by Dr Hildebrand Shayo
Tanzanian FY25/26 Budget Deficit To Widen On Heightened Spending Commitments
On March 11, 2025, Tanzania’s finance minister presented the Budget Framework and Expenditure Ceiling for the 2025/2026 fiscal year (the financial year running from July to June) ahead of the final budget, which will be read in June 2025.
The FY24/25 budget deficit is projected to range from 3.2% to 2.8%, reflecting the outcomes from the first half of the fiscal year. In light of the FY25/26 budget framework and considering expenditure forecasts, revenues are also expected to perform relatively well. However, a close analysis of the prediction for a 3.0% deficit in FY25/26, based on the Bank of Tanzania reports and the Ministry of Finance, indicates some fiscal slippage amid increased spending commitments in the near term.
From an economic perspective, in addition to previous budget-related announcements, the anticipated 2025 elections will be a significant line item in expenditures, along with preparations for the Africa Cup of Nations 2027 tournament. This will involve increased spending to address funding cuts by the US Agency for International Development (USAID) and higher security allocations for preparedness, likely reflecting the escalating conflict in the DRC and preparation for the October 2025 general election. This situation aligns with the government’s announcement that no new infrastructure projects will be initiated, as the focus shifts to completing the 9,711 projects currently underway while also seeking efforts to boost private sector funding.
Amid this background, Tanzania’s current account deficit might narrow from an estimated 2.6% of GDP in 2024 to 2.4% in 2025, supported by a strong outlook for exports of goods and services. In 2026, based on numbers analysis, the current account deficit could narrow further to 2.2% as continued import-substitution efforts, lower energy prices, and slower construction activity will help to narrow the trade deficit.
Given that Tanzania isn’t an island, heightened policy uncertainty and increased US protectionism and tariffs could pose significant risks for the country. Trade shocks to Mainland China from rising US tariffs and a stronger US dollar could reduce demand for Tanzanian goods and raise import costs.
Tanzania’s current account deficit is predicted to decrease from an estimated 2.6% of GDP in 2024 to 2.4% in 2025, which is in agreement with the central bank’s forecasts, according to a detailed examination of data from BOT and the Budget Framework and Expenditure Ceiling for the 2025/2026 fiscal year announcement. Data shows that the 3.2% prediction for 2025 considers the impact on agribusiness and betterthan-expected 2024 results. According to data from the Bureau of Statistics, Tanzania’s export prospects will be positively impacted by the government’s incentives to increase production and self-sufficiency.
Strong export growth will reduce the trade deficit from an estimated 6.5% of GDP in 2024 to 5.6% in 2025. Compared to data from previous years, goods exports are expected to increase by 10.0% to USD 10.1 billion in 2025, driven by high metal and mineral prices, as well as regulatory improvements that will continue to encourage investment in Tanzania’s mining sector. Gold production is projected to rise by 2.3% and is expected to account for 42.0% of Tanzanian exports in 2023. Meanwhile, the Kabanga nickel and cobalt projects that are expected to be operational will help Tanzania diversify its metals and minerals export portfolio.
On the agricultural side, government efforts to reduce reliance on imports through subsidizing agricultural inputs, providing better storage and transport infrastructure, and building new processing facilities will help bolster the volume and value of Tanzania’s agricultural exports, including cereals, sugar, cashews, tobacco, and coffee. This will decrease the demand for agricultural imports, which accounted for 5.1% of imports in 2023.
Import substitution efforts and lower energy prices will reduce the country’s import bill in 2025. Analysis of the numbers suggests that import growth will slow from an estimated 4.3% in 2024 to 4.0% in 2025, with imports totalling around USD 14.9 billion. Given the assumption that the price of Brent crude will average USD 76.0 per barrel in 2025, a 2.8% decrease from USD 79.9 per barrel in 2024, this is good news for business.
Records show that oil accounted for 21.6% of Tanzania’s goods imports in 2023, and considering the import substitution efforts, as the government seeks to reduce domestic dollar demand, this will also help to lower import demand. Although no new major strategic project exists, a strong infrastructure pipeline will accelerate real construction industry growth to 10.1% in 2025, which could keep the trade balance in deficit.
Despite slowing growth in the tourism sector, transport service activity will continue to pick up, keeping the services balance in surplus at 5.5% of GDP. The historical data shows that Tanzania’s tourist arrival growth will slow from 57.0% in 2024 to 6.1% in 2025.
That said, to ensure that Tanzania maintains the momentum of the growth of its economy, there are indications that the Tanzanian authorities will continue to develop port infrastructure as the country aims to become a regional hub for landlocked East and Southern African markets such as Rwanda, Burundi, and Zambia.
On February 25, 2025, the US Donald Trump administration announced that it would eliminate over 90% of USAID’s foreign aid contracts and cut USD 60 billion in global assistance. Available data indicate that USAID inflows accounted for 56.7% of Tanzania’s secondary transfers in 2023. Unquestionably, according to an analysis of numbers, these secondary inflows will decline by at least 60.0% in 2025 to USD 271.0 mn.
Towards 2026, there are all indications the current account deficit will narrow to 2.2%. However, export growth will slow due to lower gold prices, decreased mining production, and a less optimistic agricultural outlook, which are forecasting a decline in import demand and costs. Ongoing import-substitution efforts will reduce energy prices, and slower construction activity will narrow the trade deficit to 5.3% of GDP.
Under President Samia Suluhu Hassan’s leadership over the past four years, Tanzania is increasingly attracting investment from international companies, particularly in the mining sector. Inflows from global financial institutions will also remain robust.
In December 2024, the IMF completed the fourth review of Tanzania’s Extended Credit Facility (ECF) arrangement, disbursing USD 148.6 million; during the previous review, the IMF also approved a six-month extension of the ECF until May 2026. Additionally, import-substitution efforts and the ban on using foreign currencies for business transactions (starting on July 1) should help reduce the reserve drawdown. Due to this measure, reserves are expected to remain around the 4.0-month import cover mark over the next two years, increasing from USD 5.8 bn by end-2025 to USD 6.0 bn by December 2026.
Though the US is not a major trade partner of Tanzania, it is essential to note that it is vulnerable to trade shocks from Mainland China and other trade partners due to rising US tariffs. Increased trade tariff wars and slower Chinese growth could diminish demand for Tanzanian goods. Likewise, intensified US protectionism would bolster the US dollar, raising the cost of imports.
However, increasing tax payments and vigorous economic activity will accelerate revenue growth to 13.9% year-on-year, reaching 16.0% of GDP in FY24/25. This is broadly in line with the estimated growth of 13.6% in FY23/24. This implies that with reforms to improve tax issues, efforts will continue to focus on improving tax payment, particularly indirect taxes such as value-added and pay-as-you-earn taxes, which increasingly benefit from digital payment infrastructure.
Many readers will recall that this concern was highlighted in the June FY24/25 budget speech, which noted that businesses and institutions have been collecting taxes but failing to remit them as required by tax laws. Therefore, the projected faster real GDP growth, expected to rise from 5.5% in 2024 to 5.7% in 2025, will, in my view, further enhance revenue receipts.