Why Fitch Ratings has given Tanzania stable outlook score

“Rating Affirmed, Stable Outlook: Tanzania’s rating reflects its relatively strong real GDP growth, low inflation, and moderate level of government debt, underpinned by strengthened reform momentum backed by an IMF programme,” Fitch Ratings said.

According to Fitch Ratings, Tanzania’s real GDP growth is projected to rise to 5.4 percent in 2024 from 5.1 percent in 2023.

The estimated growth rate is above its (Fitch’s) projected ‘B’ median of 3.5 percent.

The growth, Fitch Ratings says, will be supported by increased agriculture, mining and tourism activity, as well as infrastructure investment.

“Specifically, flagship projects such as the Standard Gauge Railway, and the Julius Nyerere Hydropower project, are on track to complete initial implementation stages by the end-2024. We expect the economy to expand by 5.9 percent in 2025, driven by continued investments, including in the ongoing construction of the East African Crude Oil Pipeline, as well as exports,” Fitch Ratings says.

Over the longer term, real GDP growth could benefit from the development of offshore gas fields and LNG production, Fitch Ratings says, noting however that there was significant uncertainty about when the Host Government Agreement, will be finalised before the final investment decision can be made.

“Assuming this will be reached by 2027, we expect production to start contributing to GDP from 2030,” Fitch Ratings says.

The Fitch Ratings is convinced that the Bank of Tanzania (BoT) has increased its efforts to strengthen the effectiveness of monetary and exchange rate policy through reform measures, including ongoing transition to an interest-rate based policy framework (effective since January 2024), adoption of a new FX intervention policy and revision of the interbank FX Code of Conduct will have a positive impact on strengthening the monetary policy transmission.

This comes at a time when the government projects that Tanzania’s economy will 5.4 percent this year from 5.1 percent in 2023.

Presenting the State of the National Economy in the Parliament on Thursday last week, the Minister of State in the President’s Office (Planning and Investment), Prof Kitila Mkumbo, said the government expected the budget deficit in the coming fiscal year to not exceed three percent of GDP.

Analysts say what the ratings mean was that Tanzania now has the capacity to borrow more, thanks to the successful implementation of the government’s mega and strategic projects, including the Standard Gauge Railway (SGR) and the Mwalimu Nyerere Hydropower Dam, among others.

“When there is effective implementation of development projects, especially those funded through loans, it increases confidence that even if more funds are disbursed, they will be used properly,” said a financial analyst a Senior Lecturer in the Department of Finance, University of Dar es Salaam’s Business School, Dr Thobias Swai.

He said there was also confidence that these projects will stimulate the economy and increase income, thus enhancing the ability to repay debts.

According to Dr Swai, having a high credit rating means that now when Tanzania wants to borrow, lenders have confidence because they are assured that their funds will be repaid as they are being utilised effectively and contributing to economic growth.

“There are many countries that borrow but use the funds differently which projects a bad image to the lenders. However, there are also those who borrow and use the funds for the same purposes but without positive results; they are not good borrowers as well,” he said.

Tanzania’s 2,115 megawatts Julius Nyerere Hydropower Plant (JNHPP) is almost complete and a 235 megawatts plant was activated in March, this year.

The Deputy Prime Minister and Minister of Energy, Dr Doto Biteko, announced on Friday last week that activation of a second plant at the JNHPP has been completed to inject 235 megawatts more into the national grid.

This means that so far, a total of 470 megawatts generated by the JNHPP have already been integrated into the national grid.

Meanwhile, train services on the Standard Gauge Railway (SGR) between Dar es Salaam and Morogoro started on Friday last week (June 14, 2024) while those from Dar es Salaam to Dodoma are scheduled to start on July 25 in line with President Samia Suluhu Hassan aspirations.

According to Fitch Ratings, Tanzania’s inflation is expected to remain low and within the BoT’s 3-5 percent target range, supported by monetary policy tightening and lower food inflation.

It noted however that continued currency depreciation poses some upward pressure.

With higher debt servicing and frequent official interventions in the first quarter of 2024 to support the local currency, Fitch says, Gross forex reserves fell to $5.3 billion at end-March 2024, from $5.5 billion at the end of 2023.

However, official forex interventions have since reduced, thanks to improved export receipts, with the BoT allowing for greater exchange-rate flexibility.

“We forecast forex reserves to rise modestly to $5.7 billion by end 2025, from $5.5 billion at end 2023, supported by an improved trade balance, FDI inflows and official disbursements,” the statement reads.

This is the second time in this year alone that Tanzania has received a positive credit rating from an international rating agency.

In March, Moody’s upgraded Tanzania’s long-term issuer ratings to B1 from B2. Moody’s also changed Tanzania’s outlook to stable from positive in what analysts say gives the country a chance to easily and affordably source development financing from international lenders.