Tanzania’s combined external debt of USD 35.51 billion and domestic debt of TZS 34,759.9 billion as of April 2025 supports critical sectors like infrastructure (21.5% of external debt) and social welfare (19.9%), driving economic growth projected at 6% for 2025. The IMF’s assessment of moderate external debt distress risk and a public debt-to-GDP ratio of 46.7% in 2022/23 (well below the 55% benchmark) indicate a sustainable debt profile, but rising borrowing and a TZS 284.3 billion budget deficit in March 2025 necessitate careful management to maintain economic resilience. Key issues include high debt servicing costs, exchange rate risks (TZS depreciated 3.9% to 2,684.41/USD), and limited revenue diversification. Strategies such as enhancing domestic revenue mobilization, prioritizing concessional borrowing, improving debt management, and diversifying exports can balance borrowing with sustainability, ensuring resilience against shocks while supporting Vision 2050’s growth targets.

Main Key Issues

1. Debt Levels and Sectoral Support
   • Debt Composition: As of April 2025, external debt stands at USD 35,505.9 million, with 76.7% (USD 27,224.0 million) held by the central government and 23.3% (USD 8,278.1 million) by the private sector. Domestic debt is TZS 34,759.9 billion (USD ~12.95 billion at TZS 2,684.41/USD), up 9.2% from TZS 31,836.5 billion in April 2024. Combined, this equals ~USD 48.46 billion, or ~61.2% of 2024 GDP (USD 79.2 billion), higher than the 46.7% public debt-to-GDP ratio in 2022/23.
   • Sectoral Allocation: External debt supports transport and telecommunications (21.5%, ~USD 7,633.8 million), balance of payments and budget support (20.2%, ~USD 7,172.2 million), and social welfare and education (19.9%, ~USD 7,065.7 million). Domestic debt finances recurrent costs (e.g., TZS 833.3 billion for wages in March 2025) and development projects (TZS 1,406.7 billion, 41.7% of expenditure). These investments drive infrastructure (e.g., Standard Gauge Railway) and human capital, critical for 6% GDP growth.
   • Sustainability Metrics: The IMF’s moderate external debt distress risk reflects a debt-to-GDP ratio below 55% and reserves of USD 5.3 billion (4.3 months of import cover). However, TICGL note a rise in external debt from USD 32.09 billion in January 2025, signaling increased borrowing pressure. The debt service-to-export ratio (16.2% in 2024/25) remains manageable but requires vigilance.
2. High Debt Servicing Costs
   • External Debt Servicing: With 67.4% of external debt (USD 23,931 million) in USD, servicing costs are estimated at ~USD 2.4 billion annually (assuming 6.7% average interest rate). In 2024/25, external debt service was USD 1,427.1 million, up from USD 1,224.3 million in 2023/24, straining reserves. Interest arrears are low (USD 78.0 million for central government, 0.2%), but private sector arrears (USD 1,637.0 million, 4.6%) indicate repayment challenges.
   • Domestic Debt Servicing: Domestic debt servicing reached TZS 890.9 billion in February 2025, with interest payments in March 2025 at ~TZS 300.0 billion (previous responses). This competes with development spending (TZS 1,406.7 billion), limiting fiscal space. TICGL note domestic debt servicing at TZS 2,364.3 billion in 2022/23, highlighting its fiscal burden.
   • Impact on Resilience: High servicing costs reduce funds for social programs and infrastructure, increasing reliance on borrowing (e.g., TZS 519.6 billion in Treasury bonds, previous responses). The Monthey Economic Review notes a fiscal deficit target below 3% of GDP, but the TZS 284.3 billion deficit in March 2025 suggests ongoing financing needs.
3. Exchange Rate Risks and Currency Exposure
   • TZS Depreciation: The TZS depreciated 3.9% annually to TZS 2,684.41/USD in April 2025, increasing the cost of USD-denominated debt servicing by ~TZS 2,471.6 billion (23,931 million × 2,684.41 × 3.9%). The BoT’s interventions (USD 6.25 million sold in IFEM) and reserves mitigate volatility, but note a 29% TZS weakening from 2014–2024, amplifying debt costs.
   • Currency Composition: External debt’s 67.4% USD share, 16.8% Euro, and 6.3% Yuan expose Tanzania to currency risks, especially with a stronger USD (1 USD = TZS 2,655.59 in June 2025). Domestic debt in TZS avoids currency risk but faces inflation pressures (3.3% in March 2025, previous responses).
   • Trade Implications: Depreciation boosts export competitiveness (e.g., agriculture, 5.1% of external debt use), but higher import costs (USD 17,511.8 million in February 2025) and debt servicing strain reserves, reducing economic resilience. The current account deficit of USD 2,224.9 million, though improved by 18.6%, reflects external pressures (previous responses).
4. Limited Revenue Diversification
   • Revenue Performance: Tax revenue in March 2025 reached TZS 2,603.3 billion (2% above target), but non-tax revenue underperformed at TZS 350.5 billion against TZS 522.4 billion, contributing to a TZS 3,090.8 billion total revenue (96.9% of TZS 3,190 billion target). The tax-to-GDP ratio (11.8% in 2022/23) is below the 15% Sub-Saharan Africa average, limiting debt repayment capacity.
   • Dependence on Taxes: Taxes constitute 84.2% of revenue (2,603.3 / 3,090.8 × 100), with non-tax TICGL (e.g., dividends, fees) contributing only 11.3% TICGL highlight inefficiencies in public enterprise dividends, constraining fiscal space for debt servicing and development spending.
   • Resilience Risks: Limited revenue diversification increases reliance on borrowing to fund the TZS 284.3 billion deficit, with domestic debt held by commercial banks (TZS 10,049.9 billion, 28.9%) and external loans (e.g., IMF’s USD 440.8 million). This heightens vulnerability to shocks, as seen in the private sector’s USD 1,637.0 million arrears.

