In a comprehensive review, the statement provides valuable insights into Tanzania’s economic trajectory and the effectiveness of its monetary policies. The Monetary Policy Committee (MPC) noted the successful implementation of a less accommodative monetary policy, maintaining liquidity at appropriate levels throughout August, September, and October 2023. This, coupled with supportive fiscal and structural policies, has effectively curtailed inflationary pressures, boosted economic activities, and ensured the stability of the financial sector, even amidst global economic challenges. Furthermore, the policy stance has alleviated foreign currency demand pressure.

Private Sector Credit Expansion

The MPC highlights robust credit growth, with credit to the private sector expanding by approximately 22% in both July and August, before moderating to 19.5% in September 2023. This exceeds the initial projection of 16.4% for December 2023. This buoyant credit growth can be attributed to an improved business environment reinforced by the less accommodative monetary policy. The majority of this credit was channeled into agricultural activities. The banking sector has remained adequately capitalized, liquid, and profitable. Asset quality is also improving, evident from a decline in the non-performing loans ratio, dropping from 7.3% in September 2022 to 5.2% in September 2023. This improvement is anticipated to encourage banks to further extend credit to the private sector.

Current Account Performance

The MPC elucidates that Tanzania’s current account deficit, although narrowing, remains elevated due to global commodity price increases. The deficit contracted year-on-year to USD 3,652.6 million in September 2023 from USD 4,728.2 million in September 2022, primarily attributable to higher earnings from tourism.

The current account position is anticipated to gradually improve, driven by earnings from tourism, gold, and traditional export crops. In contrast, for Zanzibar, the current account deficit expanded to USD 417.1 million in the year ending September 2023, up from a deficit of USD 344.8 million, primarily due to increased imports of goods and services.

Foreign exchange reserves have remained comfortably above USD 5 billion throughout July-October 2023, providing import cover in line with national and East African Community (EAC) benchmarks of at least 4 and 4.5 months, respectively. The MPC also observes that the recent foreign currency shortage is progressively easing, thanks to increased earnings from tourism, minerals, manufacturing, and cash crops.

Given this backdrop, the MPC has decided to maintain the less accommodative monetary policy. This policy stance will be executed in close coordination with fiscal and structural policies, with monetary measures aligned to achieving targets outlined in the IMF’s Extended Credit Facility Program for the quarter ending December 2023.