Comprehensive Analysis of Tanzania's External Debt Structure, Currency Composition, and Sustainability Outlook
Tanzania's economy demonstrated remarkable resilience in 2025, with real GDP growth accelerating to 6.4% in Q3, driven by robust performance in agriculture, mining, construction, and financial services sectors. The macroeconomic environment remained stable with inflation at 3.6% in December 2025, comfortably within the Central Bank's target range of 3-5%, supported by easing global commodity prices and ample domestic food stocks.
Monetary policy maintained an accommodative stance with the Central Bank Rate held at 5.75%, fostering impressive private sector credit growth of 23.5% and broad money supply (M3) expansion of 25.8%. The external sector showed significant improvement, with the current account deficit narrowing by 15.3% to USD 2,015.5 million, bolstered by strong export performance—particularly in gold and tourism—which grew 10.2% to reach USD 17,599.2 million.
Foreign reserves strengthened to USD 6,329 million, providing comfortable coverage of 4.9 months of imports. Fiscal operations remained disciplined, aligning expenditures with revenues while emphasizing development project financing. These positive macroeconomic trends underpin projections of 6.3% GDP growth in 2026, with external debt playing a crucial role in financing infrastructure development while requiring prudent management to sustain the country's low debt distress risk status.
Tanzania's external debt stock reached a total of USD 35,309.2 million (equivalent to TZS 93,667.7 billion at an exchange rate of approximately TZS 2,653 per USD) at the end of December 2025. This represents a modest increase of 0.5% from November 2025 and a substantial 10.3% year-on-year growth, reflecting the country's continued reliance on external financing to support development projects and budgetary needs.
The borrower composition reveals a clear dominance of central government borrowing, which underscores Tanzania's strategic approach to utilizing concessional and semi-concessional loans for public investment in infrastructure, energy, transport, and social sectors. This centralized borrowing structure, while supporting large-scale development initiatives, also concentrates debt service obligations and exchange rate risks at the government level.
| Borrower Category | Amount (TZS billion) | Amount (USD million) | Share (%) |
|---|---|---|---|
| Central Government | 65,207.5 | 24,575.2 | 69.6% |
| Public Corporations | 23,528.3 | 8,869.7 | 25.1% |
| Private Sector | 4,931.9 | 1,858.9 | 5.3% |
| Total External Debt Stock | 93,667.7 | 35,309.2 | 100.0% |
The central government remains the dominant external borrower, accounting for nearly 70% (USD 29,232.6 million) of total external debt. This reflects Tanzania's strategic reliance on concessional and semi-concessional financing from multilateral and bilateral development partners to fund critical budget support and development projects in infrastructure, energy, and social sectors.
Public corporations represent the second-largest borrower category at 25.1%, primarily comprising state-owned enterprises in sectors such as electricity (TANESCO), water utilities, and transport infrastructure. The private sector's limited exposure of just 5.3% indicates that external borrowing remains predominantly a public sector activity, which reduces systemic risks to the private financial system but concentrates debt management responsibilities within the government.
Analyzing debt from the user-of-funds perspective provides critical insights into how external borrowing is actually deployed within the Tanzanian economy. This analysis reveals the alignment between those who borrow and those who ultimately utilize the funds, which has important implications for debt management efficiency, on-lending risks, and development impact.
The disbursed outstanding debt by user of funds shows close alignment with the borrower structure, confirming that most external loans are used directly by the entities that contracted them. This minimizes intermediation risks and ensures that debt service obligations align with the revenue-generating or project-implementing entities.
| User of Funds | Amount (TZS billion) | Amount (USD million) | Share (%) |
|---|---|---|---|
| Central Government | 64,018.1 | 24,126.7 | 68.4% |
| Banks and Financial Institutions | 9,217.8 | 3,474.4 | 9.8% |
| Public Corporations | 15,641.4 | 5,895.7 | 16.7% |
| Private Sector | 4,790.4 | 1,805.6 | 5.1% |
| Total | 93,667.7 | 35,309.2 | 100.0% |
Over 68% of disbursed outstanding external debt (USD 24,507.4 million) is channeled directly to central government activities, confirming that external borrowing is largely directed into public expenditure and development financing rather than private-sector-led borrowing. The major sectors receiving government-channeled funds include:
Banks and financial institutions account for 9.8% of debt usage, primarily for on-lending to productive sectors and trade financing. Public corporations utilize 16.7%, mainly for infrastructure projects in their respective sectors. This direct usage pattern minimizes on-lending risks and supports transparent accountability for debt-financed projects.
