The Monetary Policy Committee (MPC) of Tanzania has decided to keep the Central Bank Rate (CBR) unchanged at 6 percent for the quarter ending September 2024. This decision, made during the quarterly meeting held on July 3, 2024, reflects the MPC's positive assessment of the economy and a balanced risk outlook. The implementation of monetary policy in the previous two quarters has successfully anchored inflation expectations well below the target of 5 percent.
The statement released by the Bank of Tanzania states that, a favorable global economic outlook, characterized by expectations of falling inflation in most countries, easing financial conditions in international markets, and moderate global prices, supports this decision. Additionally, the Tanzanian economy is expected to continue its strong growth trajectory, with adequate food supply and moderated exchange rate pressures due to increased foreign exchange inflows from tourism, gold, and cash crops.
Globally, economic activity showed strong growth in the first and second quarters of 2024. Inflation has been declining, financial conditions have been easing, and central banks in most countries have halted interest rate hikes. While crude oil prices edged up towards the end of June 2024, gold prices remained elevated as investors sought safe-haven assets amid currency depreciation and geopolitical conflicts. These global economic conditions are expected to prevail through the remainder of 2024 and into the subsequent year, despite potential risks from escalating geopolitical conflicts and trade disputes.
Domestically, Tanzania's economic conditions have significantly improved due to policies and reforms aimed at fostering high economic growth. The economy grew by 5.1 percent in 2023, up from 4.7 percent in the previous year, driven by agriculture, mining, quarrying, construction, and financial intermediation, with tourism also contributing significantly. Growth for the first and second quarters of 2024 is forecasted to be around 5 and 5.4 percent, respectively. Similarly, Zanzibar's economy expanded by 7.4 percent in 2023, up from 6.8 percent in 2022, primarily driven by tourism, food services, construction, and real estate.
Inflation remained below the 5 percent target, aligning with the East African Community (EAC) and Southern African Development Community (SADC) convergence criteria. Inflation rates in April and May 2024 were 3 percent and 3.1 percent, respectively, due to low food inflation from adequate supply and prudent monetary and fiscal policies. Inflation in Zanzibar also declined to the medium target of 5 percent. Projections indicate that inflation will remain low, between 3-4 percent, in the second half of 2024 and beyond.
Strong private sector credit growth and a stable financial sector contributed to the favorable economic conditions. Private sector credit growth averaged 16.4 percent annually during the second quarter of 2024. The banking sector remained liquid, profitable, and well-capitalized, with improvements in asset quality reflected by a lower non-performing loan (NPL) ratio of 4.4 percent in May 2024, down from 5.5 percent in the same period in 2023.
Fiscal performance has been satisfactory, with revenue performance estimated at 94 percent of the target for the quarter. Zanzibar's revenue exceeded the target by 0.3 percent due to improved taxpayer compliance and payment of tax arrears. The government plans to implement fiscal consolidation for the 2024/25 fiscal year to align expenditure with resources and continue the successful implementation of the IMF-supported Extended Credit Facility (ECF) program and the Resilience and Sustainability Facility program.
The current account position improved as the global economy normalized from economic shocks. Exports increased, particularly in gold, tourism, and traditional crops, while imports grew at a lesser extent. The current account deficit narrowed to USD 959.2 million for the quarter ending June 2024, compared to USD 977.8 million in the same quarter of 2023. Zanzibar's current account surplus reached USD 421.5 million in the year ending June 2024, up from USD 411.5 million in 2023, driven by an increase in service receipts, particularly tourism.
Foreign exchange reserves remained adequate, above USD 5 billion at the end of June 2024, sufficient to cover more than four months of projected imports. Foreign currency liquidity improved slightly towards the end of June 2024 due to increased foreign flows from tobacco, gold, and tourism. The MPC anticipates further increases in foreign exchange inflows from tourism, mining, traditional exports, and food exports to neighboring countries. Measures to limit transaction dollarization between residents are expected to reduce demand for foreign currency and increase foreign reserves. The Bank plans to diversify its foreign reserve portfolio through local gold purchases.