Slowdown of emerging markets economies, low commodity prices and tight global and domestic financial conditions pose downside risks to sustained growth of Tanzania’s economy in 2016
According to the Financial Stability Report (FSR), for six months of September last year the economy is expected to grow at 7.0 per cent in 2016 compared to 6.9 per cent in 2015, despite the risks, supported by increased investment in infrastructure, manufacturing and tourism sectors.
“Risks arising from corporate sector are expected to increase in the next six months on account of exchange rate volatility and weak demand for export commodities stemming from slow growth in the Emerging Market Economies,” stated the report.
Household debt is projected to grow in the next six months on account of government initiative to encourage mortgage lending.
Down payment for housing purchases was reduced from 20 percent to 10 percent to encourage uptake of housing mortgage cost.
The banking sector risks are expected to remain low except for foreign exchange risks stemming from further strengthening of US dollar in the event of US normalisation of monetary policy and increase in interest rates. Risks arising from Nonbank Financial Sector are expected to increase in the next six months.
Uncertainties regarding monetary policy normalization in advanced economies may trigger volatility in the domestic financial markets.
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Risks arising from insurance sector are expected to remain low on account of improved performance. Risks in Social Security Sector are also expected to remain low on account of implementations of reform programmes.
Risks to EAC macrofinancial environment are expected to increase due to slowdown in emerging market economies and decline in commodity prices.
However, low oil prices are expected to positively impact on the import bills of EAC member states, while strengthening of the US dollar will elevate foreign exchange risk.
The results of stress testing revealed that, in aggregate terms the sector was adequately capitalized to absorb the shocks. The banking sector was subjected to shocks relating to increase in credit, interest and exchange rate risks.
Risks arising from macrofinancial environment are expected to increase in the next six months on account of continued slowdown in emerging market and developing economies due to weakening economic activity, declining commodity prices and tighter financial conditions.
Additionally, uncertainties regarding normalization of monetary policy in advanced economies will contribute to further tightening of financial conditions.
Volatilities in Emerging Market Economies will negatively affect asset prices and credit allocation as foreign debt servicing capacity for public and private corporations deteriorates thus weakening bank balance sheets.