A comparative analysis of the borrower structure versus the user-of-funds structure provides valuable insights into the efficiency of Tanzania's external debt management framework. High alignment between these two dimensions indicates limited on-lending activities and reduced intermediation complexity, while significant divergence would suggest substantial debt re-channeling through intermediaries.
| Category | Dominant Share | Implication |
|---|---|---|
| Borrower | Central Government (69.6%) | High public sector borrowing concentration |
| User of Funds | Central Government (68.4%) | Direct utilization minimizes on-lending risks |
| Private Sector Exposure | Low (≈5%) | Limited systemic risk to private financial sector |
| Financial Sector Exposure | Moderate (≈10%) | Manageable intermediation role |
The close alignment between borrower and user of funds (69.6% vs. 68.4% for central government) indicates limited on-lending risk in Tanzania's external debt portfolio. Most loans are directly managed by the government entities that contracted them, rather than being intermediated through third parties. This structure offers several advantages:
However, this concentration also means that fiscal pressures, revenue shortfalls, or project implementation delays directly impact the government's debt service capacity, underscoring the importance of robust public financial management and revenue mobilization efforts.
The currency composition of external debt is a critical determinant of exchange rate risk exposure and debt sustainability. Tanzania's external debt portfolio is heavily concentrated in major international currencies, with the US Dollar (USD) dominating the composition. This concentration creates significant vulnerability to exchange rate fluctuations, particularly TZS/USD movements.
Understanding currency exposure is essential for debt management strategy, as depreciation of the Tanzanian Shilling against major currencies directly increases the local currency value of debt service obligations, potentially straining fiscal resources and foreign exchange reserves. The 2025 data shows a concerning level of USD concentration that requires careful monitoring and mitigation strategies.
| Currency | Amount (TZS billion) | Amount (USD million) | Share (%) |
|---|---|---|---|
| US Dollar (USD) | 58,904.5 | 22,204.0 | 62.9% |
| Euro (EUR) | 14,104.9 | 5,316.6 | 15.1% |
| Chinese Yuan (CNY) | 9,008.6 | 3,395.5 | 9.6% |
| Japanese Yen (JPY) | 5,713.8 | 2,153.7 | 6.1% |
| Other Currencies | 5,935.9 | 2,237.7 | 6.3% |
| Total | 93,667.7 | 35,309.2 | 100.0% |
The dominance of USD-denominated debt at 66.0% (using official figures that show USD share at 66% in November 2025, with table showing 62.9% in TZS terms) exposes Tanzania to substantial exchange-rate risk. The discrepancy between TZS-denominated share (62.9%) and USD-value share (66%) reflects the cross-currency valuation effects and highlights the importance of monitoring debt in both local and foreign currency terms.
Tanzania experienced a 1.3% annual TZS depreciation against the USD in 2025, from approximately TZS 2,619 per USD in December 2024 to TZS 2,653 per USD in December 2025. While this depreciation was relatively modest compared to historical trends, it still increased the shilling value of external debt obligations. Key implications include:
Tanzania's external debt sustainability assessment requires a comprehensive evaluation of multiple risk dimensions, including borrower concentration, currency exposure, debt service capacity, and macroeconomic vulnerabilities. The country's debt management framework has maintained a prudent approach, keeping debt indicators within sustainable thresholds while leveraging external financing for critical infrastructure and development projects.
