As of December 2024, Tanzania’s domestic debt stood at TZS 32.65 trillion, reflecting a decline of TZS 919.9 billion from the previous month, signaling improved revenue collection and reduced short-term borrowing needs. Commercial banks (30%) and pension funds (27.5%) hold the largest share of government debt, indicating significant financial sector exposure. Meanwhile, state-owned enterprises (SOEs) such as DAWASA (66.7%) and Tanzania Fertilizer Company (27.5%) accounted for TZS 74.1 billion in domestic debt, showing reliance on borrowing for infrastructure and operational financing. While the reduction in government borrowing is a positive sign, high financial sector exposure to government securities underscores the need for balanced fiscal policies and debt diversification​

Tanzania’s domestic debt stock stood at TZS 32.65 trillion at the end of December 2024, reflecting a decrease of TZS 919.9 billion from the previous month. The decline was primarily due to reduced government overdrafts from the Bank of Tanzania (BoT) as revenue collection improved​.

1. Government Domestic Debt by Creditor Category

Tanzania’s domestic debt is held by commercial banks, pension funds, the Bank of Tanzania, insurance companies, and other financial institutions.

Key Observations:

✅ Commercial banks are the largest holders of domestic debt (30%), meaning government borrowing has a direct impact on banking sector liquidity.
✅ Pension funds hold 27.5%, indicating a strong link between government debt and social security investments.
⚠️ The Bank of Tanzania (18.2%) has reduced its exposure, reflecting improved revenue collection, reducing the need for government overdrafts.

2. Selected State-Owned Enterprises (SOEs) Domestic Debt Stock

In addition to central government borrowing, state-owned enterprises (SOEs) also accumulate domestic debt. As of December 2024, SOEs' total domestic debt stood at TZS 74.1 billion, a slight decrease from TZS 75.3 billion in November 2024​.

Key Observations:

✅ DAWASA (66.7%) and Tanzania Fertilizer Company (27.5%) are the largest SOE borrowers, likely financing infrastructure and supply chain improvements.
⚠️ TANESCO, TPA, and ATCL have no reported domestic debt, suggesting they rely more on external borrowing or government subsidies.
✅ SOE debt declined slightly, indicating possible repayments or reduced borrowing needs.

Key Takeaways

📌 Tanzania’s total domestic debt stands at TZS 32.65 trillion, with commercial banks (30%) and pension funds (27.5%) as the main creditors.
📌 SOEs hold TZS 74.1 billion in domestic debt, with DAWASA (66.7%) and Tanzania Fertilizer Company (27.5%) as the largest borrowers.
📌 The decline in domestic debt suggests better government revenue collection, reducing dependence on short-term borrowing from the central bank.

To ensure long-term sustainability, the government must balance domestic borrowing with fiscal discipline, ensuring SOEs operate efficiently and do not rely excessively on public debt

The domestic debt structure of Tanzania provides important insights into government borrowing patterns, financial sector stability, and fiscal sustainability

1. Government Domestic Debt is Declining – A Positive Fiscal Sign

• The total domestic debt stock stood at TZS 32.65 trillion in December 2024, down by TZS 919.9 billion from the previous month.
• This decline suggests improved revenue collection, reducing the need for short-term domestic borrowing to finance budget deficits.
• The Bank of Tanzania’s share of government debt fell to 18.2%, indicating reduced reliance on direct central bank financing.

Implication:
✅ A decline in domestic borrowing reduces debt service costs, freeing up resources for development projects.
⚠️ If revenue collection slows, the government may return to domestic borrowing, increasing financial sector risks.

2. Financial Sector Exposure to Government Debt is High

• Commercial banks hold 30% (TZS 9.78 trillion) of domestic debt, meaning that government borrowing influences banking sector liquidity.
• Pension funds hold 27.5% (TZS 8.99 trillion), making them highly dependent on government repayment capacity.
• If the government delays payments or restructures debt, banks and pension funds could face liquidity challenges.

Implication:
⚠️ High exposure of banks and pension funds to government debt means fiscal instability could weaken the financial system.
✅ If the government continues to reduce borrowing, it may free up liquidity for private sector lending, supporting economic growth.

3. State-Owned Enterprises (SOEs) Rely on Domestic Debt for Operations

• DAWASA (Water Supply) accounts for 66.7% (TZS 49.4 billion) of SOE domestic debt, likely for infrastructure projects.
• Tanzania Fertilizer Company holds 27.5% (TZS 20.4 billion), indicating dependency on government support for agricultural input financing.
• TANESCO, ATCL, and TPA reported no domestic debt, suggesting they rely on external loans or government subsidies.

Implication:
⚠️ SOEs with high debt burdens may struggle with repayments, increasing risks of contingent liabilities for the government.
✅ Reducing reliance on domestic borrowing could improve SOE financial health, ensuring long-term sustainability.

4. Key Risks and Policy Recommendations

📌 Risk: High domestic debt could crowd out private sector lending if commercial banks prefer risk-free government securities over business loans.
📌 Risk: Pension funds are heavily exposed to government debt, meaning fiscal instability could impact retirees’ savings.
📌 Opportunity: Lower government borrowing could lead to lower interest rates, increasing private sector access to credit.

What Needs to Be Done?
🔹 Enhance domestic revenue collection to reduce borrowing needs.
🔹 Diversify pension fund investments beyond government securities.
🔹 Improve SOE financial management to reduce reliance on domestic debt.
🔹 Promote private sector growth by ensuring bank liquidity is used for business financing, not just government lending.

Final Takeaway

📌 The government is reducing its domestic debt reliance, a positive fiscal sign.
📌 However, banks and pension funds still hold significant government debt, making them vulnerable to fiscal shocks.
📌 SOEs like DAWASA and Tanzania Fertilizer Company depend on domestic debt, highlighting the need for financial discipline.

To ensure long-term stability, Tanzania must balance domestic borrowing with efficient revenue collection and responsible debt management​