Introduction
The sustainability of public finances is increasingly critical to Tanzania's long-term development agenda as the country seeks to finance economic transformation, social development, and climate resilience while maintaining macroeconomic stability. Over the past decade, Tanzania has recorded relatively strong economic performance, with average GDP growth ranging between 6-7 percent prior to the COVID-19 shock and projected to stabilize at around 6.1-6.3 percent by 2026.
This growth has supported public revenue mobilization and allowed the government to scale up public investment, particularly in transport, energy, water, and social infrastructure. However, sustaining this momentum places growing pressure on public finances, especially in the context of rising expenditure needs and exposure to external shocks.
Key Financial Indicators (2025-2026)
Public Debt-to-GDP Ratio
Fiscal Deficit
GDP Growth Projection
Government Revenue
Debt Sustainability Analysis
Current Debt Position
Public debt levels in Tanzania remain manageable but have followed an upward trajectory. The public debt-to-GDP ratio increased from about 27.6 percent in 2010 to approximately 49.6 percent in 2025, reflecting expanded infrastructure investment, pandemic-related spending, and global financing conditions.
Projections indicate a modest decline to around 48.3 percent in 2026, assuming continued fiscal discipline and stable growth. While this level remains below commonly observed risk thresholds for developing economies, it narrows fiscal space and increases sensitivity to interest rate movements, exchange rate fluctuations, and revenue shortfalls.
Historical Debt Trends (2010-2026)
Key Observation: Tanzania's public debt remains sustainable, with IMF assessments as of mid-2025 indicating low distress risk, supported by concessional loans and 6-7% annual GDP growth.
Fiscal Balance Performance
Fiscal balances highlight the sustainability challenge. Tanzania has maintained fiscal deficits averaging around -2.8 percent of GDP over recent years, widening to nearly -3.9 percent in 2022 before gradually narrowing toward -2.8 percent by 2026. Although these deficits are relatively moderate, they occur alongside rising spending pressures driven by rapid population growth of over 3 percent annually, expanding demand for education, health, and urban services, and increasing costs associated with climate adaptation and infrastructure maintenance.
Fiscal Balance Trends (2010-2026)
Note: Data sourced from IMF, World Bank, and other reports; positive change indicates narrower deficit.
Analysis: Fiscal deficits have averaged -2.8% of GDP through 2023, below Sub-Saharan averages, with post-2020 widening due to pandemic support narrowing via reforms. Projections for 2026 indicate stabilization around -2.8% to -3.0%, reflecting contained deficits amid infrastructure spending.
Revenue Mobilization Progress
On the revenue side, domestic revenue mobilization has improved, with government revenues reaching approximately 16.8 percent of GDP in the 2025/26 fiscal year. Despite this progress, revenue growth continues to lag behind expenditure demands, particularly in capital-intensive sectors and social protection.
This imbalance underscores that fiscal sustainability in Tanzania cannot rely solely on revenue-enhancing measures or ad hoc spending controls, but must be anchored in stronger medium-term fiscal planning and continuous reassessment of public spending priorities.
