Agusto & Co. has assigned a “Bb-” rating with a stable outlook to the United Republic of Tanzania

Agusto & Co. has assigned a “Bb-” rating with a stable outlook to the United Republic of Tanzania

Rating Release

Agusto & Co. has assigned a “Bb-” rating with a stable outlook to the United Republic of Tanzania.

The rating reflects the Country’s satisfactory macroeconomic fundamentals evidenced by a stable inflationary environment with an average inflation rate of 3.7% and an average real gross domestic product (GDP) growth rate of 5.2% over the past five years supported by increased mineral production, and continued growth in agriculture. The rating also takes into consideration the Nation’s acceptable debt-to-GDP ratio and debt service to revenue ratio of 36.4% and 44.3% respectively, as at the end of June 2024. The rating is however constrained by the Country’s high balance of trade deficit which stood at circa US$ 6.4 billion as at 31 December 2023 (2022: US$ 7.4 billion), reliance on foreign aid and grants as one of its major sources of budget funding and foreign exchange earnings, and increasing fiscal shortfall, representing 4.3% of the Country’s GDP due to lower-than-expected revenue collection.

Looking ahead, Tanzania projects to record TZS 34.6 trillion as revenue in the FY 2024/25 budget backed by the government’s strategic goal to achieve sustainable economic transformation through fiscal consolidation and investment in climate change mitigation and adaptation. In our view, for Tanzania to accelerate economic growth and attain the set revenue target in the near to medium term, the Nation needs to tighten revenue collection mechanisms and address the existing challenges to meet its fiscal objectives through improved tax administration and compliance, enhance border revenue management and modernise non-tax revenue collection systems. During FY 2024/25, the Nation’s total expenditure is projected to reach TZS 49.3 trillion. Recurrent expenditure is expected to amount to TZS 33.4 trillion, while development expenditure will total TZS 15.9 trillion. Agusto & Co. notes that targeted investments in infrastructure and education align with the objectives of the 5-year Tanzania’s National Development Plan (2021/22 – 2025/26), which aims to foster inclusive economic growth by enhancing the skills and productivity of the workforce.

The average annual inflation rate in the Country for the year 2023 was 3.8% which is an improvement from the previous year’s 4.3%. For the first eight months of 2024, inflation averaged 3% and stood at 3.1% in August 2024. We expect the average inflation rate to remain fairly low and within the Bank of Tanzania’s medium-term target of not above 5% by year-end 2024 supported by stable food prices, particularly in the agricultural sector, which has benefited from favourable weather conditions and relative stability in global supply chain and commodity prices given Tanzania’s dependence on imports.

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