DAR ES SALAAM: INVESTOR confidence remains firm as Moody’s keeps the country’s sovereign rating at B1 with a stable outlook, signaling steady borrowing costs despite last year’s challenges.
The reassurance comes as Moody’s affirmed the sovereign credit rating at B1 with a stable outlook last week, signaling that while the economy remains speculative, it is broadly creditworthy and capable of meeting its financial obligations.
The Stanbic Bank Tanzania Chief Executive Officer, Mr Manzi Rwegasira, said that the rating is particularly positive given public concerns about investor sentiment on the country following domestic challenges it faced last year.
“In simple terms: International creditors have assessed that Tanzania’s fiscal credibility and situation remains stable and broadly positive,”
Mr Rwegasira said over the weekend: “This speaks to the country’s finances and economic outlook. The cost of borrowing from abroad (internationally) should remain constant (it is not rising).”
Moody’s B1 rating is a speculative rating, which is seen as somewhat risky by investors.
While it can meet its debt obligations, it is more vulnerable than higher rated countries to economic shocks, such as slower growth, higher inflation or external crises.
While the stable outlook means Moody’s expects the country’s rating to remain roughly the same in the near future, usually 12–18 months.
Dr Hildebrand Shayo, an economic-cum-investment banker, told the `Daily News’ that the economic and fiscal conditions, according to the new rating, are considered steady enough that neither an upgrade nor a downgrade is likely unless unexpected events occur.
“The reaffirmation of B1 today reflects both continuity and resilience, economic growth remains robust, inflation is controlled and fiscal reforms are yielding higher revenue,” Dr Shayo said.
Moody’s had previously downgraded the country rating to B2 in August 2020, citing weak governance and policy unpredictability.
The rating was lifted to B1 in March 2024 when the agency acknowledged improved shock-absorption capacity and steady macroeconomic performance.
Under the current rating, the country is two notches below investment grade.
ALSO READ: Investors seek to partner with Tanzania in establishing mineral processing plants
Economic growth is expected to remain at or above 6.0 per cent annually, driven by mining, manufacturing, tourism and transport sectors, while inflation has stayed below 5.0 per cent in recent years.
Government debt is moderate at around 50 per cent of GDP, with interest costs weighing on revenue.
“Strong growth projections and improved macroeconomic management have reinforced the credit profile,” Dr Shayo said.
Reforms in tax administration and broader revenue mobilisation rising non-grant revenue from about 13.7 per cent of GDP in 2020/21 to nearly 16 per cent in 2025/26 have strengthened fiscal credibility.
Additionally, Dr Shayo said that enhanced policy effectiveness, including greater exchange-rate flexibility and better functioning foreign exchange markets, has reduced economic vulnerability to external shocks.
Despite these strengths, the economist pointed to ongoing structural challenges that keep the rating below investment grade.
“Low per-capita income, inadequate institutional capacity and social pressures are structural barriers that dampen credit enhancement prospects. Political risks around the last year general election briefly elevated uncertainty, although stability has largely returned.”
Moody’s itself noted that underlying social risks, such as rapid population growth and limited access to basic services, could weigh on investor confidence if not addressed.
According to Dr Shayo, Moody’s guidance on what is required for an upgrade is clear: “To move beyond B1, the country must significantly broaden its tax base and improve compliance to boost non-grant revenue. Sustainable revenue growth will lower debt burdens, reduce interest costs and strengthen fiscal sustainability.”
Also, the importance of strengthening institutions to support consistent policy execution, expanding inclusive economic growth that raises household incomes, and reducing reliance on non-concessional debt to ease funding pressures.