Authored by Amran Bhuzohera, this paper presents a timely analysis of the economic, policy, and social implications of election-related disruptions in Tanzania. It explores how political instability and electoral uncertainty influence investment confidence, fiscal stability, business continuity, and macroeconomic performance.

Drawing from historical data covering elections between 1995 and 2020, the study highlights the recurring link between election periods and economic slowdowns, where investor hesitation, fiscal reallocations, and heightened political tension create short-term volatility across key sectors.

Key Findings

• GDP growth deceleration: Average national growth declines by 1.5–2.2 percentage points during election years, driven by disruptions in trade, infrastructure projects, and tourism.
• Investment slowdown: Private investment drops by 8–12% on average in the six months preceding elections, with foreign investors adopting a wait-and-see stance.
• Fiscal imbalance: Increased government expenditure on administrative and security functions leads to temporary budget reallocation, limiting funds for development projects.
• Inflationary pressure: Election-related uncertainty leads to short-term inflation spikes of 1.5–2%, particularly in food and transport prices.
• Policy discontinuity: Changes in leadership priorities often delay or reverse major public-private initiatives, reducing the predictability of long-term economic programs.

Broader Implications

The paper argues that predictable political environments and transparent electoral processes are vital to sustaining Tanzania’s economic transformation agenda under FYDP III and Vision 2050. Political calm fosters confidence among local and foreign investors, while election disruptions can erode progress in industrialization, SME growth, and infrastructure modernization.

Policy Recommendations

• Strengthen institutional safeguards to ensure fiscal discipline and continuity of economic programs before, during, and after elections.
• Promote transparent electoral management through independent oversight and civic education to minimize disruptions.
• Enhance public-private dialogue mechanisms to maintain investor confidence amid political transitions.
• Develop contingency macroeconomic frameworks to manage volatility during election cycles.
• Advance regional policy coordination under the EAC framework to mitigate cross-border effects of political disruptions.

Ultimately, the study underscores that stable governance and credible elections are as critical to economic performance as fiscal and industrial reforms. A well-managed democratic process is not only a political necessity but an economic imperative for sustainable development in Tanzania.

📘 Read the Full Discussion Paper:
“Impacts of Election Disruptions and Tanzania: Economic and Policy Implications”
Authored by Amran Bhuzohera
Published by TICGL | Economic Research Centre
🌐 www.ticgl.com

Between 2020 and 2023, Tanzania’s trade-to-GDP ratio rebounded sharply from a pandemic low of 27.96% to 38.21%, marking a 10.25 percentage point increase—the strongest three-year expansion in over a decade. This V-shaped recovery underscores Tanzania’s renewed integration into global markets and its growing external sector resilience. After the 2020 contraction, trade flows expanded steadily, with year-on-year gains of 1.96 pp in 2021, 5.08 pp in 2022, and 3.21 pp in 2023, positioning Tanzania among the region’s most dynamically recovering economies.

Resurgent Trade Integration (2020-2023)

Tanzania's trade-to-GDP ratio has experienced a remarkable recovery following the 2020 pandemic-induced contraction, climbing from 27.96% in 2020 to 38.21% in 2023. This 10.25 percentage point increase over three years represents one of the strongest periods of trade expansion in Tanzania's recent history, signaling renewed global economic integration and robust external sector performance.

Recent Trade Openness Trajectory

The data reveals a clear V-shaped recovery in trade openness. The 2020 decline to 27.96%—the lowest level since 2000—reflected global trade disruptions from the COVID-19 pandemic. However, the subsequent three-year expansion demonstrates Tanzania's successful reconnection with global markets, with the 2023 ratio of 38.21% approaching pre-pandemic levels and indicating healthy economic engagement with the world.

Three Decades of Trade Openness: A Historical Journey

Early Reform Period: Volatility and Adjustment (1990-2000)

The 1990s witnessed significant volatility in trade openness, with ratios fluctuating between 23.99% and 45.24%. The early 1990s (1993-1995) showed surprisingly high trade ratios averaging 44.88%, reflecting the structural adjustment period when trade liberalization policies were implemented. However, by decade's end, the ratio had declined to its historical low of 23.99% in 2000, suggesting challenges in maintaining export competitiveness during the transition period.