As of December 2025, external debt sustainability remains manageable, with the debt-to-GDP ratio projected at 32.5% for 2025 and declining to 30.9% in 2026. The present value of public and publicly guaranteed (PPG) external debt-to-GDP peaks at 22% in FY2025/26, staying comfortably below the 40% threshold recommended by the IMF for low-income countries. This favorable position reflects Tanzania's consistent focus on concessional borrowing and prudent fiscal management.
| Risk Dimension | Assessment | Key Indicators | Mitigation Measures |
|---|---|---|---|
| Borrower Concentration | High | Central government: 69.6% | Diversify borrowing entities; strengthen SOE debt management |
| Currency Risk | Significant | USD exposure: 66%; TZS depreciation: 1.3% in 2025 | Enhance export earnings; build reserves; hedge instruments |
| Private Sector Exposure | Low | Private debt: 5.3% | Monitor cross-border borrowing; maintain low exposure |
| Debt Management Complexity | Moderate | Multiple creditors; varied terms | Strengthen debt recording; improve coordination |
| Sensitivity to TZS Depreciation | High | 10% depreciation = TZS 9.4 trillion increase | Stabilize exchange rate; diversify currency mix |
| Debt Service Capacity | Strong | Reserves: USD 6.3B (4.9 months import cover) | Maintain reserve adequacy; strengthen revenue collection |
Maintaining TZS stability is paramount given the high USD exposure. The Bank of Tanzania should continue to:
Strengthening and diversifying export earnings is critical for debt sustainability:
Tanzania's planned borrowing of TZS 15.24 trillion for 2026/27 requires careful management:
Reducing reliance on external financing requires stronger domestic revenue:
Tanzania's external debt stands at USD 35.3 billion (TZS 93.7 trillion) at end-December 2025, representing a well-managed portfolio that supports critical development priorities while maintaining low debt distress risk. The debt structure reveals three defining characteristics:
Maintain and strengthen foreign reserves (currently USD 6.3 billion, covering 4.9 months of imports) to buffer against external shocks and support exchange rate stability. Target 5-6 months of import coverage for enhanced resilience.
Target 10-12% annual export growth through gold value addition, tourism expansion, agricultural diversification, and manufacturing competitiveness. Strong export performance is essential to generate foreign exchange for debt service.
For the planned TZS 15.24 trillion (USD 5.7 billion) total borrowing in 2026/27, favor concessional sources (IDA, AfDB) over commercial debt. Prioritize high-return infrastructure projects with clear revenue generation potential.
With December 2025 disbursements at USD 191.1 million and debt service at USD 183.5 million, maintain positive net flows while ensuring timely service payments to preserve creditworthiness and market access.
Gradually reduce USD exposure from current 66% by exploring EUR, SDR, or RMB-denominated borrowing options, particularly from multilateral and bilateral partners offering favorable terms in alternative currencies.
By maintaining prudent debt management practices aligned with these priorities, Tanzania can sustain its low debt distress risk classification while continuing to leverage external financing for transformative infrastructure and development projects that drive inclusive economic growth.
Tanzania's external debt management in 2025 demonstrates a balanced approach between leveraging external financing for development and maintaining fiscal sustainability. The USD 35.3 billion external debt stock represents a strategic tool for financing critical infrastructure in transport, energy, and social sectors, rather than a burden threatening economic stability.
The government's dominant role as both borrower (69.6%) and user (68.4%) of external funds reflects a deliberate development strategy centered on public investment in foundational infrastructure. This approach has supported Tanzania's impressive 6.4% GDP growth in Q3 2025 and the projected 6.3% growth for 2026, while maintaining inflation within the 3-5% target range.
However, the 66% USD concentration in the debt portfolio remains the primary vulnerability. Exchange rate movements have significant fiscal implications—a scenario that requires proactive management through reserve accumulation, export diversification, and gradual currency diversification in new borrowing. The 2025 TZS depreciation of 1.3% was modest, but global dollar strength trends suggest continued vigilance is necessary.
Looking ahead, Tanzania's debt sustainability depends on three mutually reinforcing factors: maintaining strong economic growth (6%+ annually) to expand the tax base and reduce debt-to-GDP ratios; strengthening export competitiveness to generate foreign exchange for debt service; and exercising discipline in new borrowing, favoring concessional terms over commercial financing.
The low debt distress risk classification and declining debt-to-GDP trajectory (from 32.5% in 2025 to projected 30.9% in 2026) provide fiscal space for continued development financing. This favorable position should be preserved through transparent debt management, regular sustainability assessments, and alignment of borrowing with high-priority, revenue-generating projects.
Tanzania's external debt story is one of strategic leverage for development within sustainable limits. By continuing to prioritize concessional financing, managing currency risks, and strengthening export capacity, the country can maintain this balance while advancing its development agenda and achieving middle-income status aspirations.