Moody's assigned first-time local- and foreign-currency issuer ratings of B1 to Tanzania, with a negative outlook, as it cited constraints to the economic, institutional and fiscal health of the east African country.
The rating agency said despite Tanzania's high economic growth, which was projected to average 6.7% between 2018 and 2020, the strength of the economy was only assessed as moderate due to low income levels, a key credit constraint.
Tanzania's economic competitiveness is also limited by factors such as tax rates, access to finance and inadequate supply of infrastructure, Moody's said.
"Moody's does not expect these constraints to be alleviated in the foreseeable future. Low competitiveness is a constraint on both the capacity of the economy to attract investment and its ability to recover quickly from economic shocks," the rating agency said.
Meanwhile, Tanzania's institutional strength is limited by its weak governance and policy implementation and low level of budget credibility due to persistent underperformance on revenue and expenditure plans, Moody's said.
On fiscal strength, Moody's said a key credit challenge stems from Tanzania's huge share of foreign-currency-denominated debt, which makes the debt trajectory vulnerable to exchange rate volatility.
Moody's said it expects Tanzania's fiscal deficit to widen as the government focuses on infrastructure investment to meet its national development goals, with government debt likely to reach 43% of GDP in 2020.
The negative outlook on Tanzania's ratings reflects the "increasingly unpredictable policy environment weighing on the business climate," according to Moody's.
"Uncertainty over the regulatory environment and policy stance of the government, particularly as it relates to the mining sector, could have a long-term negative impact on the country's growth potential and ability to attract foreign investment," the rating agency said.