Gradual Trade Expansion (2001-2010)

The 2000s marked consistent improvement in trade integration, with the ratio climbing steadily from 27.50% in 2002 to a peak of 49.03% in 2008. This period coincided with:

• Increased commodity exports (especially gold and other minerals)
• Regional integration through the East African Community
• Global commodity boom driving trade values
• Improved transportation infrastructure facilitating trade

The 2008 peak of 49.03% represented Tanzania's highest trade openness in the modern era, driven by both high commodity prices and strong global demand before the financial crisis.

The Golden Era: Peak Trade Integration (2011-2015)

Historic Achievement: 2011 marked Tanzania's peak trade openness at 56.17% of GDP—the highest ratio recorded in the entire 34-year dataset. The 2011-2012 period represents Tanzania's deepest integration into global trade, with both years exceeding 54%. This exceptional performance reflected:

• Peak commodity prices and export revenues
• Substantial import of capital goods for infrastructure projects
• Strong regional trade growth
• Enhanced export diversification

The subsequent decline from 2013 onwards suggests a normalization of trade patterns as commodity prices moderated and the economy grew faster than trade volumes.

Stabilization and Recent Recovery (2016-2023)

This period shows two distinct phases:

1. 2016-2020: Gradual decline from 35.42% to 27.96%, with 2020 representing the pandemic-driven trough
2. 2021-2023: Strong recovery with 10.25 percentage point increase, approaching pre-pandemic levels

The 2023 ratio of 38.21% exceeds all years from 2016-2019, indicating not just recovery but expansion beyond recent historical norms.

Comprehensive Trade Openness Analysis

Top 10 Most Trade-Integrated Years

Bottom 10 Least Trade-Integrated Years

Trade Openness by Decade

Understanding Trade-to-GDP Ratio Dynamics

What the Ratio Measures

The trade-to-GDP ratio (calculated as [Exports + Imports] / GDP × 100) indicates:

• Economic Openness: Higher ratios suggest greater integration with global economy
• Trade Dependency: Extent to which the economy relies on international trade
• Competitiveness: Ability to participate in global markets
• Vulnerability: Exposure to external shocks and global economic conditions

Factors Influencing Tanzania's Ratio

Upward Pressures (Increasing Trade Openness):

• Export diversification (gold, minerals, manufactured goods)
• Regional integration through EAC common market
• Infrastructure improvements (ports, roads, railways)
• Trade liberalization policies
• Commodity price increases

Downward Pressures (Decreasing Trade Openness):

• Faster domestic GDP growth relative to trade
• Import substitution initiatives
• Non-tradable services sector growth
• Global economic slowdowns
• Trade protection measures

The 2011 Peak: Why Was It So High?

The extraordinary 56.17% ratio in 2011 resulted from a unique combination:

1. Export Side:
   • Gold prices at historic highs (averaging $1,571/oz in 2011)
   • Strong mineral export revenues
   • Robust agricultural commodity prices
   • Growing manufacturing exports
2. Import Side:
   • Massive infrastructure project imports
   • Capital goods for mining sector expansion
   • Oil imports at elevated prices
   • Consumer goods for growing middle class
3. Economic Context:
   • GDP growing but not as fast as trade volumes
   • Peak of global commodity supercycle
   • Major investment projects in progress

Recent Recovery (2020-2023): Analysis

Why Did Trade Openness Collapse in 2020?

• Global lockdowns disrupted supply chains
• Tourism sector (service exports) nearly stopped
• Reduced import demand from economic slowdown
• Trade volumes contracted faster than GDP

The Strong Recovery Path

2021 (29.92%): Initial recovery

• Trade normalization began
• Export markets reopened
• Import demand recovered

2022 (35.00%): Acceleration

• 5.08 percentage point jump
• Strong commodity export performance
• Post-pandemic import surge
• Economic reopening momentum

2023 (38.21%): Sustained expansion

• 3.21 percentage point gain
• Approaching 40% threshold
• Broad-based trade growth
• Enhanced competitiveness

International Perspective

Comparative Context

For developing economies, trade-to-GDP ratios vary widely:

• Small open economies: Often exceed 100% (e.g., Singapore, Hong Kong)
• Large diversified economies: Typically 20-40% (e.g., Brazil, India)
• Resource exporters: Generally 40-60% (e.g., Nigeria, Chile)
• East African peers: Kenya ~35%, Uganda ~40%, Rwanda ~45%

Tanzania's 2023 ratio of 38.21% positions it as a moderately open economy—neither isolated nor highly dependent on trade, with balanced domestic and external economic drivers.

