PESA
Balance of Payments and International FDI Position in Tanzania: FY2019/20

Tanzania BoP and FDI Position: FY2019/20

Tanzanian merchandise trade exports have decreased consistently since 2016. The slower export earnings have deteriorated Tanzania’s current account balance. The balance of payments has deteriorated but gross official reserves have increased due to the improved capital and financial account surplus due to the persistent inward foreign direct investment (FDI) inflows. These capital flows have improved Tanzania’s balance of payments and deteriorated the country’s net international FDI position. Nonetheless, Tanzania’s balance of payments is projected to moderate to a narrower surplus, which is projected to support growth of gross official reserves in the medium-term.

 

Figure 1: Current Account Balance in Tanzania (2016/17-2022/23)

Current Account Balance in Tanzania (2016/17-2022/23)

Source: IMF 2018a, Tanzania Financial Sector Assessment Program; IMF 2018b, Tanzania Seventh Review Under the Policy Support Instrument. Notes: (*) Figures from 2017/18 to 2020/21 are projections from the IMF, 2018b; (**) Figures from 2021/22 onwards are projections from the IMF, 2018a.

 

Total merchandise imports to Tanzania decreased to USD 8.8 billion in 2018, from an annual average of USD 9.8 billion for 2015 to 2017[1]. Exports decreased to USD 3.7 billion in 2018, from an annual average of USSD 4.6 billion for 2015 to 2017[2]. The slower export earnings growth has deteriorated Tanzania’s current account deficit from an average of -USD 1.9 billion (approx. -3.5% of GDP) for 2016/17 to 2018/19, to a deficit of -USD 3.0 billion (approx. -4.8% of GDP) in 2019/20[3]. The slower growth in export earnings has deteriorated Tanzania’s balance of payments but gross official reserves have increased due to the improved capital and financial account surplus.

 

Figure 2: Capital and Financial Account Balance in Tanzania (2016/17-2022/23)

Capital and Financial Account Balance in Tanzania (2016/17-2022/23)

Source: IMF 2018a, Tanzania Financial Sector Assessment Program; IMF 2018b, Tanzania Seventh Review Under the Policy Support Instrument. Notes: (*) Figures from 2017/18 to 2020/21 are projections from the IMF, 2018b; (**) Figures from 2021/22 onwards are projections from the IMF, 2018a.

 

Tanzania’s capital and financial account balance improved from a surplus (net inflows) averaging USD 3.1 billion (approx. 5.9% of GDP) for 2016/17 to 2018/19, to a surplus of USD 4.4 billion (approx. 7.0% of GDP) in 2019/20[4]. As a result, Tanzania’s balance of payments deteriorated from a surplus averaging of USD 663.0 million (approx. 1.3% of GDP) for 2016/17 to 2018/19, to a surplus of USD 516.0 million (approx. 0.8% of GDP) in 2019/20[5]. Gross official reserves increased from USD 5.0 billion in 2016/17 to USD 5.7 billion in 2018/19, and continued increasing to USD 6.1 billion in 2019/20[6]. During this period, Tanzania experienced persistent inward FDI inflows.

 

Inward FDI inflows decreased from USD 1.5 billion in 2015 to USD 937.7 million in 2017, before recovering to USD 1.1 billion in 2018[7]. As a result, Tanzania’s inward FDI stock increased from an average of USD 18.7 billion for 2015 to 2017, to USD 20.7 billion in 2018[8]. Tanzanian citizens have no investments abroad which also suggests that the country is reliant on remittances from its citizens abroad to balance its international payments.

 

Figure 3: Gross Official Reserves and Balance of Payment in Tanzania (2016/17-2022/23)

Gross Official Reserves and Balance of Payment in Tanzania (2016/17-2022/23)

Source: IMF 2018a, Tanzania Financial Sector Assessment Program; IMF 2018b, Tanzania Seventh Review Under the Policy Support Instrument. Notes: (*) Figures from 2017/18 to 2020/21 are projections from the IMF, 2018b; (**) Figures from 2021/22 onwards are projections from the IMF, 2018a.

 

Personal remittance receipts increased from USD 387.8 million in 2015 to USD 402.6 million in 2017, and continued increasing to USD 429.6 million in 2018[9]. Tanzania does not have any outward FDI stock during this period[10]. These remittance flows have improved Tanzania’s balance of payment but have no impact on the country’s net international FDI position.

 

Figure 4: Inward Foreign Direct Investment in Tanzania (2015-2018)

Inward Foreign Direct Investment in Tanzania (2015-2018)

Sources: UNCTAD 2019, UNCTADStat Database.

