As of December 2024, Tanzania’s external debt stood at TZS 79.72 trillion (USD 32.93 billion), with 67.8% (TZS 54.10 trillion) denominated in US dollars (USD). The Euro accounted for 16.2% (TZS 12.92 trillion), while the Chinese Yuan made up 6.4% (TZS 5.10 trillion). This heavy reliance on USD borrowing exposes Tanzania to exchange rate risks, where a 10% depreciation of the Tanzania Shilling (TZS) could increase debt servicing costs by TZS 5.41 trillion. To mitigate this risk, Tanzania must enhance foreign reserves, diversify its export earnings, and negotiate more concessional loans to maintain long-term debt sustainability​

Tanzania’s external debt is held in multiple currencies, exposing the country to foreign exchange risks depending on fluctuations in the global market. As of December 2024, the total external debt stock stood at TZS 79.72 trillion (USD 32.93 billion), with the majority denominated in US dollars​.

1. Currency Composition of External Debt (Percentage Share & TZS Value)

2. Key Observations & Implications

✅ US Dollar Dominance (67.8%)

• The majority of Tanzania’s external debt is in USD (TZS 54.10 trillion), making the country highly sensitive to exchange rate fluctuations.
• If the Tanzania Shilling depreciates, debt servicing costs in TZS will increase, putting pressure on government finances.

✅ Euro Loans (16.2%) Provide Some Diversification

• TZS 12.92 trillion is denominated in Euros, offering some protection from USD volatility.
• However, if the Euro strengthens, Tanzania will need more TZS to repay Euro-denominated loans.

✅ Chinese Yuan Exposure (6.4%) Reflects Infrastructure Financing Ties

• TZS 5.10 trillion of Tanzania’s external debt is in CNY, largely financing transport, energy, and telecommunications projects.
• The yuan’s stability reduces risks, but any CNY appreciation will raise repayment costs in TZS.

✅ Other Currencies (9.5%) Reflect a Diverse Creditor Base

• TZS 7.60 trillion is spread across other currencies (GBP, JPY, etc.), limiting reliance on a single currency.
• This reduces overall currency risk but makes debt servicing more complex due to multiple exchange rate fluctuations.

3. Exchange Rate Risks & Debt Management Strategy

⚠️ Tanzania is vulnerable to exchange rate movements, particularly in the USD-TZS exchange rate.
⚠️ If the Tanzania Shilling depreciates against the US dollar, debt servicing costs will increase, reducing fiscal space.
✅ Diversification into Euros and Chinese Yuan helps, but debt repayment strategies should factor in exchange rate risks.

Key Takeaways

📌 67.8% of Tanzania’s external debt (TZS 54.10 trillion) is in US dollars, making debt service costs dependent on USD-TZS fluctuations.
📌 Euro-denominated debt (16.2% or TZS 12.92 trillion) offers some diversification, while CNY exposure (6.4% or TZS 5.10 trillion) reflects infrastructure financing links with China.
📌 Government debt management strategies should focus on reducing currency risks by increasing TZS-denominated borrowing and hedging against USD volatility.

To maintain debt sustainability, Tanzania must closely monitor exchange rate movements, diversify borrowing sources, and prioritize revenue generation to offset repayment risks​

The currency breakdown of Tanzania’s external debt reveals key insights into the country’s financial exposure, exchange rate risks, and debt sustainability

1. Heavy Dependence on the US Dollar (67.8%) Increases Exchange Rate Risk

• USD 54.10 trillion (TZS) of Tanzania’s external debt is in US dollars, meaning any depreciation of the Tanzania Shilling (TZS) against the USD will increase repayment costs.
• If the TZS weakens by just 10%, the government will need an extra TZS 5.41 trillion to service USD-denominated debt.
• Since global interest rates and US monetary policy influence the USD, Tanzania’s debt costs could rise unexpectedly if the USD strengthens.

Implication:
⚠️ Tanzania is highly vulnerable to USD fluctuations, which could increase debt servicing costs and fiscal pressure.
✅ If the Shilling remains stable or strengthens, repayment costs will be lower.

2. Euro (16.2%) and Chinese Yuan (6.4%) Help Reduce USD Dependence

• TZS 12.92 trillion in Euro debt provides some diversification, but the Euro is still volatile against the Shilling.
• TZS 5.10 trillion in Chinese Yuan (CNY) debt reflects Tanzania’s strong infrastructure financing ties with China.
• The CNY is more stable than the USD, but if China tightens monetary policy, Tanzania’s loan repayment costs in TZS could rise.

Implication:
✅ Having some debt in Euros and Yuan reduces USD reliance.
⚠️ However, fluctuations in these currencies could still affect repayment costs.

3. Exchange Rate Movements Can Impact Tanzania’s Fiscal Position

• A weaker TZS will make debt servicing more expensive, reducing funds available for public services and development.
• If the TZS depreciates by 5-10%, the government may need to allocate an extra TZS 4-8 trillion annually for debt repayment.
• Foreign reserves (USD 5.5 billion) cover 4.5 months of imports, but if debt repayments rise, reserves could deplete faster.

Implication:
⚠️ Tanzania must generate more export revenue in USD, EUR, and CNY to ease repayment pressures.
✅ Stable foreign exchange reserves help offset currency risks, ensuring the country meets its obligations.

4. Policy Actions Needed to Reduce Exchange Rate Risks

✅ Increase Local Currency Borrowing: More TZS-denominated debt would protect Tanzania from forex fluctuations.
✅ Enhance Foreign Currency Reserves: A stronger reserve position would act as a buffer against currency swings.
✅ Diversify Export Earnings: More revenue from gold, tourism, and agriculture will help Tanzania repay debts in USD, EUR, and CNY without depleting reserves.
✅ Negotiate for More Concessional Loans: More multilateral funding in low-interest, long-term debt can reduce reliance on expensive commercial borrowing.

Final Takeaway

📌 67.8% of external debt is in USD (TZS 54.10 trillion), making Tanzania vulnerable to currency depreciation risks.
📌 Euro (16.2%) and Chinese Yuan (6.4%) provide diversification, but they also come with their own exchange rate risks.
📌 The government must carefully manage forex reserves and export revenue to avoid debt distress.

While Tanzania’s debt remains manageable, exchange rate volatility could create future repayment challenges if not addressed through strong fiscal management and export-driven economic growth