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Report Highlights Tanzania’s Macroeconomic Outlook and Growth Prospects Despite Global Challenges

Deloitte East Africa Macroeconomic Outlook 2023-2024

International professional services firm Deloitte recently released its Volume IV of the East Africa Macroeconomic Publication, which provides an overview of the current economic landscape of the region with a focus on the key themes that are shaping the outlook for the coming year.

The last year has been challenging for the East African region, with increased global commodity prices, subsequent higher cost of living, an ensuing series of monetary tightening stances, currency depreciations, and overall debt distress. These challenges have continued to affect the East African countries and pose macroeconomic headwinds.

This year’s publication explores four key themes that are shaping the macroeconomic outlook for East Africa:

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  1. Global inflation and its impact on the region: The Ukraine conflict precipitated global inflation, leading to currency depreciations worldwide. East Africa, being a net importer, was particularly vulnerable to imported inflation. This resulted in increased input costs, a high cost of living, and subsequently, declining consumer demand.
  2. Monetary policy and financial stability: Central banks in East Africa have faced the challenge of tightening monetary policy to combat inflation while not stifling economic growth. The high United States Federal Reserve rate has led to capital flight from emerging markets, resulting in a decline in foreign investments in East Africa and a general economic slowdown.
  3. Fiscal policy and debt sustainability: The COVID-19 pandemic has led to a significant increase in public debt levels in East African countries. Recent funding squeezes, high interest rates, elevated sovereign debt spreads, and currency depreciation have raised the cost of debt. The publication assesses the fiscal policy challenges facing the region and discusses options for ensuring debt sustainability.
  4. Trade and investment: Trade and investment are essential for economic growth in East Africa. The publication examines the latest trends in trade and investment in the region and discusses policies that can attract more foreign direct investment.

Despite these challenges, Deloitte remains cautiously optimistic about the outlook for 2024 for the East African region, with expectations of abating macroeconomic challenges and better global growth outcomes in the medium term.

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East Africa Macroeconomic Outlook

  • GDP growth in East Africa is expected to slow down from 6.1% in 2022 to 5.7% in 2023, attributable to the global economic slowdown, rising commodity prices, tightening of global financial conditions, and exchange rate depreciation. Growth is expected to recover in 2024, with real GDP growth averaging 6.3% driven by a full recovery of the services sector and improved export performance.
  • Average inflation in the East Africa region is expected to increase for the second consecutive year, rising from 8.0% in 2021 to 13.0% in 2022 and further to 14.5% in 2023, primarily driven by high food and energy prices and currency depreciation. Inflationary pressures are expected to ease in 2024 as global supply chain disruptions subside.
  • The average public debt as a percentage of GDP in East Africa stood at 51.6% in 2022 and is expected to remain elevated at 49.9% in 2023 due to the high cost of imports, weak recovery in exports, and rising international interest rates.

Tanzania Macroeconomic Outlook

  • Tanzania experienced a deceleration in real GDP growth rate to 4.7% in 2022 from 5.0% in 2021, mainly due to the impact of the Russia-Ukraine war and suppressed agricultural production. However, GDP growth is expected to accelerate to 4.9% in 2023 and 6.1% in 2024, driven by investments in infrastructure projects and increased activity in the tourism sector.
  • Inflation in Tanzania increased to 4.4% in 2022, up from 3.7% in 2021, primarily due to elevated fuel and food prices. In 2023, inflation is expected to marginally increase to 4.6%, mainly due to a gradual increase in food prices.
  • Tanzania’s construction sector contributed 16.0% to the country’s GDP in 2022, with growth expected to accelerate to 11.4% in 2023, driven by several mega infrastructure projects. In 2024, growth in the construction sector is forecast to decline to 10.9%.
  • Tanzania’s real estate sector achieved an annual growth rate of 4.5% in 2022, with growth expected to accelerate to 4.9% in 2023, driven by investment in commercial property in the hotel industry.
  • The manufacturing sector in Tanzania grew by 7.9% in 2022, and it is expected to grow by 6.1% in 2023, driven by continued recovery of exports and growth in private consumption.
  • Tanzania’s tourism sector recorded significant growth in 2022, with international receipts increasing from USD 1.3 billion in 2021 to USD 2.5 billion in 2022. In 2023 and 2024, the sector is expected to continue growing, with total receipts estimated to reach USD 3.0 billion and USD 3.4 billion, respectively.
  • Tanzania’s healthcare expenditure increased by 15.5% from USD 2.3 billion in 2021 to USD 2.7 billion in 2022, largely driven by increased government spending on healthcare infrastructure and programs.
  • The banking sector in Tanzania expanded in 2022, with loans advanced increasing by 22.2% and deposits held by deposit-taking institutions increasing by 14.7%. In 2023 and 2024, the sector is expected to continue growing, driven by favorable lending rates and a favorable macroeconomic environment.
  • Tanzania’s stock market consists of 27 securities, with the Dar es Salaam all-share index experiencing a decline in performance in 2023. The government aims to increase activity in the stock market through various measures.
  • The information and communication sector in Tanzania has been growing, driven by the expansion of mobile money services and increased internet penetration. In 2023 and 2024, the sector is forecast to grow by an annual average of 3.1%, driven by sustained adoption of mobile internet and continued investment in mobile financial services.
  • Tanzania’s electricity sector is expected to see growth, with an increase in generation capacity and consumption, driven by infrastructure investments. In 2023, Tanzania’s generation capacity is expected to increase to 10TWh, driven by the anticipated completion of the 2,115MW Julius Nyerere hydropower. Similarly, consumption is expected to increase by 13.4% in 2023, driven by growth in manufacturing and an increase in access to electricity.
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For additional information, you can read the full Deloitte report here.

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