Optimal Trade Openness

There is no universally "correct" trade-to-GDP ratio. The optimal level depends on:

• Country size and market depth
• Natural resource endowments
• Development stage and industrialization needs
• Geographic location and regional integration
• Economic diversification levels

For Tanzania, the 35-45% range appears sustainable, balancing:

• Benefits of global market access
• Export-led growth opportunities
• Protection from external volatility
• Domestic market development

Policy Implications and Future Outlook

Achievements to Build Upon

• Recovery to healthy 38.21% demonstrates resilience
• Strong post-pandemic rebound shows competitive capacity
• Balanced increase in both exports and imports
• Improved infrastructure supporting trade flows

Challenges to Address

• Sustaining export growth amid global uncertainty
• Enhancing value addition in export products
• Managing import dependency (especially energy and capital goods)
• Maintaining competitiveness in manufacturing
• Navigating global trade tensions and protectionism

Opportunities for Enhanced Trade Integration

Export Expansion:

• Natural gas exports as LNG projects materialize
• Manufacturing growth for regional markets (EAC, SADC, AfCFTA)
• Agricultural value addition and processing
• Tourism services expansion
• Digital and business services exports

Strategic Trade Policy:

• Deeper regional integration implementation
• Bilateral and multilateral trade agreements
• Export promotion and market diversification
• Trade facilitation and border efficiency
• Quality standards and certification systems

Infrastructure Development:

• Port capacity expansion (Dar es Salaam, Bagamoyo)
• Standard gauge railway completion
• Regional transport corridor improvements
• Digital connectivity for trade facilitation
• Energy reliability for manufacturing competitiveness

Projection and Scenarios

Conservative Scenario (2024-2025)

• Maintenance around 38-40%
• Gradual export growth
• Stable import patterns
• Continued regional trade integration

Optimistic Scenario (2024-2030)

• Increase toward 42-45%
• Natural gas exports commence
• Manufacturing exports expand substantially
• Enhanced regional market penetration
• Infrastructure advantages realized

Risk Scenario

• Decline to 33-35%
• Global economic recession
• Commodity price collapse
• Trade protectionism increases
• Regional instability

Conclusion

Tanzania's trade-to-GDP ratio journey over three decades reflects the country's evolving relationship with the global economy. From the volatility of structural adjustment in the 1990s, through the historic peak of 56.17% in 2011, to the pandemic-induced low of 27.96% in 2020, and the strong recovery to 38.21% in 2023, the trajectory demonstrates both resilience and adaptability.

The current ratio of 38.21% represents a healthy level of global economic integration—sufficient to capture the benefits of international trade while maintaining domestic economic stability. The 10.25 percentage point recovery since 2020 is particularly impressive, indicating that Tanzania has not only bounced back from the pandemic but has strengthened its competitive position in global markets.

Looking ahead, Tanzania has clear opportunities to enhance its trade integration through natural gas exports, manufacturing expansion, and deeper regional integration. The goal should not necessarily be to return to the 56% peak of 2011, but rather to achieve sustainable trade openness in the 40-45% range, with balanced growth in both exports and imports, and increasing value addition in traded goods and services.

As Tanzania continues its development journey, maintaining this trajectory of trade integration while ensuring that trade contributes to inclusive growth, job creation, and economic transformation will be essential for realizing the country's full economic potential.

Data Source: TICGL Historical trade-to-GDP ratio data from 1990 to 2023

Over six decades, Tanzania’s economy has expanded dramatically—from a GDP per capita of $275 in 1960 to $1,224.49 in 2023, and a total GDP of $79.06 billion. Despite global and domestic challenges, including the pandemic, the country maintained positive growth, recording an 8.26% expansion in 2020 and sustaining momentum with 4.35% growth in 2023. This 28.6% GDP rise over four years underscores Tanzania’s economic resilience, structural transformation, and steady progress toward lower-middle-income status.

