-border transactions. The use of digital payment systems, including mobile money and online banking, has made it easier for individuals and businesses to engage in international trade and investment.

Institute of Accountancy lecturer Dorence Kalemile attributed the surge in cross-border transactions to the increased adoption of digital financial services.

“Digital platforms have revolutionized the way we conduct business, breaking down geographical barriers and enabling seamless international transactions. This has contributed significantly to the increase in cross-border payments,” she said.

However, she cautioned that while digital platforms offer convenience, they also pose risks that need to be managed.

“The ease of digital transactions can sometimes lead to impulsive financial decisions. It’s important for users to be aware of the costs and risks associated with cross-border payments.”

To address the challenges posed by the increasing cross-border transactions, economists and financial experts called for enhanced regulatory measures and financial education.

Dr Daudi Ndaki of Mzumbe University emphasised the need for robust regulatory frameworks to monitor and manage cross-border financial flows.

“Regulators need to ensure that the financial system remains stable and that cross-border transactions do not expose the economy to undue risks. This includes monitoring for money laundering and ensuring compliance with international financial regulations,” he said.

Dr Ndaki also highlighted the importance of financial literacy programmes to educate individuals and businesses on the implications of cross-border transactions.

“Financial education is crucial in helping people understand the costs, benefits, and risks associated with international transactions. This knowledge can empower them to make informed decisions, benefits, and avoid potential pitfalls.”

On the other hand, Prof Kinyondo said a strategic focus on enhancing export capacity, attracting foreign investment, and strengthening regulatory frameworks will be key to ensuring that the benefits of increased cross-border activity are maximised while mitigating potential risks.

“With the right policies and strategies in place, Tanzania can leverage the opportunities presented by increased cross-border transactions to drive economic growth and development.”