Stability Supports Debt Sustainability (Sept 2025)

In September 2025, Tanzania’s macro-financial position showed improved resilience, with the shilling appreciating to TZS 2,471.69 per USD—up 0.75% monthly and 9.4% annually—reversing the 10.1% depreciation recorded in 2024. This stability was supported by strong foreign exchange inflows from gold, agriculture, and tourism, supplemented by improved interbank liquidity and measured BOT intervention, including a net USD 11 million sale. At the same time, the national debt rose moderately to USD 50.77 billion (+1.4% month-on-month), with external debt accounting for 69.8% (USD 35.44 billion) and domestic debt amounting to TZS 37,459 billion (around USD 15.3 billion). The debt structure remains dominated by concessional multilateral financing (57%), though commercial lenders (35.6%) and USD exposure (66% of external debt) pose vulnerability to global currency movements. The shilling’s stability is beneficial for debt management, reducing the local currency cost of servicing USD-denominated obligations, improving sustainability ratios, attracting foreign investment into government securities, and easing inflationary pressures through cheaper imports. However, continued reliance on USD-denominated debt and exposure to external shocks underscore the importance of maintaining strong revenue performance and diversifying financing sources to preserve debt resilience going forward.

1. Tanzania Shilling Stability

Exchange Rate Movements (Annual and Monthly)

• In September 2025, the Tanzanian Shilling (TZS) strengthened against the USD:
  • TZS 2,471.69 per USD
    (vs TZS 2,490.16 per USD in August 2025)
• This represents:
  • Monthly appreciation of about 0.75%
  • Annual appreciation of 9.4%
• This is a major improvement compared to:
  • 2024, when the shilling depreciated by 10.1% over the same period.

Why the Shilling Stabilized

According to the report, stability was supported by:

• Strong inflows from gold exports, agricultural exports, and tourism
• Adequate interbank foreign exchange liquidity
• BOT participation in IFEM (Bank sold USD 11 million net)
• Improved macroeconomic environment (low inflation at 3.4%)

2. National Debt Position

Total National Debt (as at September 2025)

• Total debt: USD 50,772.4 million
  (Up 1.4% from previous month)

Breakdown:

• External debt: 69.8% = USD 35,438.2 million
• Domestic debt: 30.2% = TZS 37,459 billion
  (approximately USD 15.3 billion equivalent at prevailing rates)

Monthly Growth

• External debt increased by 1.2%
• Domestic debt increased by 0.9%

Composition of External Debt

• Multilateral lenders: 57.0%
• Commercial lenders: 35.6%
• Bilateral creditors: 4.3%
• Export credit: 3.1%

Currency Composition

• USD accounts for 66% of external debt
• Euro: 17.7%
• Chinese Yuan: 6.4%

3. Relationship Between Shilling Stability and Debt

How Shilling Stability Helps Debt Position

1. Reduces cost of servicing external debt
   • With 66% of external debt denominated in USD, shilling appreciation lowers local currency cost of interest and principal repayments.
2. Improves debt sustainability ratios
   • Debt-to-GDP ratio benefits from stable exchange rate.
   • Government debt repayments (USD-denominated) become cheaper in TZS terms.
3. Improves investor confidence
   • Stable currency encourages foreign investment in government securities (bonds and T-bills).
4. Reduces inflationary pressure
   • Strengthened shilling lowers cost of imports (fuel, machinery).

However, risks remain:

• External debt remains highly exposed to USD movements (66% share)
• If USD strengthens globally, Tanzania’s debt servicing costs increase
• Continued reliance on long-term debt instruments requires strong revenue performance

Summary Table: Tanzania Shilling vs National Debt (September 2025)

Implications of Shilling Stability and National Debt Position in September 2025

The provided data on the Tanzanian shilling's appreciation and the national debt stock as of September 2025, sourced from Sections 2.5 (Financial Markets, Interbank Foreign Exchange Market) and 2.7 (Debt Developments) of the Bank of Tanzania's (BOT) Monthly Economic Review (October 2025), illustrates a reinforcing dynamic between currency resilience and fiscal sustainability. The shilling's 0.75% monthly and 9.4% annual strengthening (to TZS 2,471.69/USD) reversed 2024's 10.1% depreciation, driven by export booms (gold up 12.8% y/y, traditional crops 8.5%; Section 2.8) and tourism (earnings USD 397M in Q2), ample IFEM liquidity (USD 93.8M traded, banks 88.3% share), and BOT's net USD 11M sale. Meanwhile, total debt rose modestly to USD 50.77B (+1.4% MoM), with external comprising 69.8% (USD 35.44B, +1.2% from USD 443M disbursements > USD 131M amortization). This occurs amid 6.3% Q2 GDP growth (Section 2.1), 3.4% inflation, and a manageable fiscal deficit (TZS 618.5B). Below, TICGL detail the implications, focusing on synergies and risks.

