Fitch affirms Tanzania at B+ rating with positive outlook

In the long term, real GDP growth will benefit from the development of offshore gas fields and liquefied natural gas (LNG), which will start contributing to the economy in 2029, the agency added.

It noted that external pressures increased in the first half of 2023, driven by a reduced level of foreign exchange inflows, a higher import bill, debt repayments, a tightly managed exchange rate, resulting in forex shortages, and a premium above 10 percent of the official exchange rate.

“The Bank of Tanzania (BoT) has taken significant steps to address this problem, including ramping up sales of foreign exchange to boost its liquidity while allowing for greater flexibility in the exchange rate,” Fitch said.

The shilling has depreciated by nearly seven percent against the US dollar since July 2023, compared with 0.8 percent in the first half of this year, it said.

Tanzania has one of the highest credit ratings in East Africa, reflecting its solid macroeconomic fundamentals.

Fitch downgraded Ethiopia’s credit rating last week to junk status and warned that it may also downgrade Kenya, which has a credit rating of B with a negative outlook.

Uganda has a credit rating of B+ with a negative outlook.

What it means

A country with a high credit rating can access funds easily from the international bond market and also secure foreign direct investment (FDI) inflows.

A low sovereign credit rating means that a country faces a high risk of default and may experience difficulties in paying back debts.

Fitch said factors that could lead to a rating downgrade for Tanzania in the future include large and persistent current account deficits that are not financed by FDI, which place sustained downward pressure on foreign currency reserves or cause marked exchange rate depreciation, contributing to a higher government debt-to-GDP ratio.

A weakening trend of growth or a sustained shock that significantly undermines fiscal consolidation efforts and raises socioeconomic pressures could also cause a downgrade.

On the other hand, factors that could lead to a credit rating upgrade for Tanzania include higher domestic revenue mobilisation, greater transparency and confidence in the exchange-rate regime and greater central bank independence.