Moody’s gives Tanzania favourable credit rating

 

By The Citizen Reporter

Media/news company Mwananchi Communication Limmited

Summary

·         Moody’s attributes the positive outlook to lessened political risks in Tanzania, the country’s engagement with the international community and its structural reform agenda

Dar es Salaam. President Samia Suluhu Hassan’s efforts to lessen political hostilities, improve the

business climate and come up with constructive engagements with the international community have had a positive outcome on Tanzania’s credit rating, with Moody’s Investors Service giving the country a rate of B2 Positive.

In its regular country update, which was issued on Tuesday, Moody’s attributes the positive outlook to lessened political risks in Tanzania, the country’s engagement with the international community and its structural reform agenda.

“The positive outlook reflects our view that political risks have lessened under the government’s new approach of more active engagement with the international community and its structural reform agenda,” Moody’s says in its statement.

Moody’s ranks Tanzania highly on the aspect of political risk due to low level of ethnic tensions and relative political stability, in contrast to what was in the past seen as the government's history of policy unpredictability.

“The current presidential administration under President Hassan has taken steps at dismantling regulatory impediments to investment, removing restrictions on media and opposition parties, and mending international relationships,” Moody’s says.

President Hassan, who came into office in March 2021, lifted a ban on several publications and issued new publishing licences to Mwanahalisi, Mawio, Mseto and Tanzania Daima newspapers in early 2022.

In line with her 4Rs strategy of Reconciliation, Resilience, Reforms and Rebuilding, in January 2023 President Hassan lifted the six-and-a-half-year ban on political rallies which was imposed by her predecessor, Dr John Magufuli.

And, according to Moody’s, the government’s efforts to improve the business and investment climate and attract foreign direct investment (FDI), most notably in the mining and hydrocarbon industries, offer has brightened up prospects for higher growth and government revenue and foreign reserve generation.

The B2 ratings suggest a company or government is able to meet its financial commitments despite some adverse economic conditions that could potentially affect its repayment ability.

Analysts say the B2 Positive rating is good news for Tanzania because it sends a message that the country – through its public and private sectors – is capable of receiving more credit, even from commercial lenders on affordable terms, because it can actually take care of the obligations.

According to Moody’s, Tanzania’s progress under the International Monetary Fund (IMF) programme has the potential to support improved institutional capacity, including higher government revenue generation, and should serve as the basis for continued access to foreign concessional financing.

Moody’s says it would likely upgrade the rating if the government’s efforts to establish a track record of investment-friendly policy and regulatory stability becomes increasingly embedded in the country’s institutional structures.

“This could include continued implementation of the current IMF programme and the government's structural reform agenda, such that government revenue as a share of GDP increases and investor sentiment continues to improve,” it says.

Overall, Tanzania’s strengths are anchored in high economic growth rates, a large and diversified economy and a moderate debt burden compared to its peers.

On the negative side, however, the country could be weighed down by low income levels as well as Environmental, Social and Governance (ESG) risks.

Apart from social risks including poor education outcomes and high unemployment, the country also needs to further improve its institutional strength, budget execution and revenue mobilization.

On this, economist-cum politician Zitto Kabwe said yesterday that the rating was a clear indication that due to past policy making inconsistencies, the markets were shy of Tanzania regardless of the current efforts.

“The government needs to sustain reforms, not only economic but also political reforms to ensure that months towards 2025 elections are smooth and without glitches,” he said, urging the government to institutionalise the ongoing reform processes so that Tanzania gets further upgrade and ease its entry into international financial markets.

Mr Kabwe said the message in the rating was that despite recent improvements, Tanzania was till in speculative category and that any economic change would affect the country’s ability to pay.

“We thus need concerted efforts to improve our economy,” he said.

Despite the challenges, however, Moody’s says the positive outlook indicates that a downgrade is unlikely in the near term.

“However, we would likely change the outlook back to stable if there were minimal improvements in FDI, growth potential and the government’s revenue generation capacity despite the recent reform efforts.”

It says that evidence of a loss of reform momentum, potentially in the lead-up to the 2025 presidential election, would increase political risk and policy uncertainty, supporting an outlook change to stable.

The rating comes within one month after senior Moody’s Investors Service representatives came to Tanzania in an effort to collect data as part of the procedures to be used in determining the country’s rating.

The Finance and Planning minister, Dr Mwigulu Nchemba, said last month that a good credit rating would enable Tanzania to get access to credit from the international markets on affordable terms.