Tanzania’s private sector credit improves to 22.2 pct on improved business environment

Tanzania’s private sector credit growth improved to 22.2 percent, compared with the target of 10.7 percent for financial year 2022/23 according to the Monetary Policy Statement for 2022/23 released by the Bank of Tanzania (BoT) recently.

This reflects ongoing efforts to improve the business environment, complemented by prudent monetary and fiscal policies, which led to high demand for new loans by the private sector.

Compared to its peers in the EAC, Tanzania experienced the highest private sector credit growth.

The substantial growth of credit reflects high demand for loans attributable to improving business policies and environment, complemented by prudent monetary and fiscal policies.

The growth of credit to the agriculture sector was the highest at 36.1 percent, attributable to government interventions through enhancement of the budgetary allocation and supportive special window of 1trn/- , as well as regulatory relief on the statutory reserve requirement.

Personal loans continued to dominate, accounting for 38.6 percent of the total credit to the private sector.

“Credit growth is expected to remain strong, supported by ongoing measures to improve the business environment and supportive monetary and fiscal policies,” according to the Monetary Policy statement.

The Central Bank shifted from pursuing an accommodative monetary policy to a less accommodative monetary policy in response to the spillover effects of the global economic shocks caused by the war in Ukraine, the residual effects of COVID-19 pandemic, and domestic economic conditions.

“The thrust of this policy stance was to strike a balance between the objective of containing inflation within the target of 5.4 percent and safeguarding recovery of economic activities, while sustaining financial stability,” the statement said

 The growth of reserve money (M0) was set at 11.4 percent, the target of growth of extended broad money supply (M3) was set at 10.3 percent, and the projection of growth of private sector credit was 10.7 percent.

“The Bank also aimed at maintaining adequate foreign exchange reserves, sufficient to cover at least four (4) months of imports,” it added.

These monetary targets were consistent with benchmarks set forth in the IMF Extended Credit Facility (ECF) program and broader macroeconomic policy objectives.

In order to achieve the monetary targets, the Bank used a combination of monetary policy instruments, including repurchase agreements (Repos), Treasury bills allocated for liquidity management, and foreign exchange operations.

“As a result, liquidity in the banking system was kept adequate throughout the year, in line with economic conditions. In addition, the ECF targets on net domestic assets and net international reserves for September 2022, December 2022 and March 2023 were successfully achieved,” the statement says.

 Furthermore, from July 2022 to April 2023, M0 grew by 13.6 percent compared with the target of 11.4 percent for 2022/23, while M3 grew by 12.8 percent compared with the target of 10.3 percent.