Budget 2025/26: Eyeing impact on Tanzania capital markets

TANZANIA through its Minister for Finance, Dr Mwigulu Nchemba (MP), announced its national budget for fiscal year 2025/26 on 12th June with a theme agreed by EAC Member States “Inclusive Economic Transformation through Domestic Resource Mobilisation and Resilient Strategic Investment for Job Creation and Improved Livelihoods”.

Through his speech, we have noted that Tanzania has made some progress in domestic resource mobilisation with government revenue from domestic sources increasing considerably between fiscal years 2020/21 and 2023/24 from 20.59tri/- to 29.83tri/- respectively.

Moreover, domestic revenue continued to increase by an average of 2/83 per month between July 2024 and May 2025.

This upshifts in domestic revenue represents a shift in paradigm for the government emphasising its commitment to financing the country’s development internally aligning with this year’s theme.

Reflection on the Tanzania economy, GDP grew by 5.6 per cent in 2024 from 5.1 per cent in 2023 as services, tourism, industry and construction sectors improved. Economy is expected to grow by 6.0 per cent in 2025 driven by sustainable government investment in various key infrastructure projects and strong tourism sector performance. Inflation remained resilient in 2024 at 3.10 per cent.

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Inflation is expected to reach 3.40 per cent in 2025, staying within the EAC’s and SADC’s target range. Tanzania shilling had feats of turbulence against the US dollar in first quarter last year depreciating by 9.0 per cent, the highest decline in a decade before recovering in the second half of the year due to various intervention measures by the Bank of Tanzania.

Exchange rate is expected to remain relatively stable at a lower rate of 3.70 per cent in 2025. National Debt stood at 107.70tri/- in March 2025, with external debt of 72.94tri/- and domestic debt of 34.76tri/-.

The government debt continues to be sustainable in the short, medium and long term according to the Debt sustainability Analysis (DSA) conducted in October 2024. Budget In Numbers The 2025/26 budget amounts to 56.49tri/-, a 14.35 per cent increase from last fiscal year’s 49.35tri/-.

This ambitious budget comes on the back of successful implementation of last fiscal year’s target as revenue collection from both domestic and external sources reached 45.07tri/- in May this year.

Tanzania Revenue Authority collected 26.86tri/-, close to 91.30 per cent of the annual target. Non– tax revenue reached 2.97tri/- or 77.40 per cent of target revenue. Local Government Authorities collections reached 93.20 per cent or 1.26tri/-.

Grants and concessional loans amounted to 5.32tri/- or 87.50 per cent. Domestic borrowings reached 94.10 per cent or 6.23tri/- and external loans were 2.43tri/- or 81.30 per cent.

This budget is based on assumptions that private sector participation in investments will increase, increased resilience and preparedness against the effects of natural disasters and geopolitical tensions, strengthened global economy and less volatility in commodity markets, improved food security and peace and security within Tanzania and neighbouring countries.

The 2025/26 budget focus more on general public services as it allocates around 38 per cent of the total budget on that. This includes financing this year’s general elections in October and preparations for 2027 Africa Cup of Nations (AFCON 2027). Health and Education will receive close to 16 per cent for various projects including HIV prevention projects and the Universal Health Fund.

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The government will allocate 12 per cent of 2025/26 budget on debt repayments, 16 per cent on development projects, 5.0 per cent on public defence and security and 3.0 per cent on housing and community development. Budget Impact on Capital Markets Through 2025/26 budget, domestic borrowings will increase leading to an increase in Treasury securities issuance sizes compared to 2024.

We expect bond market size to increase by more than 10 per cent with long tenor bonds continuing to dominate both primary issuances and secondary market.

Furthermore, we anticipate more municipal and subnational issuances VAT reductions to 16 per cent for online B2C transactions will encourage non cash transactions through banking networks and mobile network providers.

We expect listed commercial banks and mobile network operators to benefit from this in terms of increase in non – interest revenues and increase mobile money transaction fees. Introduction of 10 per cent withholding tax on retained earnings might push listed companies to pay more dividends if done correctly to avoid issues such as double taxation. This will not only push share prices up, but also market capitalisation.

Conclusion The budget presents ambitious goals by the government and if well implemented it will spur not only economic growth, but also social development. We expect the budget to have a positive impact on Tanzania capital markets both for fixed income and listed equities.