Despite fixed investment beginning to pick up, Tanzania's economicgrowth will slow in 2017 on the back of sluggish lending and themineral export ban. We also note that a weakening regulatory environmentwill dampen the longer-term growth outlook.
We expect the shilling to trade sideways in the short term, as centralbank management of the currency mitigates the impact of modestdepreciatory pressure. Over the longer term, elevated inflation comparedto the US and a more challenging regulatory environment willsee a gradual sell-off of the Tanzanian currency.
Tanzania's current account deficit will widen in 2017 and 2018 asbetter implementation of development projects in the infrastructuresector sees a moderate boost in import spending and gold exportsdecrease owing to the export ban.
A string of increasingly populist and protectionist policies by theMagufuli administration in Tanzania will dent growth in the comingyears, and see the country's reputation as an investment destinationdeteriorate. However, we expect that the president's popularityamongst domestic constituents is likely to continue, and that hisparty will win the next election.
The Bank of Tanzania is unlikely to undertake looser monetary policyin the coming quarters after easing the discount rate by a total of 700basis points in 2017. While the pass-through from such a move willbe limited, we note that this represents a continuing shift towardsinterest rate-based monetary policy.
Tanzania's fiscal deficit will expand in 2017 and 2018 despite governmentefforts to collect more revenue as capital spending increases.
While the debt burden is set to increase as a result, and domesticnon-concessional debt financing will overshoot targets, we believeit will grow at a sustainable pace.