Publicación: Tanzania Economic Update, September 2026: Special Theme - Making Jobs Work (+...)

Publicación: Tanzania Economic Update, September 2026: Special Theme - Making Jobs Work https://openknowledge.worldbank.org/entities/publication/6efdd187-d32e-4e02-82bf-cfa406d06a80 Tanzania’s economy expanded by 5.9 percent in 2025, supported by increased government spending ahead of the October elections. Public spending accounted for more than two-thirds of real Gross Domestic Product (GDP) growth, with expenditure shifting toward recurrent outlays. Services particularly financial services, trade, and transport contributed nearly half of sectoral real growth, while mining activity was constrained by capacity limitations. Monetary conditions remained stable, with inflation staying within the Bank of Tanzania’s 3–5 percent target band throughout 2025. The Bank of Tanzania (BoT) continued implementing its interest-rate-based monetary policy framework, narrowing the operating band in April 2026 and subsequently raising the Central Bank Rate by 50 basis points to 6.25 percent in July 2026. Private sector credit grew by 28.1 percent year-on-year in June 2026, a multi-year high, while non-performing loans remained below the 5 percent prudential threshold. Gold purchase operations continued to add liquidity to the financial system. Revenue collection outperformed targets in FY2026, although expenditure pressures linked to the election cycle complicated the consolidation path. Domestic revenues exceeded budget projections by 4.2 percent in nominal terms during the first eleven months of FY2026. Elevated recurrent spending after the elections was corrected during November–May of FY2026, helping ease expenditure pressures. While the share of concessional financing in new borrowing has declined, public debt remains moderate at 49 percent of GDP, with a moderate risk of debt distress. The current account deficit widened to 2.5 percent of GDP in FY2026, driven by higher energy prices and freight costs. The widening reflected the impact of higher import prices particularly oil products, transport, and insurance costs associated with the war in the Middle East. These pressures outweighed the positive effects of elevated gold prices. Growth is projected to accelerate to 6.1 percent in 2026 and 6.5 percent over the medium term, driven by expanded private sector activity. The outlook rests on growth-friendly fiscal consolidation and continued implementation of business environment reforms. However, risks are tilted to the downside. A prolonged war in the Middle East could weigh on fuel-dependent sectors, agricultural inputs, tourism, and logistics. Other risks relate to reform momentum, fiscal discipline, and external shocks, while climate vulnerability adds further uncertainty. Over the longer term, the evidence points to human capital investment as the public spending priority most likely to sustain growth, support job creation, and reduce poverty. This update's special theme is 'Making Jobs Work. Tanzania does not face a jobs shortage, it faces a jobs quality challenge. With an employment-to-population ratio of 68.7 percent, among the highest in the world, more than two in three working-age Tanzanians were in employment in 2024. Yet median hourly pay stands at just TZS 1,005, and most workers are own-account workers or contributing family members in low-return, low-productivity activities. Agriculture alone employs 54 percent of the workforce. Rapid growth of the working age population makes the challenge more urgent. The scarcity of good jobs is an important link between Tanzania’s impressive growth record and its limited progress on poverty reduction and formalization. While the economy has grown at an average of 5.7 percent annually over two decades, this growth has been driven primarily by resource accumulation rather than productivity gains. Improving job quality requires addressing limitations on both sides of the labor market simultaneously. On the supply side, most of Tanzania’s labor force faces the dual constraints of low readiness and limited market opportunity. Over half of workers are rural, informal, with limited human capital and high vulnerability to shocks. Learning-adjusted schooling averages only 4.5 years. Without adequate social protection, income shocks from health emergencies, family crises, or climate events force households to withdraw children from school or liquidate productive assets, degrading the human capital that would otherwise support transitions to better employment. Women face compounding barriers: care responsibilities, limited mobility, and occupational segmentation concentrate them in the lowest-productivity activities. Social assistance spending at 0.7 percent of GDP is less than half the Sub-Saharan Africa (SSA) average, and active labor market programs are structurally skewed toward urban, higher-readiness workers. On the demand side, Tanzania’s formal private sector lacks the productivity and dynamism to generate better jobs at scale. Labor productivity in formal firms lags SSA peers by around 50 percent in services and more in manufacturing. Firm entry is limited: only 12 percent of formal firms are young, compared to 38 percent in Rwanda, for instance. Private investment has shrunk, with the average firm investing just 11 percent of what it did a decade ago. Technology adoption, Research and Development (R&D) spending, and innovation all trail regional peers. One in three firms is credit-constrained, and 58 percent of large firms cite land access as a major barrier. Wide within-sector productivity gaps signal resource allocation issues that prevent firms from growing and creating jobs. Two policy pillars address these interlocking constraints. The first targets the quality job base reducing barriers to firm entry, exit, investment, and land access, strengthening insolvency frameworks, and unlocking long-term finance. The second builds the quality workforce pipeline redesigning social protection as a mobility enabler, prioritizing the lowest-readiness workers, embedding gender-responsive design as a system standard, and building the labor market information and credential recognition systems that connect workers to better jobs.