Tanzania’s annual inflation increased to 3.2% in December 2020

Tanzania's annual inflation rate for the month of December 2020 has risen to 3.2 per cent from 3 per cent recorded in November 2020, as reported by the National Bureau of Statistics. The overall index has increased from 117.10 recorded in December 2019 to 120.79 in December 2020. Lawrence Mlaki, Economist and Financial Consultant, shared insights on the factors influencing this uptick in inflation and the government's strategies to address it during an interview on CNBC Africa. The Tanzanian government has been commended for adopting effective policies to manage inflation, keeping it below the 3% mark. Measures such as ensuring a steady food supply have played a crucial role in this control. However, December saw a slight bump in inflation to 3.2%, attributed to the influx of tourists during the holiday season. Approximately 29,000 tourists visited Zanzibar, contributing to the rise in demand for goods and services. Additionally, the festive period in Tanzania led to increased consumer spending, further driving up inflation. The country also experienced a surge in demand for food from neighboring countries like Kenya, leading to exports from Tanzania's national food reserve. To curb inflation, the government has implemented a mix of fiscal and monetary policies. Through the central bank, Tanzania increased the statutory minimum reserve requirements for commercial banks, prompting more cautious lending practices. This move has helped reduce the incidence of non-performing loans and moderated the demand for goods and services. The government's tight monetary policy stance, coupled with a stable currency exchange rate hovering around 2,300 Tanzanian Shillings per US Dollar, has contributed to maintaining inflation at the current level. The interview also touched on Tanzania's relationship with China and its impact on the country's fiscal policy for 2021. Recent developments, such as China's involvement in the standard gauge railway project through a construction-based debt agreement, highlight the strategic borrowing approach Tanzania is adopting. By leveraging such partnerships, Tanzania aims to address its infrastructure needs while managing its debt obligations effectively. In assessing international market dynamics, Mlaki addressed concerns about the US Dollar's stability and its implications for Tanzania. Despite the US Dollar's recent stability, fluctuations in global currencies can impact Tanzania's economy, particularly during different economic seasons marked by varying inflows, such as those from agriculture and the mining sector. Tanzania's strong performance in exporting agricultural products and minerals, especially gold, has helped stabilize the exchange rate and mitigate external economic pressures. As Tanzania continues to navigate economic challenges and maintain price stability, a balanced approach to monetary and fiscal policies, strategic borrowing, and efficient management of external market influences will be essential in sustaining economic growth and stability in the country.