 

Tanzania’s balance of payment has been supported by the improved capital and financial account surplus despite the widening current account deficit in the period from 2015 to 2018. In addition, the country has received increased personal remittance receipts from its diaspora which contributes to balance its international payments. Tanzania’s net international FDI position deteriorated from net liabilities amounting to an average of -USD 19.8 billion (approx. -40.4% of GDP) for 2015 to 2017, to net liabilities amounting -USD 21.8 billion (approx. -38.0% of GDP) in 2018[11].

 

Figure 5: Outward Foreign Direct Investment from Tanzania (2015-2018)

Outward Foreign Direct Investment from Tanzania (2015-2018)

Sources: UNCTAD 2019, UNCTADStat Database.

 

At these levels Tanzania’s foreign liabilities remain significant as a proportion of GDP. Given the relatively narrow domestic capital markets, Tanzania should focus on attracting inward FDI in sectors that will expand its productive capacity and diversify its exports because the country is still heavily dependent on mineral commodity and agriculture-based exports. Nevertheless, Tanzania’s balance of payments surplus is projected to moderate to a narrower surplus in the medium-term, which is projected to support growth of gross official reserves.

 

Figure 6: International Foreign Direct Investment Position in Tanzania (2015-2018)

International Foreign Direct Investment Position in Tanzania (2015-2018)

Sources: UNCTAD 2019, UNCTADStat Database.

 

The persistent capital and financial account surplus should not be sufficient to support a recovery in Tanzania’s balance of payments due to the widening current account deficit in the forward-looking medium-term. The current account deficit is projected to widen from a deficit of -USD 3.0 billion (approx. -4.8% of GDP) in 2019/20 to an average of -USD 3.9 billion (approx. -5.2% of GDP) from 2020/21 to 2022/23[12]. Tanzania’s capital and financial account balance is projected to improve to a surplus (net inflows) averaging USD 4.5 billion (approx. 6.1% of GDP) from 2020/21 to 2022/23[13]. Therefore, the balance of payment is projected to moderate from a surplus of USD 744.0 million in 2020/21 to a surplus of USD 285.6 million in 2022/23, which is equivalent to an average deficit of USD 504.5 million (approx. 0.7% of GDP)[14]. Thus, Tanzania’s gross official reserves are projected to increase from USD 6.8 billion in 2020/21, to USD 7.3 billion in 2022/23[15].

 


[1] UNCTAD 2019. UNCTADStat Database, United Nations Conference on Trade and Development: Geneva. Available At: https://unctadstat.unctad.org/ [Last Accessed: 8 March 2020].
[2] UNCTAD 2019. UNCTADStat Database, ibid.
[3] IMF 2018a. Tanzania Financial Sector Assessment Program, International Monetary Fund: Washington, D. C. Available At: https://www.imf.org/ [Last Accessed: 8 March 2020]; IMF 2018b. Tanzania Seventh Review Under the Policy Support Instrument, International Monetary Fund: Washington, D. C. Available At: https://www.imf.org/ [Last Accessed: 8 March 2020].
[4] IMF 2018a. Tanzania Financial Sector Assessment Program, ibid.; IMF 2018b. Tanzania Seventh Review Under the Policy Support Instrument, ibid.
[5] IMF 2018a. Tanzania Financial Sector Assessment Program, ibid.; IMF 2018b. Tanzania Seventh Review Under the Policy Support Instrument, ibid. There is one relatively significant error and omission in Tanzania’s balance of payments data equivalent to -USD 130.0 million in 2016/17.
[6] IMF 2018a. Tanzania Financial Sector Assessment Program, ibid.; IMF 2018b. Tanzania Seventh Review Under the Policy Support Instrument, ibid.
[7] UNCTAD 2019. UNCTADStat Database, ibid.
[8] UNCTAD 2019. UNCTADStat Database, ibid.
[9] UNCTAD 2019. UNCTADStat Database, ibid.
[10] UNCTAD 2019. UNCTADStat Database, ibid.
[11] UNCTAD 2019. UNCTADStat Database, ibid.
[12] IMF 2018a. Tanzania Financial Sector Assessment Program, ibid.
[13] IMF 2018a. Tanzania Financial Sector Assessment Program, ibid.
[14] IMF 2018a. Tanzania Financial Sector Assessment Program, ibid.
[15] IMF 2018a. Tanzania Financial Sector Assessment Program, ibid.

 

 


Siyaduma Biniza

Siya is the Executive Director at PESA.

Siyaduma Biniza

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