1. Shilling Appreciation: Enhanced External Resilience and Policy Flexibility

• Monthly (0.75%) and Annual (9.4%) Gains: These reflect a current account surplus (trade balance USD 1,029M in Q2, up from USD 812M; Section 2.8), bolstered by non-gold exports (cashews/cereals) and services (tourism up 15.2% y/y). BOT's intervention smoothed volatility without eroding reserves (USD 6,657M, 5.8 months import cover), maintaining interbank stability (6.45% rate).
• Reversal from 2024 Depreciation: The turnaround signals structural improvements, like diversified inflows reducing import dependence (e.g., fuel costs down with global oil decline; Chart 1.5 and 2.2.5).
• Broader Implications:
  • Positive: Lowers imported inflation (energy at 3.7%, down from 11.5% y/y; Section 2.2), supporting 3–5% target and real GDP momentum (projected 6% for 2025). Boosts FX reserves, enabling monetary accommodation (M3 +20.8% y/y) and private credit (16.1%).
  • Risks: Potential overvaluation could pressure export competitiveness if global demand softens (e.g., protectionism risks). Sustained strength relies on commodity stability (gold up, but wheat/fertilizer down).

2. National Debt Dynamics: Moderate Expansion with Sustainable Profile

• Total Debt +1.4% to USD 50.77B: External growth (+1.2%, USD 35.44B) from concessional inflows (multilateral 57%, e.g., IMF/World Bank; Table 2.7.2) outpaced domestic (+0.9%, TZS 37,459B via bonds/T-bills). Debt/GDP held at 40.1% (down from 42.3% in 2024), below EAC 50% threshold.
• Composition Vulnerabilities: USD dominance (66%) exposes to swings, but low-cost multilateral share (57%) and long maturities (average 12.8 years) mitigate. Commercial debt (35.6%) carries higher rates (~4.5% vs. 1.2% multilateral), reflecting market access gains.
• Broader Implications:
  • Positive: Servicing costs projected at USD 1,215M for 2025 (manageable at 4.2% of exports), funding growth-enhancing projects (e.g., infrastructure in development spend TZS 1,273B). Domestic portion supports liquidity without crowding out private borrowing (lending rates stable at 15.18%).
  • Risks: Cumulative growth (external +8.2% y/y) could strain if revenues lag (87.2% target in September; Section 2.6), especially with USD exposure. Bilateral/Chinese Yuan shares (4.3%/6.4%) add geopolitical risks.

3. Interlinkages: Shilling Strength Mitigating Debt Burdens

• Debt Servicing Relief: Appreciation reduces TZS-equivalent costs for USD-denominated repayments (66% external), e.g., a 9.4% gain shaves ~TZS 3.3T off annual service (based on USD 1.2B projection). This improves sustainability (external debt service ratio 9.8% of exports, down from 11.2% in 2024).
• Investor Confidence and Financing: Stable FX encouraged oversubscription in securities (T-bills 102%, bonds 115%), easing domestic borrowing and keeping yields moderate (91-day T-bill 6.8%). Reserves buffer shocks, aligning with IMF's resilient outlook (3.2% global growth).
• Inflation and Growth Ties: Currency stability curbs import costs (fuel/machinery), complementing low inflation (3.4%) to preserve real debt burdens. In Zanzibar, similar FX dynamics support tourism debt financing.
• Broader Implications:
  • Positive: Creates fiscal space for recurrent/development spending (71.9% execution), fostering 6% growth via exports/investment. Enhances credit ratings, potentially lowering future commercial borrowing costs.
  • Risks: USD rebound (e.g., from US policy tightening) could amplify service costs by 10–15% in TZS terms. High external reliance (69.8%) demands revenue diversification beyond gold/tourism.

4. Macroeconomic and Policy Context from the Review

• Synergies: Debt-funded investments align with output drivers (agriculture/mining) and external strength (CA surplus USD 1.2B Q2). Policy mix (CBR 5.75%) ensures no inflationary debt monetization.
• Outlook: Projections: Debt/GDP <45% by 2026, inflation 3–5%, with FX interventions maintaining balance. Global risks (trade uncertainty) warrant monitoring, but reserves (5.8 months cover) provide resilience.

In conclusion, September 2025's shilling stability implies a debt-lightened fiscal posture, reducing servicing pressures and amplifying growth dividends from exports and reserves. While moderate debt expansion remains sustainable, USD exposure underscores the need for hedging and diversification to safeguard against global reversals, ensuring alignment with Tanzania's 6% growth trajectory.