Sustained Economic Expansion (2020-2023)

Tanzania's economy has demonstrated remarkable resilience and consistent growth over the past four years, with GDP reaching $79.06 billion in 2023. Notably, the country maintained positive economic growth even during the global pandemic year of 2020, showcasing the robustness of its economic foundation and diversified growth drivers.

Recent GDP Performance

The data reveals consistent economic expansion, with Tanzania's GDP growing by 28.6% in absolute terms over the four-year period from 2020 to 2023. Particularly impressive is the 8.26% growth rate achieved in 2020, demonstrating the economy's resilience during the COVID-19 pandemic. Per capita GDP has increased by $107.07 during this period, reflecting improvements in living standards despite rapid population growth.

Six Decades of Economic Development: A Historical Perspective

Tanzania's economic journey from independence to present day reveals distinct phases of development, challenges, and transformation.

Post-Independence Era (1960-1970)

The early post-independence years (1960-1969) showed promising growth, with per capita GDP rising from $275.30 to a peak of $405.45 in 1969. However, 1970 marked a significant decline to $217.24, signaling the beginning of economic challenges.

The Socialist Period and Economic Challenges (1970-1985)

Following the implementation of Ujamaa socialist policies, per capita GDP fluctuated significantly, reaching a peak of $700.45 in 1985. This period was characterized by state-led development and the Arusha Declaration's emphasis on self-reliance.

Economic Crisis and Structural Adjustment (1986-1995)

This decade marked Tanzania's most challenging economic period, with per capita GDP declining dramatically from $479.28 in 1986 to $224.49 in 1993—a 53% decline. The implementation of structural adjustment programs aimed to stabilize and reform the economy, laying groundwork for future recovery.

Economic Recovery and Liberalization (1996-2010)

The liberalization era brought steady recovery, with per capita GDP more than doubling from $313.66 in 1996 to $736.53 in 2010. This period saw increased foreign investment, privatization of state enterprises, and integration into the global economy.

Modern Growth Era (2011-2023)

The modern era has been characterized by sustained growth and economic diversification. Tanzania crossed the significant milestone of $1,000 per capita GDP in 2014, and by 2023 reached $1,224.49—representing a 58% increase from 2011 levels.

Key Developmental Milestones

Breaking the $1,000 Barrier

Tanzania achieved a crucial milestone in 2014 when per capita GDP first exceeded $1,000, reaching $1,022.75. After a temporary dip in 2015-2016, the country has maintained this level and continued growing, demonstrating the sustainability of its economic progress.

Comparative Historical Performance

Economic Growth Drivers and Structural Transformation

Sectoral Diversification

Tanzania's economy has evolved from heavy reliance on agriculture to a more diversified structure incorporating services, manufacturing, mining, and tourism. This diversification has contributed to more stable and sustained growth rates.

Infrastructure Investment

Significant investments in infrastructure—including roads, railways, ports, and energy—have created a foundation for continued economic expansion and improved productivity across sectors.

Regional Integration

As a member of the East African Community, Tanzania has benefited from expanded regional markets, increased trade flows, and enhanced investment opportunities.

Challenges and Opportunities

Population Growth Impact

While total GDP has grown substantially, rapid population growth has moderated per capita gains. Tanzania's population has grown from approximately 10 million in 1960 to over 65 million in 2023, necessitating continued high growth rates to achieve significant per capita improvements.

Income Level Progression

At $1,224.49 per capita, Tanzania remains a low-income country but is making steady progress toward lower-middle-income status. Maintaining growth rates above 5% annually will be crucial for continued poverty reduction and development.

Future Growth Prospects

With a young and growing population, ongoing infrastructure development, expanding regional integration, and increasing foreign investment, Tanzania is well-positioned for continued economic growth. Key challenges include improving productivity, enhancing human capital, and ensuring inclusive growth that benefits all citizens.

Conclusion

Tanzania's economic journey over six decades reflects both the challenges of post-colonial development and the potential for sustained growth through economic reform and diversification. The consistent expansion of recent years, even through global challenges like the COVID-19 pandemic, demonstrates the resilience of Tanzania's economy and provides a solid foundation for future prosperity.

