Tanzania’s public expenditure in March 2025, totaling TZS 3,375.1 billion, allocates 41.7% (TZS 1,406.7 billion) to development projects and 58.3% (TZS 1,968.4 billion) to recurrent spending, reflecting a moderate commitment to inclusive growth but constrained by high recurrent costs. The emphasis on social welfare and education, which receives 19.9% (~USD 7,065.7 million) of the USD 35,505.9 million external debt, supports human capital development, critical for equitable growth. However, the dominance of recurrent spending, including TZS 833.3 billion for wages and TZS 300.0 billion for interest payments, limits reTICGL for transformative investments, contributing to a TZS 284.3 billion deficit. Key issues include the imbalance between recurrent and development spending, underinvestment in human capital, and fiscal constraints. Strategies such as reallocating recurrent funds, prioritizing human capital investments, enhancing public expenditure efficiency, and leveraging external financing can optimize spending, fostering inclusive growth and aligning with Tanzania’s Vision 2050 and 6% GDP growth projection for 2025.

Main Key Issues

1. Imbalance Between Recurrent and Development Spending
   • Expenditure Allocation: In March 2025, total expenditure of TZS 3,375.1 billion was split into 41.7% (TZS 1,406.7 billion) for development projects and 58.3% (TZS 1,968.4 billion) for recurrent spending, including wages (TZS 833.3 billion), interest payments (~TZS 300.0 billion), and other recurrent costs (TZS 835.1 billion). The Monthey Economic Review notes a fiscal deficit target below 3% of GDP, but the TZS 284.3 billion deficit (8.4% of expenditure) indicates fiscal pressure.
   • Development Spending: The TZS 1,406.7 billion for development projects supports infrastructure (e.g., Standard Gauge Railway, 21.5% of external debt use), health, and education, aligning with the Third Five-Year Development Plan (2021/22–2025/26) for 8% GDP growth by 2026. However, its 41.7% share is lower than the 50%+ recommended for developing economies to drive structural transformation, limiting inclusive growth.
   • Recurrent Spending Dominance: Recurrent spending’s 58.3% share, driven by a wage bill covering 1.2 million public servants and domestic debt servicing (TZS 890.9 billion in February 2025), crowds out development investments.  TICGL note recurrent expenditure at 62% of the 2024/25 budget (TZS 49.35 trillion), highlighting a structural bias toward short-term obligations.
   • Impact on Inclusive Growth: The imbalance constrains investments in poverty reduction (26.4% poverty rate in 2022) and job creation (unemployment ~10%), key for inclusive growth. The Monthey Economic Review emphasizes infrastructure and human capital for equitable development, but recurrent costs limit scalability.
2. Underinvestment in Human Capital
   • Current Allocation: Social welfare and education receive 19.9% (~USD 7,065.7 million) of external debt (USD 35,505.9 million), funding initiatives like free secondary education and health infrastructure. However, only a portion of the TZS 1,406.7 billion development expenditure targets human capital, as infrastructure (21.5%) and budget support (20.2%) dominate external debt use (previous responses). Health and education budgets are ~7% and 15% of the 2024/25 budget, below UNESCO’s 20% and WHO’s 15% benchmarks.
   • Human Capital Gaps: Tanzania’s Human Capital Index (HCI) is 0.40, below the Sub-Saharan Africa average of 0.48, with secondary completion rates at 30% and maternal mortality at 556 per 100,000 births. Low skills constrain productivity in agriculture (26% of GDP, 65.51% employment) and manufacturing (9% of GDP). The Monthey Economic Review notes education and health as Vision 2025 priorities.
   • Tourism Link: Tourism receipts (USD 3,842.6 million from 2,162,487 arrivals in April 2025) could fund human capital, but only ~10% (USD 384.3 million) is estimated as tax revenue (previous responses), insufficient to close gaps without reallocation from recurrent spending.
   • Impact on Growth: Underinvestment limits inclusive growth, as unskilled labor reduces competitiveness in AfCFTA markets (ratified 2022). TICGL highlight the need for skilled workers to achieve 6% GDP growth.
3. Fiscal Constraints and Revenue Limitations
   • Revenue Shortfall: Total revenue in March 2025 was TZS 3,090.8 billion (96.9% of TZS 3,190 billion target), with tax revenue at TZS 2,603.3 billion (2% above target) but non-tax revenue at TZS 350.5 billion (67.1% of TZS 522.4 billion), creating a TZS 171.9 billion gap (previous responses). The tax-to-GDP ratio (11.8% in 2022/23) is below the 15% Sub-Saharan average, limiting fiscal space.
   • Deficit Financing: The TZS 284.3 billion deficit was likely financed through domestic borrowing (TZS 34,759.9 billion, up 9.2%) or external loans (USD 35,505.9 million, previous responses), increasing debt servicing costs (USD 1,427.1 million external, TZS 890.9 billion domestic in 2024/25). This reduces funds for human capital development.
   • External Support: IMF’s Extended Credit Facility (USD 1,046.4 million) and World Bank’s human capital projects supplement spending, but reliance on borrowing risks sustainability, with a 46.7% debt-to-GDP ratio in 2022/23.
   • Resilience Risks: Limited revenue and high recurrent costs heighten vulnerability to shocks (e.g., DRC conflict), undermining inclusive growth. The Monthey Economic Review stresses fiscal discipline.

