Despite facing challenges such as tightened global financial conditions, climate-related concerns, the ongoing conflict in Ukraine, and the lingering impacts of the Covid-19 pandemic, a recent report underscores that Tanzania’s economy remains moderately exposed to risks.
The Financial Stability Report, released by the Bank of Tanzania (BoT), attributes this moderate risk profile to a robust macroeconomic landscape, the resurgence of business activities, and the effective policy measures implemented by the government.
The report highlights that households and non-financial corporations face subdued risks primarily due to a rebound in business operations, increased household earnings, and relaxed lending conditions provided by banks.
The banking and non-banking sectors are also deemed to face moderate risks, supported by their sufficient capital and liquidity buffers, which position them well to withstand potential shocks.
On a global scale, the report projects a 3.8 per cent growth in the world economy for 2023. This expansion is expected to occur amidst persistently tight financial conditions, the ongoing conflict in Ukraine, and the cumulative repercussions of the Covid-19 pandemic. Notably, the domestic economy has demonstrated stability even in the face of external adversities.
According to the report’s findings, Tanzania’s mainland economy grew by 4.7 per cent in 2022, while Zanzibar’s economy expanded by 5.4 per cent during the same period. These positive outcomes were bolstered by the recovery of economic activities and sustained investments from both the public and private sectors.
The report forecasts growth rates of 5.2 per cent for Tanzania’s mainland and 7.2 per cent for Zanzibar in 2023. This projected growth is underpinned by improved business conditions, enhanced profitability within the banking sector, increased liquidity to support business endeavours, and continued public investments in essential infrastructure.
Despite the optimistic outlook, the report cautions that the economy’s growth trajectory remains vulnerable to tightened financial conditions, the spillover effects of the Ukrainian conflict, and climate-related hazards.
Risks originating from households have diminished due to a rise in disposable income levels, a trend expected to influence overall economic stability positively.
In 2022, Tanzania’s domestic financial system exhibited resilience, soundness, and stability, despite challenges posed by the Ukrainian conflict, restrictive financial conditions, and the Covid-19 pandemic.
The global financial landscape, however, remained susceptible to various risks, including those arising from the Ukrainian conflict, climate change, and tighter financial conditions.
The report notes that global growth decelerated to 4.4 per cent in 2022 from the preceding period’s 5.9 per cent, primarily due to supply-chain disruptions caused by the Ukrainian conflict, ongoing Covid-19 outbreaks—particularly in China—tightened financial conditions and climate-related constraints that contributed to elevated food and energy prices.
The Non-Financial Corporate Survey unveiled an improvement in financing sources for non-financial corporations, reflecting a resurgence in business activities. Notably, retained earnings increased in 2022 compared to the previous year, supported by the recovery in business operations and heightened domestic and foreign demand.
The growth of the non-financial corporate sector is attributed to prudent monetary policy implementation, effective prudential measures, and an enhanced business environment that countered the adverse impacts of the pandemic.
However, certain risks, such as escalated fuel and raw material costs and exchange rate pressures stemming from tightened global financial conditions, could affect firms’ financial stability.
The banking sub-sectors resilience prevails with ample capital, liquidity, and subdued credit risks. Regulatory capital and liquidity ratios maintained levels above the stipulated minimum requirements, despite experiencing a slight decline due to new loan disbursements.
This decline is in line with increased lending to the private sector, which grew by 22.5 per cent. This growth can be attributed to revived business activities and policy and regulatory measures undertaken by the Bank of Tanzania.
Moreover, credit risk diminished as Non-Performing Loan (NPL) ratios decreased to 5.7 per cent. This positive trend was mainly driven by intensified credit recovery efforts, heightened credit underwriting standards, and improved debt servicing capacity among borrowers, which collectively contributed to enhanced profitability within the banking sector.