Summary:
- Tanzania’s financial sector faces a setback in global integration due to weak anti-money laundering laws, leading to the loss of correspondent banking, as highlighted by the IMF, while efforts to address the deficiencies are underway.
Weak anti-money laundering legislation in Tanzania has led to the loss of correspondent banking, impacting Dodoma’s integration into the global payment system. The International Monetary Fund (IMF) highlighted this issue in its Country Report No. 23/425 for Tanzania, stating that deficiencies in the anti-money laundering and combating the financing of terrorism (AML/CFT) framework are significant vulnerabilities.
Correspondent banking involves a financial institution providing services to another, typically in a different country. While the Tanzanian banking sector is described as well-capitalized, profitable, and liquid, challenges such as rapid credit growth, high credit concentration, and financial dollarization persist.
The Financial Action Task Force (FATF), a global watchdog on money laundering and terrorist financing, has kept Tanzania, along with Uganda, South Sudan, and the Democratic Republic of Congo, under “increased monitoring” due to notable weaknesses in their efforts against financial crimes.
The IMF acknowledges Tanzanian authorities’ efforts to align with FATF standards and enhance the effectiveness of the AML/CFT framework. However, progress has been limited, and effective coordination among government institutions is essential to address remaining gaps.
The Tanzanian economy is expected to grow at a slower pace, reaching five percent and 5.5 percent in 2023 and 2024, respectively. This projection is supported by improvements in the business environment and decreasing global commodity prices. Nevertheless, potential risks include regional conflicts, commodity price volatility, a global economic slowdown, climate-related disasters, forex market imbalances, and challenges in executing public investment projects.
To address AML/CFT concerns, Tanzanian authorities, in consultation with the IMF, are establishing a risk-based supervisory approach. This approach includes assigning supervisors for each sector, developing sector-specific risk assessment methodologies, creating supervisory manuals, and outlining plans for high-risk sectors.
In a separate development, the World Bank recently approved loans totaling $1.14 billion to Tanzania. These funds aim to support the country’s private sector, develop its commercial capital, and address the impacts of climate change.