Strategies to Optimize Spending for Human Capital Development

1. Reallocate Recurrent Spending to Human Capital
   • Action: Reduce recurrent spending by 5% (TZS 98.4 billion from TZS 1,968.4 billion) through wage bill reforms (e.g., freezing non-essential hiring) and redirect to education and health. Fund teacher training (10,000 teachers at TZS 10 million/year, TZS 100 billion) and 50 clinics (TZS 8 billion each, TZS 400 billion).
   • Impact: This increases development spending to 44.6% (1,505.1 / 3,375.1 × 100), boosting HCI by ~0.02 points. Improved education and health enhance labor productivity, supporting 6% GDP growth and reducing poverty (26.4%). Aligns with IMF’s call for social spending.
2. Prioritize Human Capital in Development Budget
   • Action: Allocate 30% of development expenditure (TZS 422.0 billion of TZS 1,406.7 billion) to education and health, doubling their share from ~15%. Invest in vocational training (100,000 youth at TZS 5 million each, TZS 500 billion) and maternal health (20 hospitals at TZS 10 billion, TZS 200 billion).
   • Impact: This could raise secondary completion to 40% and lower maternal mortality to 400 per 100,000, aligning with World Bank’s 2025–2029 framework. Skilled workers boost manufacturing (3.9% of external debt use), fostering inclusive growth. Tourism receipts (USD 384.3 million tax) can co-fund (previous responses).
3. Enhance Public Expenditure Efficiency
   • Action: Implement performance-based budgeting to ensure 90% of TZS 1,406.7 billion development funds reach intended projects, saving ~TZS 140.7 billion (10% inefficiency). Use digital tracking (e.g., EFDs) to monitor spending and reduce leakages.
   • Impact: Savings fund 10,000 scholarships (TZS 10 million each, TZS 100 billion), increasing tertiary enrollment (8% in 2023). Efficient spending supports fiscal sustainability (46.7% debt-to-GDP), reducing borrowing needs (TZS 34,759.9 billion domestic debt).
4. Leverage External Financing for Human Capital
   • Action: Secure USD 500 million in concessional loans from World Bank/IMF for education and health, supplementing 19.9% of external debt (USD 7,065.7 million). Co-finance with tourism taxes (USD 384.3 million) to build 100 schools (TZS 5 billion each, TZS 500 billion).
   • Impact: This increases human capital investment by ~7% (500 / 7,065.7 × 100), supporting AfCFTA competitiveness. Concessional loans maintain moderate debt distress risk, ensuring resilience against shocks.

Conclusion

Tanzania’s March 2025 expenditure allocation of 41.7% (TZS 1,406.7 billion) to development projects and 58.3% (TZS 1,968.4 billion) to recurrent spending reflects a partial commitment to inclusive growth, constrained by high wage (TZS 833.3 billion) and debt servicing costs (TZS 890.9 billion in February 2025). The 19.9% external debt use for social welfare (~USD 7,065.7 million) supports human capital, but underinvestment (HCI 0.40) and fiscal constraints (TZS 284.3 billion deficit) limit equity. Key issues include spending imbalance, human capital gaps, and revenue shortfalls (TZS 171.9 billion non-tax). Strategies like reallocating recurrent funds, prioritizing human capital, enhancing efficiency, and leveraging external financing can optimize spending, boosting education, health, and 6% GDP growth, ensuring inclusive growth per Vision 2050.

The following table summarizes these key figures.