BoT: Economy resilient despite global challenges

Dar es Salaam. Although the global economy is exposed to tightened financial conditions, climate-related risks, ongoing war in Ukraine, and the cumulative effects of the Covid-19 pandemic, risks to the Tanzania’s economy remained moderate, a new report has shown.

The Financial Stability Report issued by the Bank of Tanzania (BoT) says the moderate risk was mainly on account of the sound macroeconomic environment, recovery of business activities and policy measures by the government.

The report says the risk to households and non-financial corporates was subdued mainly due to a rebound in business activities, increased household income, and eased credit conditions by banks.

“Further, risks to banking and non-banking sectors were moderate on account of adequate capital and liquidity to withstand potential shocks,” said the report.

The report show the global economy is projected to grow by 3.8 percent in 2023 owing to continued tight financial conditions, the War in Ukraine, and the cumulative effects of the Covid-19 pandemic. The performance of the domestic economy remained stable amid external shocks.

According to the report, the domestic economy grew 4.7 percent and 5.4 percent in 2022 for Tanzania Mainland and Zanzibar, respectively. The growth was partly contributed by the recovery of economic activities coupled with sustained public and private sector investments.

It also shows the economy was projected to grow at 5.2 percent and 7.2 percent in 2023 for Tanzania Mainland and Zanzibar, respectively, supported by improved business conditions, banking sector profitability, liquidity availability to fund business, and public investment in infrastructure.

Despite the positive outlook, says the report, the growth of the domestic economy remains exposed to tightening financial conditions, spillovers from the ongoing War in Ukraine, and climate-related risks.

Risks emanating from households decreased on account of increased disposable income.

The report further stated that in 2022, the domestic financial system remained resilient, sound, and stable amid challenges posed by the effects of the War in Ukraine, tight financial conditions, and the Covid-19 pandemic.

“The global financial system was vulnerable to risks arising from the War in Ukraine, climate change, and tighter financial conditions. During 2022, global growth slowed to 4.4 percent from 5.9 percent recorded in the preceding period, owing to supply-chain disruptions caused by the War in Ukraine, frequent resurgence of the Covid-19 pandemic, particularly in China and its cumulative effects, tightening financial conditions and climate-related constraints leading to high food and energy prices,” reads the report.

The sources of financing for non-financial corporates improved, reflecting a rebound in business activities.

The Non-Financial Corporate Survey revealed an increase in retained earnings in 2022 compared to 2021, supported by a recovery in business activities and an increase in domestic and foreign demand.

The performance of the non-financial corporate sector is attributed to the implementation of monetary policy, prudential measures, and improved business conditions from the adverse impact of the pandemic.

The increase in fuel and raw material prices and exchange rate pressure emanating from tight global financial conditions pose risks to firms’ financial conditions.

The banking sub-sector remained resilient with adequate capital, liquidity, and subdued credit risks.

The regulatory capital and liquidity ratios remained above the minimum requirements, despite a slight decline following the disbursement of new loans.

This is reflected by increased lending to the private sector, which grew by 22.5 percent due to a pick-up in business activities and policy and regulatory measures taken by BoT.

Further, credit risk declined, with NPL ratios dropping to 5.7 percent, mainly due to intensified credit recovery efforts, enhanced credit underwriting standards, and improved borrowers’ debt servicing capacity increasing profitability.