Dar es Salaam, Fitch Ratings, the global credit rating agency, has reaffirmed Tanzania's sovereign credit rating at B+ with a stable outlook, citing the nation's robust macroeconomic performance. The agency anticipates a positive trajectory for Tanzania's economic growth, projecting a rise to 5.0 percent in 2023 and 5.5 percent in 2024, up from 4.7 percent in 2022. This optimistic outlook is fueled by increased activity in agriculture, mining, and tourism, coupled with substantial infrastructure investments.
In a statement, Fitch emphasized Tanzania's solid macroeconomic fundamentals, highlighting high real GDP growth, low inflation, and a moderate level of debt. The positive rating is further supported by the country's commitment to reforms, backed by an International Monetary Fund (IMF) program.
The agency foresees long-term economic benefits from the development of offshore gas fields and liquefied natural gas (LNG), contributing significantly to the economy starting in 2029.
However, Fitch noted increased external pressures in the first half of 2023, driven by reduced foreign exchange inflows, a higher import bill, debt repayments, and a tightly managed exchange rate leading to forex shortages. The Bank of Tanzania (BoT) has responded proactively, implementing measures such as increased foreign exchange sales to enhance liquidity and introducing greater flexibility in the exchange rate.
Despite these challenges, Tanzania maintains one of the highest credit ratings in East Africa, reflecting its stable macroeconomic fundamentals. In contrast, Fitch recently downgraded Ethiopia's credit rating to junk status and issued a warning regarding a potential downgrade for Kenya, which currently holds a B rating with a negative outlook. Uganda has a B+ credit rating with a negative outlook.
Implications of the Credit Rating
A country with a high credit rating, such as Tanzania's B+, enjoys easier access to funds from the international bond market and can attract significant foreign direct investment (FDI) inflows. Conversely, a low sovereign credit rating indicates a higher risk of default and may lead to difficulties in repaying debts.
Fitch outlined potential factors that could result in a rating downgrade for Tanzania, including large and persistent current account deficits not financed by FDI, which could exert sustained downward pressure on foreign currency reserves or lead to marked exchange rate depreciation, contributing to a higher government debt-to-GDP ratio. A weakening growth trend or a sustained shock undermining fiscal consolidation efforts and raising socioeconomic pressures could also prompt a downgrade.
Conversely, factors that could lead to a credit rating upgrade for Tanzania include higher domestic revenue mobilization, increased transparency and confidence in the exchange-rate regime, and enhanced central bank independence.