RMB's economic forecast for Tanzania

Tanzania has been making headlines recently with its significant hydrocarbon discoveries, attracting investors' attention. However, amidst the excitement surrounding these discoveries, the country's financial systems have been facing challenges. Prince Moloto, an African banking analyst at RMB, sheds light on the current activities of the Bank of Tanzania and the efforts to stimulate credit growth in the market. At the start of the year, the Tanzanian government mandated the withdrawal of deposits from commercial banks and state-owned enterprises, directing them back to the central bank. This move resulted in a liquidity crunch and a slowdown in credit growth within the country. In response, the Bank of Tanzania (BOT) has been utilizing monetary policy tools to boost credit availability. However, the effectiveness of these actions is limited by the weak monetary transmission mechanism and the reluctance of commercial banks to align with official policy rates. An overarching concern is the uncertainty prevailing in the market, driven by increased government intervention and a lack of confidence among investors. This uncertainty has led many investors to adopt a wait-and-see approach, hindering private sector credit growth. Moreover, the majority of investments in Tanzania's hydrocarbon sector are dollar-denominated, bypassing the domestic banking system. The challenge for the central bank lies in balancing monetary policy easing with inflation control. Despite lowering the policy rate to enhance lending, commercial banks have not embraced it as a benchmark, fueling inflationary pressures. Factors such as poor rainfalls, currency devaluation, and rising oil prices have contributed to inflation concerns, necessitating alternative measures for inflation management. While Tanzania grapples with these challenges, there are positive developments on the horizon. President's efforts to combat corruption and improve governance signify a step towards addressing structural obstacles that have hindered economic growth. Anticipated reforms and a crackdown on corruption are expected to pave the way for a more favorable business environment in the future. Investors evaluating Tanzania and the wider East Africa region are keen on factors like reduced corruption levels and conducive business environments. To attract more investment, Tanzania needs to strike a balance between anti-corruption measures and fostering an investor-friendly atmosphere. By prioritizing good governance and creating a business-friendly climate, Tanzania aims to enhance its appeal to potential investors. Looking ahead, while challenges persist in the Tanzanian economy, the concerted efforts to tackle corruption and improve governance signal a positive trajectory for future growth. As the country addresses structural issues and enhances its business environment, Tanzania is poised to unlock its growth potential and attract more investment.