Economic performance and outlook: Economic growth has slowed since the last quarter of 2016, following real GDP growth of at least 7% between 2013 and 2016. Growth in the first two quarters of 2017 averaged 6.8% and was estimated at 6.5% for the full year. Construction, mining, transport, and communications were key growth drivers in 2017. Growth is projected to remain robust at 6.7% in 2018 and 6.9% in 2019, representing one of the best performances in East Africa. A tightening trade deficit, with a drop in imports outweighing a decline in exports, is likely to support growth. Public investment, particularly with ongoing implementation of larger infrastructure projects, is expected to boost growth in 2017 and beyond. However, uncertainty in the business environment, combined with stalling private-sector credit growth, could hinder private-sector investment.
Macroeconomic evolution: Lower than expected revenues in 2016 and 2017 led to a higher fiscal deficit than expected, 3.7% of GDP in 2016 and 2.1% in 2017. Government expenditure was 20.7% below its target, although 8.4% above the previous fiscal year. The fiscal deficit is projected to expand slightly in 2018, to 4.4% of GDP. Although public debt levels are sustainable, debt service costs increased considerably in recent years, which could reduce fiscal space. Inflation was well contained at 5.3% in September 2017 and is projected to remain around 5% through 2019. The Bank of Tanzania loosened monetary policy in 2017 to address liquidity constraints and support credit growth, after private-sector credit growth fell from 24.8% in 2015 to 7.2% in 2016 and to 0.3% in August 2017.
Tailwinds: General macroeconomic stability continues to support growth. The government has made considerable efforts to contain recurrent expenditure and inefficient spending, including reducing the public-sector payroll and nonpriority spending while increasing development spending, particularly for infrastructure, to support medium-term growth. The government also increased efforts to improve tax revenue administration by driving out corruption and tackling tax evasion in a bid to increase the fiscal space. The Bank of Tanzania also loosened monetary policy in 2017 to support credit expansion, although this has yet to offset reduced private-sector lending.
Headwinds: The economy is vulnerable to considerable downside risks. Uncertainty in the business environment following changes in policies, regulations, and tax administration could weigh on private sentiment and slow growth and investment, particularly in the mining sector. Credit growth stalled, while nonperforming loans rose to more than 10%, which could further hinder private investment. Although government development spending has increased considerably over the past two years, slow implementation of public infrastructure projects could limit growth. Moreover, overly ambitious revenue projections in national budgets could increase already high arrears and damage budget credibility. Current debt levels are considered sustainable, but effective measures to continually monitor debt service costs and ensure appropriate financing will support long-term fiscal sustainability.
- The government securities yield curve extended to 15 years.
- The issuance strategy aims to meet government financing requirements, enhance market development and development financing.
- Tanzania is 14th in the ABMDI 2017 Ranking Report.
Issuance strategy in place: to meet government financing requirements, market development and development financing. Objective: increasing the proportion of domestic debt vs. foreign debt; smoothening the government debt profile, widening the investor base, and sustainable debt issuance.
Although building a yield curve is a consideration for issuance and a REPO market is in place, there are no clear benchmark maturities. The Bank of Tanzania does not reopen bonds. Each issuance is a new issue using the auction method. There is no benchmark yield curve in Tanzania.
There is no yield curve in Tanzania currently, although the government issuance strategy includes plans to build a benchmark yield curve.
Challenges in building an efficient yield curve
- Market fragmentation: this is due to the existing small bond issues in the market.
- Narrow investor base: Tanzania has partially liberalized the capital account to East African Community (EAC) residents under conditions that have limited the participation of even those EAC residents. The market is dominated by local investors. The absence of foreign investors has limited performance on the secondary market.
- Limited and illiquid secondary market:
- Pension fund holdings of government securities account for over 40% of outstanding government bonds. These are not made available for sale.
- The absence of a horizontal repo market has made government bonds even more illiquid.