2026 Economic Outlook
Growth Drivers and Projections
- GDP Growth: 6.1-6.3% (current estimates: 6.0-6.4%)
- Inflation: Approximately 3.3% (recent estimates: 3-4%)
- Foreign Reserves: Around $6 billion
- Tourism Rebound: Expected +20% growth
- Key Sectors: Infrastructure, exports, tourism, and services
Expenditure Pressures and Challenges
Without improvements in expenditure efficiency and prioritization, several pressures risk entrenching structural deficits over the medium term:
- Rapid Population Growth: Over 3% annually, driving demand for education, health, and urban services
- Climate Adaptation Costs: Up to $233 million annually in infrastructure losses
- Infrastructure Maintenance: Increasing costs for transport, energy, and water systems
- Social Protection: Expanding needs for vulnerable populations
- Debt Servicing: Sensitivity to interest rate movements and exchange rate fluctuations
Strategic Recommendations for 2026 and Beyond
TICGL emphasizes a strategic shift toward adaptive fiscal management to balance debt sustainability with development needs, especially as 2026 approaches (post-2025 elections). Key recommendations include:
-
Strengthen Budget Credibility and Medium-Term Fiscal Planning
Move beyond episodic consolidation to continuous reassessment, using frameworks like FYDP III (Five-Year Development Plan III) to manage trade-offs effectively. -
Improve Efficiency and Prioritization of Public Expenditure
Conduct comprehensive spending reviews, redirect resources to high-impact sectors (e.g., climate adaptation, education/health for the young population, infrastructure maintenance), and focus on "strategic reallocations" rather than broad cuts. -
Enhance Domestic Revenue Mobilization
Build on progress (to 16.8% of GDP in 2025/26) with "growth-friendly" measures to close the revenue-expenditure gap without stifling economic activity. -
Reinforce Institutions for Resilience
Tackle spending rigidities, improve transparency and accountability mechanisms, and evolve toward "state redesign" to better handle shocks such as commodity price fluctuations and climate-related costs. -
Ensure Post-Election Stability
Prudent execution of reforms is critical; any unrest could derail projections, widening deficits and slowing growth. Swift restoration of political stability is essential for maintaining investor confidence.
Framework Assessment: Resilient Yet Requiring Vigilance
Tanzania's public finance framework has demonstrated remarkable resilience in recent years, supporting robust economic growth averaging around 6% in 2024-2025 while maintaining macroeconomic stability amid global and domestic challenges. As of late 2025, public debt stands at approximately 46-48% of GDP (down slightly from peaks near 50% projected earlier), with IMF assessments confirming low risk of debt distress due to concessional financing and prudent management.
These achievements align closely with pre-2025 projections: debt stabilizing near 48%, deficits contained at -2.8 to -3.0%, and GDP growth projected at 6.1-6.3% for 2026. Revenue progress to approximately 16.8% of GDP has helped close gaps, enabling continued investment in infrastructure, education, health, and climate adaptation without breaching sustainability thresholds.
Looking Forward
As Tanzania moves toward 2026 and beyond, sustaining public finances will require a strategic shift toward more adaptive fiscal management—one that balances debt sustainability with development imperatives. Strengthening budget credibility, improving the efficiency of public expenditure, and ensuring that limited fiscal resources are consistently redirected toward high-impact sectors will be essential.
Achieving this balance will not only safeguard macroeconomic stability but also ensure that public finances remain a reliable instrument for supporting inclusive growth, economic resilience, and long-term national development. With projected GDP growth of 6.0-6.4%, low inflation (approximately 3-4%), and adequate reserves, public finances remain a solid foundation for inclusive development—if post-election stability is swiftly restored and reforms deepened.
Ultimately, evolving toward "state redesign" with greater institutional resilience will ensure Tanzania's framework not only withstands shocks but actively drives long-term transformation, safeguarding macroeconomic stability and equitable growth for its rapidly expanding population.
Conclusion
Tanzania's public finance framework stands at a critical juncture. The country has successfully maintained macroeconomic stability and achieved consistent growth while investing heavily in development infrastructure. However, the path forward requires careful navigation of competing pressures: rising expenditure needs driven by demographics and climate change, the imperative to maintain debt sustainability, and the need to expand fiscal space for development investments.
The outlook is optimistic if reforms are sustained and deepened. Achieving debt stabilization at approximately 48.3%, containing deficits at -2.8%, and supporting resilient 6+% growth in 2026 will make public finances a reliable driver for long-term development. However, vulnerabilities remain without deeper institutional changes and continued commitment to adaptive fiscal management.
The key question remains: Is Tanzania's public finance framework strong enough for long-term development? The answer is cautiously affirmative—the framework is resilient and has demonstrated capacity to support sustained growth, but its long-term strength will depend on the government's ability to implement recommended reforms, navigate post-election political dynamics, and evolve institutional capacity to meet emerging challenges.