Tanzania Economic Update Reveals Mixed Performance in Job Creation

The World Bank's Tanzania Economic Update (TEU) has highlighted the country's mixed performance in job creation. While Tanzania's macro-economic indicators are strong, with a GDP growth of 5.9 percent in 2025, the quality of jobs remains a challenge. The TEU, launched on October 2, 2026, focused on the theme "Making Jobs Work" and revealed that the country's growth is driven by strong services sector, particularly financial services, trade, and transport.

Despite stable monetary conditions, low inflation, and moderate public debt, the TEU identified several challenges. These include excessive dependence on government spending, excessive regulation, and below-peer performance on foreign direct investment (FDI) and private sector credit. The report also noted that firms in Tanzania spend an average of almost 14 percent of senior management time on regulatory compliance, almost double the regional average.

The TEU highlighted that FDI has been hovering around 2 percent of GDP since 2016, lower than the average among Lower Middle Income Countries (LMICs) and Sub-Saharan Africa (SSA). Additionally, private sector credit remains low as a proportion of GDP, at 19.7 percent compared to the SSA average of 27 percent. The report also noted a "striking paradox" in public-private partnership (PPP) projects, which consistently fail to reach financial close despite a legally mature framework and sustained investor interest.

The TEU suggested that targeted reforms prioritizing execution credibility over additional framework design could address these challenges. The report also identified underperforming sectors, including agriculture and mining, which are key drivers of exports. Agriculture's growth potential has been limited by market inefficiency and policy gaps, while mining revenues have been hamstrung by capacity limitations.

The report also highlighted areas of unfulfilled potential, including logistics exports and labour-intensive non-traditional exports. Logistics exports have grown significantly in recent years but remain relatively limited given the country's potential to serve as a regional hub. Labour-intensive non-traditional exports, including manufactured goods and horticultural products, have grown more slowly than nominal exports overall.

To address the challenge of insufficient quality jobs, the TEU recognized the need for both demand and supply-side solutions. The report recommended policy pillars, including a Quality Job Base and a Quality Workforce Pipeline. These include reducing barriers to firm entry, exit, investment, and land access, as well as redesigning social protection as a mobility enabler.

The TEU's GDP growth projections are positive, with estimates of 6.1 percent in 2026, 6.4 percent in 2027, and 6.5 percent in 2028. However, the report cautioned that the balance of risks is tilted to the downside, with domestic reform capacity, fiscal discipline, and external shocks as key concerns. The achievement of fiscal framework assumptions will depend on sustained reform implementation, including drawing on the direction set by the Presidential Tax Reform Commission.

Key points

• Tanzania's economy shows strong GDP growth but struggles with job quality.