Debt Management Challenges and Economic Sustainability in Tanzania

Tanzania's debt management challenges are showed by the trends in its external and domestic debts, which have significant implications for the country's economic sustainability:

Rising Debt Levels:

• Over the past year, Tanzania's external debt increased by 11%, rising from TZS 75,667,240 million in March 2023 to TZS 83,716,435 million in March 2024. Similarly, domestic debt grew by 15%, from TZS 26,853,400 million to TZS 30,753,800 million during the same period.
• The overall debt has increased by 12% year-on-year, from TZS 102,520,640 million to TZS 114,470,235 million.

Monthly Debt Fluctuations:

• Despite the annual increase, there was a 2% decrease in both external and domestic debts from February 2024 to March 2024. This short-term reduction could indicate efforts to manage debt levels more prudently, but it may also reflect temporary fluctuations rather than a sustained trend.

Economic Growth and Debt Sustainability:

• The reliance on both external and domestic borrowing to finance development projects can be beneficial if these investments lead to significant economic returns. However, if the borrowed funds are not effectively utilized, they can lead to higher debt servicing costs without corresponding economic benefits.
• The growing debt levels suggest that Tanzania faces challenges in generating sufficient domestic revenue to finance its development needs without resorting to increased borrowing. This reliance on debt financing poses risks to long-term economic sustainability, as it may lead to higher debt service obligations that could strain fiscal resources.

Debt Management Strategies:

• Effective debt management strategies are crucial to ensuring that the increasing debt levels do not undermine economic stability. This includes prioritizing investments with high economic returns, improving fiscal discipline, and enhancing domestic revenue mobilization.
• The 2% month-on-month decrease in total debt indicates some level of debt repayment or reduction, which is a positive sign. However, sustained efforts are required to manage debt levels effectively and ensure that borrowed funds contribute to sustainable economic growth.

Hence, Tanzania is experiencing significant debt management challenges, as evidenced by the substantial increases in both external and domestic debts over the past year. While these debts have the potential to support economic growth through infrastructure and development projects, the high levels of borrowing raise concerns about long-term economic sustainability. Effective debt management, prudent fiscal policies, and strategic investment of borrowed funds are essential to ensure that Tanzania's debt remains sustainable and contributes positively to the country's economic development.

Tanzania can manage its debt more sustainably, reduce fiscal risks, and ensure long-term economic stability and growth:

Enhance Domestic Revenue Mobilization:

• Tax Reforms: Implementing comprehensive tax reforms to widen the tax base, improve tax collection efficiency, and reduce tax evasion. This includes simplifying tax laws, improving compliance, and enhancing the capacity of tax authorities.
• Diversifying Revenue Sources: Reducing dependency on a few revenue sources by diversifying the economy. Investing in sectors such as tourism, agriculture, mining, and manufacturing can create more stable and varied revenue streams.

Prudent Public Expenditure Management:

• Prioritizing Expenditures: Focusing on high-impact projects that promote economic growth and social development. Prioritizing investments in infrastructure, education, healthcare, and other sectors that can yield long-term economic benefits.
• Enhancing Efficiency: Improving the efficiency of public spending by reducing waste, corruption, and inefficiencies. Implementing robust public financial management systems and ensuring transparency and accountability in government expenditures.

Debt Sustainability Analysis and Management:

• Conducting Regular Debt Sustainability Assessments: Regularly assessing debt levels to ensure they remain within sustainable limits. Using tools like the Debt Sustainability Framework (DSF) to analyze and monitor debt levels and potential risks.
• Developing a Medium-Term Debt Management Strategy (MTDS): Formulating and implementing a comprehensive MTDS that outlines the government’s borrowing plans, debt management objectives, and strategies to achieve them. This includes setting clear limits on borrowing and prioritizing concessional loans over commercial borrowing.

Strengthening Institutional Frameworks:

• Enhancing Debt Management Institutions: Building the capacity of institutions responsible for debt management. Providing training and resources to improve their ability to manage and monitor public debt effectively.
• Strengthening Legal and Regulatory Frameworks: Enforcing robust legal and regulatory frameworks to ensure responsible borrowing and lending practices. This includes setting clear guidelines for public borrowing and debt management.

Promoting Economic Diversification and Growth:

• Investing in Key Sectors: Focusing on sectors with high growth potential to diversify the economy and reduce reliance on external debt. Investments in agriculture, manufacturing, tourism, and technology can stimulate economic growth and create jobs.
• Supporting Private Sector Development: Creating a conducive environment for private sector growth by improving infrastructure, reducing bureaucratic barriers, and providing access to finance. A vibrant private sector can drive economic growth and reduce the need for public borrowing.

Enhancing Transparency and Accountability:

• Publishing Debt Data: Regularly publishing comprehensive and accurate data on public debt to enhance transparency and build public trust. This includes providing information on the terms, conditions, and use of borrowed funds.
• Engaging Stakeholders: Involving civil society, the private sector, and other stakeholders in discussions on debt management and economic policies. Encouraging public participation can lead to more informed decision-making and greater accountability.

Promoting Sustainable Economic Policies:

• Implementing Structural Reforms: Undertaking structural reforms to improve the business environment, enhance productivity, and promote sustainable economic growth. This includes reforms in areas such as land tenure, labor markets, and financial services.
• Fostering Regional Integration: Enhancing regional trade and economic integration to expand markets, improve competitiveness, and attract investment. Participating in regional initiatives can create new economic opportunities and reduce dependency on external borrowing.