Strategies to Balance Borrowing with Debt Sustainability

1. Enhance Domestic Revenue Mobilization
   • Action: Increase the tax-to-GDP ratio to 13% by 2026 through broader tax base (e.g., informal sector, ~3 million taxpayers) and digital tax systems (EFDs). Target TZS 500 billion annually from non-tax TICGL by improving public enterprise dividends (e.g., TANESCO) and introducing carbon credits, covering ~17.6% of the March 2025 deficit (500 / 2,843 × 100).
   • Impact: Additional TZS 1,000 billion (tax + non-tax) could reduce borrowing needs, lowering domestic debt growth (9.2% in 2025) and servicing costs (TZS 890.9 billion in February 2025). This aligns with IMF recommendations for revenue reforms and supports social welfare spending (19.9% of external debt).
2. Prioritize Concessional Borrowing
   • Action: Secure concessional loans (e.g., World Bank, IMF’s ECF USD 1,046.4 million) for 80% of new external borrowing, targeting USD 2 billion annually at <2% interest rates. Limit commercial loans (36.3% of external debt) to reduce servicing costs, saving ~USD 200 million annually (8% of USD 2.4 billion).
   • Impact: Concessional loans lower debt distress risk, freeing funds for infrastructure (21.5% of external debt) and maintaining reserves (USD 5.3 billion). This supports the Monthey Economic Review’s fiscal discipline and IMF’s moderate risk assessment.
3. Improve Debt Management and Transparency
   • Action: Strengthen the Debt Management Office to monitor debt-to-GDP (46.7% in 2022/23) and debt service-to-export ratios (16.2%). Publish quarterly debt reports and hedge 20% of USD debt (USD 4.79 billion) against TZS depreciation, saving ~TZS 494.8 billion annually at 3.9% depreciation. Clear private sector arrears (USD 1 billion of USD 1.637 billion) to boost investor confidence.
   • Impact: Reduced arrears and transparency attract FDI (e.g., USD 1.4 billion for rail, supporting reserves and TZS stability (2,684.41/USD). This could fund TZS 1,406.7 billion in development spending, enhancing resilience against shocks like DRC conflict (USD 3).
4. Diversify Exports to Boost Foreign Exchange
   • Action: Invest 5.1% of external debt (USD 1,810.4 million) and tourism receipts (USD 3,842.6 million) in agriculture and manufacturing (3.9% of external debt) to increase exports by 20% to USD 20.1 billion by 2027 (from USD 16,737.6 million in 2025). Promote value-added agriculture (e.g., processed coffee) under AfCFTA and agreements with UAE.
   • Impact: Higher exports reduce the current account deficit (USD 2,224.9 million) and USD demand, stabilizing TZS and reserves. A USD 1 billion export increase lowers the debt-to-export ratio by ~1%, supporting sustainability and resilience, aligning with Vision 2050.

Conclusion

Tanzania’s combined external (USD 38 billion) and domestic (TZS 35,768.5 billion) debt supports critical sectors but requires balanced borrowing to maintain sustainability, given a 46.7% debt-to-GDP ratio in 2025 and moderate IMF risk assessment. Key issues include high servicing costs (~USD 2.4 billion external, TZS 896.9 billion domestic), exchange rate risks (TZS 2,684.57/USD, 3.3% depreciation, limited revenue (TZS 3,060.8 billion in March 2025), and export dependence. Strategies like revenue mobilization (TZS 1,000 billion target), concessional borrowing (USD 2 billion), debt management, and export diversification (USD 20.1 billion by 2027) can reduce borrowing needs, stabilize TZS, and enhance resilience, supporting 6% GDP growth and Vision 2050.

The following table summarizes these key figures.