- The inadequate volume of instruments in the market has led investors to hold on to their securities until maturity.
- Lack of transparency: lack of intermediaries giving two-way quotes has limited pricing and transparency in the secondary market. However, all trades in the secondary market have to be reported to the Stock Exchange.
- Lack of legal and regulatory framework: absence of legal and regulatory framework supporting both OTC and Exchange trading of bonds
Guide to Buying Bonds
Procedures for market participation
All Tanzanian residents can participate in the purchase of government securities. They can do so by either bidding directly (primary market) or by contacting a Primary Dealer (secondary market).
- An exemption from stamp duty on secondary market trades.
- An exemption from the 10% capital gain tax on reselling listed securities
- A reduction from 10 to 5% of the withholding interest income on listed securities.
Tax incentives for issuers are listed in the Capital Markets Authority website.
Securities longer than 3 years (5-, 7- and 10-year) are exempt from tax. All participants exempt from paying withholding tax must provide tax exemption certificates from the Tanzania Revenue Authority (TRA) to the BoT.
Treasury bills are redeemed by the BoT free of tax.
The settlement cycle for bonds is T+1.
Openness to international investors
On September 2014, Tanzania Capital Markets Authority authorized the participation of foreign investors in local capital markets; they are now allowed to purchase up to 40% of risk-free securities and 60% in equities.
Substantial FX remittances require documentary evidence and the capital account remains subject to exchange controls.
Foreign Exchange restrictions and profit repatriation
The FX market is readily accessible. Under the current exchange control environment, commercial banks are expected to ensure that all relevant documentation is obtained in support of a foreign exchange transaction. However, convertibility on the capital account remains restricted.
Tanzanian government securities were last rated in 2011; Fitch, Moody’s and S&P gave a rating of B to Tanzania’s creditworthiness; no further rating was issued thereafter. In September 2015, Tanzanian authorities started negotiations with Fitch for a sovereign credit rating in preparation of a Eurobond issuance.
List of Primary Dealers
The list of Primary Dealers (PDs) is provided by the BoT and is subject to change. Currently the PDs are:
1. Akiba Commercial Bank Ltd.
2. Citibank Tanzania Ltd.
3. CRDB Bank Ltd.
4. Diamond Trust Bank Tanzania Ltd.
5. Eurafrican Bank Tanzania Ltd.
6. Exim Bank Tanzania Ltd.
7. Habidd African Bank Ltd.
8. International Commercial Bank Ltd.
9. Kenya Commercial Bank Tanzania Ltd.
10. National Bank of Commerce (NBC) - Tanzania Limited
11. National Microfinance Bank (NMB) Ltd.
12. Stanbic Bank Tanzania Ltd.
13. Standard Chartered Bank Ltd.
14. Orbit Securities Co.Ltd.
15. Rasilimali Limited.
16. Solooni Securities ltd.
17. Core Securities Ltd.
19. Vertex International Securities Ltd.
Documents & Resources
Documents - Ministry of Finance
- Tanz-Budget_5-yr_framew_for_2014-18.pdf (1.6 MB)
- Tanz-Exp___Reve-Fin.Minister_Speech-2014.pdf (0.9 MB)
- Tanz_2013-14_Budget_Speech.pdf (367 kB)
Documents - Central Bank
- Gov Loans - Guarantees Act- Tanzania - 1974 (52 kB)
- Issuance Calendar 2013- Bonds-Tanzania (194 kB)
- Capital Markets and Secu Act governing trading of foreign investors- Tanzania (24 kB)
- BofTanz-Fin_Stab_Report-Mar_2015.pdf (2.9 MB)
- Tanz_Bkg___Fin_Inst_Act-2006.pdf (127 kB)
Documents - Stock Exchange
- Dar Es Salaam Stock Exchange handbook (689 kB)
- Guidelines to participate in the bond market of Tanzania (181 kB)
- DSE_2014_AR.pdf (1.0 MB)