Alpha Capital’s economic outlook for Tanzania

Tanzania's economy is showcasing resilience, with the Bank of Tanzania maintaining the repo rate at 6 per cent and holding inflation steady within the 5 per cent target band. Key sectors such as construction, agriculture, and finance continue to drive growth in the country. Projections for the fourth quarter of 2024 point to a GDP growth rate of 5.8 per cent. Imani Muhingo, Head of Research & Financial Analytics at Alpha Capital, provided valuable insights into the current state of Tanzania's economy and discussed potential risks and opportunities moving forward. Muhingo emphasized the positive performance of the economy, with GDP growth standing at around 5.6 per cent as reported by the central bank. Inflation has remained stable at the lower end of the target range, hovering around 3 per cent over the past few years. Food and energy are identified as the primary drivers of inflation in Tanzania. The country has achieved food sufficiency levels of nearly 130 per cent, with strategic plans in place to further enhance food security through initiatives like the issuance of food security bonds. However, risks stemming from potential energy price escalations due to conflicts in the Middle East could impact oil prices, leading to challenges in foreign exchange availability and potential currency depreciation. Another critical aspect discussed was the financial sector stability in Tanzania, where low non-performing loan ratios have been observed. Muhingo highlighted climate-related risks that could impact the banking sector, especially considering the significant credit growth directed towards agriculture. Any adverse climatic shocks could affect harvests and result in an increase in non-performing loans. Global economic uncertainties, particularly those emanating from the Middle East, pose additional challenges, potentially requiring the central bank to adopt tighter monetary policies to maintain stability. The capital markets in Tanzania have witnessed substantial growth, with increased participation from retail investors and a recent turnaround in net foreign inflows following the U.S.'s rate cut decision. Collective investment schemes, including Sharia-compliant funds and new offerings, have gained traction, reflecting growing domestic investor interest. Despite persistent net foreign outflows, the domestic share index has shown robust performance, appreciating by nearly 20 percent. The strong appetite from local investors has supported the market, indicating a positive outlook for the capital markets in Tanzania. Overall, while the Tanzanian economy demonstrates resilience and promising growth prospects, risks related to energy prices, global economic shocks, and climatic factors underscore the importance of proactive measures and policy responses to sustain stability and foster continued economic progress.