2016 FINANCIAL TRENDS EXPECTED IN TANZANIA:

Authored by Godfrey Ndalahwa 
and Pascal Machango of KCB Tanzania

Economic Outlook
GDP

Following a challenging 2015 economic conditions, Tanzania is set to improve modestly over the coming quarters with real GDP growth climbing to above 6.0% in 2016 from an estimated average of 5.7% in 2015.

INFLATION OUTLOOK

Inflation has consistently been above the Bank of Tanzania’s (BoT) 5% target over the past decade (averaging over 9 .0%) and we expect this trend to continue over the coming years. Inflation set to range between 6 .0 and 8 .0% over the coming months. Despite the shilling's heavy sell-off and associated inflation pass through, inflation has been contained thanks to favorable food and fuel prices. These benign price conditions are set to continue through in 2016.

Short-Term Outlook (Three-To-Six Months)

Having sold off aggressively through Half 1, 2015, the Tanzanian shilling (TZS) has stabilized against the dollar over the past 5-6 months, even firming of late. External dynamics, notably a strong USD and related shifts in investor perceptions towards Emerging Markets currencies, have been the dictating factor in the shilling's performance over recent quarters and this trend will remain in place over the coming three-to-six months. Fellow East African currencies such as Kenya and Uganda, for instance, have exhibited similar stability over this period. With the USD rally now mostly spent pressures on the shilling will lighten and augur a far more modest pace of TZS depreciation over the coming 12 months or so. We forecast average deprecation of around 12% in 2016 compared to 23% in 20 15.

Long-Term Outlook (Six-To-24 Months)

Weak balance of payments dynamics and uncertainty in the energy sector will drive further shilling depreciation over the next couple of years. External imbalances arising from a shortage of domestic productive capacity are reflected in Tanzania's g aping trade in goods deficit and this will ensure that the country's current account balance remains deep in the red - at the equivalent of between 9 .0% and 11.0% of GDP - over the next two years and these imbalances will remain the key pressure point for the shilling over the medium-term. Tanzania will continue run a large structural deficit for the duration of our 2015-2019 forecast period. The latest data from the Bank of Tanzania confirm that in the year through September 2015, the current account deficit narrowed by 14% to USD4 .2bn thanks to a jump in exports and a sharp deceleration in imports. 

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