Tanzania's government domestic debt stock reached TZS 38,114.8 billion in October 2025, marking a 1.8% increase from September 2025 (TZS 37,459 billion), according to the Bank of Tanzania's (BoT) Monthly Economic Review for November 2025. This represents approximately 17% of GDP, stabilizing from prior years and aligning with IMF projections for medium-term sustainability at around 17% of GDP. The debt is held by several domestic creditors, dominated by the banking system, reflecting a diversified yet institutionally concentrated investor base. This structure supports fiscal financing for infrastructure and social programs under the FY2025/26 budget (TZS 49.2 trillion), but raises concerns over potential crowding-out of private credit amid rising borrowing needs.

Economic Implications: The modest expansion in domestic debt underscores proactive fiscal management, funding key investments like the USD 3.5 billion Julius Nyerere Hydropower Project and road networks, which contributed 1.2% to Q3 2025 GDP growth. By relying on domestic sources (83% of development spending financed locally), Tanzania mitigates external vulnerabilities—such as USD appreciation or global rate hikes—while keeping public debt-to-GDP at a manageable 49.6% (below the 55% EAC benchmark). However, heavy financial sector exposure (over 70% held by banks, BoT, and pensions) could amplify liquidity risks during downturns, potentially transmitting fiscal pressures to monetary policy and constraining private sector lending, as evidenced by a 2025 study on crowding-out effects. Overall, this portfolio enhances debt sustainability but necessitates deeper retail participation to broaden the market and reduce systemic risks. Read More: Tanzania Domestic Debt Reaches TZS 37.46 Trillion

2. Domestic Debt by Creditor Category — Table

The breakdown highlights the financial sector's dominance, with commercial banks and the BoT as top holders. Data is from Table 2.6.6 in the BoT review, excluding liquidity papers for comparability.

Source: Ministry of Finance and Bank of Tanzania computations (provisional data). Key Trends: Commercial banks' share rose slightly from 28.7% in September 2025, driven by auctions yielding TZS 327.7 billion (TZS 179 billion in bonds, TZS 148.7 billion in bills). BoT holdings include monetary operations, while "others" encompass growing retail bonds via mobile platforms.

Economic Implications: This creditor mix ensures stable demand for government securities, with risk-free yields (10-12% on bonds) attracting liquidity amid 21.5% M3 growth. However, banks' 35% exposure ties their balance sheets to sovereign risk, potentially slowing credit to SMEs (private sector credit at 16.1% YoY but below potential). Pension and insurance holdings (23.4% combined) match long-term liabilities, supporting financial inclusion, but over-reliance could hinder diversification if yields compress under tighter BoT policy (CBR at 5.75%).

3. Interpretation of Domestic Debt Structure

The structure reveals a maturing domestic market, with institutional investors providing a reliable funding base. In October 2025, debt servicing totaled TZS 482.4 billion (TZS 204.5 billion principal, TZS 277.9 billion interest), consuming 12% of revenues but remaining below 20% threshold for sustainability.

1. Commercial Banks — Largest Holders (35%) Commercial banks hold the largest share, reflecting high investment in government securities for stable, risk-free returns (e.g., 15-year bonds at 11.5%). This surged post-September auctions, where oversubscription hit 150%. Economic Implications: Banks' preference for sovereign paper over private lending (crowding-out effect) limits SME financing, contributing to manufacturing's subdued 5.2% credit growth. Per a 2025 analysis, this dampens monetary transmission, as rising government borrowing could push lending rates 1-2% higher, constraining 6% GDP targets. Positively, it bolsters bank capital adequacy (CAR at 18.5%), enhancing systemic stability.
2. Bank of Tanzania — Nearly 30% Includes Treasury bonds for liquidity management and special facilities like overdrafts (TZS 5,493.1 billion non-securitized). BoT's role supports fiscal deficits (3.5% of GDP) without direct monetization. Economic Implications: Facilitates counter-cyclical financing, aiding post-COVID recovery (reserves at USD 6.2 billion). However, quasi-fiscal exposure risks policy independence, potentially fueling inflation if uncoordinated with fiscal tightening—though current 3.5% rate remains anchored. IMF notes this aids short-term buffers but advises phasing down to <25% for credibility.
3. Pension Funds — 16.4% Primarily long-term Treasury bonds to match actuarial needs, with allocations up 5% YoY via NSSF reforms. Economic Implications: Secures retirement savings amid 7% population aging, channeling domestic savings (household rate 12%) into productive debt. This deepens capital markets, potentially lowering yields by 50bps and funding infra (e.g., USD 1B rail upgrades), but concentration exposes pensions to interest rate volatility.
4. Insurance Companies — 7% Favor long-dated securities to hedge liabilities, with life insurers leading uptake. Economic Implications: Aligns with growing insurance penetration (2.5% of GDP), fostering risk pooling for climate/agri shocks. Supports financial deepening, but low share signals untapped potential—expanding could mobilize TZS 1 trillion more, reducing aid dependency.
5. Other Creditors — 7.7% Includes retail investors (via M-Auwal bonds) and private firms, up from 5% in 2024 due to digital platforms. Economic Implications: Boosts inclusion (1 million retail holders), democratizing finance and reducing inequality (Gini at 40.4). Encourages savings mobilization, potentially adding 0.5% to GDP via multiplier effects, though scaling needs education to hit 10% share by 2030.

4. Domestic Debt Composition — Additional Notes

The structure favors long-term instruments: Treasury Bonds (59.2%), Treasury Bills (38.2%), Other government securities (2.6%). Government raised TZS 327.7 billion in October, shifting 55% to bonds for maturity extension (average 8.2 years).

Implication: The government continues shifting toward long-term borrowing (bonds) to reduce refinancing pressure and stabilize debt servicing costs (interest at 6.5% of budget). This lowers rollover risks (from 25% in 2024), supporting fiscal space for 34% budget growth in FY2025/26, but higher bond issuance could elevate yields if private demand lags, per Afreximbank analysis.

Economic Implications: Prolongs maturity profile (up from 6.5 years), curbing liquidity squeezes and aiding 4.7-month reserve cover. Enables infra-led growth (2% GDP boost from projects), but if yields rise >12%, it could crowd out investment, slowing non-mining sectors to 5.5%.

5. Key Takeaways

• Total domestic debt: TZS 38.1 trillion, up 1.8% MoM, financing 40% of budget amid 13.1% tax-to-GDP (low vs. peers).
• Major creditors: Commercial Banks (35%), Bank of Tanzania (29.9%), Pension Funds (16.4%)—financial sector holds 81.3%.
• Domestic debt remains dominated by the financial sector: Stable but exposed; banking balance sheets 25% tied to sovereigns.

Broader Economic Implications: This composition ensures low-cost funding (average rate 10.8%), underpinning 6% GDP growth and single-digit inflation, per World Bank. It mitigates FX risks (69.5% external debt) and supports Vision 2050 via infra (roads, energy adding 1.5% growth). Yet, crowding-out risks private credit (16.1% YoY vs. 20% target), impacting jobs (youth unemployment 13.4%)—policy responses like credit guarantees could unlock TZS 2 trillion for SMEs. Sustained at 17% GDP, it signals resilience, but diversification (e.g., green bonds) is key to avoid transmission lags to lending rates.