The country's ability to maintain positive growth rates, steadily increase per capita income, and attract foreign investment positions it as one of East Africa's most dynamic economies. As Tanzania continues on its development path, maintaining policy stability, investing in human capital, and fostering private sector growth will be essential for realizing its economic potential.

Data Source: TICGL Historical GDP data from 1960 to 2023

Over six decades, Tanzania’s national debt has expanded from $0.2 billion in 1961 to $53.5 billion in 2025, marking an extraordinary 26,650% increase driven by evolving development priorities and policy shifts across six administrations. The current debt-to-GDP ratio of 48.2% remains within the IMF’s 55% sustainability threshold for low-income countries, while debt service accounts for 14.5% of government revenue—well below the 18% risk limit. Despite the rapid accumulation—averaging $6.25 billion per year under President Samia Suluhu Hassan—Tanzania’s debt remains largely sustainable, reflecting a strategy of leveraging borrowing for infrastructure, industrialization, and economic transformation.

Current Debt Profile (2025)

Tanzania's national debt stands at $53.5 billion as of 2025, representing a debt-to-GDP ratio of 48.2%—within internationally recognized sustainable limits. With debt service consuming 14.5% of government revenue, the country maintains manageable repayment obligations while pursuing ambitious development goals. The current debt level reflects 64 years of economic evolution, policy shifts, and strategic development financing across six presidential administrations.

Key Debt Indicators (2025)

The 48.2% debt-to-GDP ratio remains comfortably below the IMF's 55% threshold for low-income countries, while the 14.5% debt service ratio stays within the sustainable 18% limit, indicating Tanzania's capacity to meet its obligations while investing in development priorities.

Six Decades of Debt Evolution: Presidential Era Analysis

Julius Nyerere Era (1961-1985): Foundation and Socialist Development

The Founding Period: Building from Zero

Context and Characteristics:

President Nyerere's 24-year tenure saw Tanzania transition from colonial rule to independent nationhood, implementing Ujamaa (African socialism) policies. The debt increase from $0.2 billion to $4.5 billion reflected:

• Development Financing: Infrastructure for new nation (roads, schools, hospitals)
• Nationalization Programs: Taking control of key industries and services
• Self-Reliance Ideology: Balanced by significant external borrowing needs
• Cold War Context: Aid and loans from both East and West
• Agricultural Modernization: Village resettlement and mechanization programs

Despite the socialist ideology emphasizing self-reliance, external borrowing was necessary to finance Tanzania's development aspirations. The 65% average debt-to-GDP ratio, while substantial, reflected the challenges of building a post-colonial state.

Ali Hassan Mwinyi Era (1985-1995): Crisis and Structural Adjustment

The Economic Crisis and Reform Period

Context and Characteristics:

The Mwinyi administration faced Tanzania's most severe debt crisis, with the debt-to-GDP ratio averaging an unsustainable 130%—the highest in the country's history. This period was characterized by:

• Economic Liberalization: Shift from socialism to market economy
• Structural Adjustment Programs (SAPs): IMF/World Bank reform conditions
• HIPC Initiative Launch: Recognition as Heavily Indebted Poor Country
• Debt Accumulation: Past debts compounding while economy struggled
• Currency Devaluation: Contributing to higher debt valuations

The 130% debt-to-GDP ratio represented an existential fiscal crisis, making debt relief imperative and setting the stage for the HIPC process that would dominate the next decade.

Benjamin Mkapa Era (1995-2005): Debt Relief and Stabilization

The Recovery and Relief Period

Context and Characteristics:

President Mkapa's tenure marked Tanzania's fiscal turnaround, featuring:

• HIPC Completion Point (2001): Qualified for comprehensive debt relief
• Debt Forgiveness: Billions in debt written off by creditors
• Privatization Program: Reduced state burden, generated revenues
• Market Reforms: Improved economic efficiency and growth
• Fiscal Discipline: Controlled new borrowing, sustainable debt management

The $0.13 billion average annual increase represents the lowest debt accumulation rate across all administrations, reflecting both debt relief benefits and prudent fiscal management. The debt-to-GDP ratio improved from 130% to 80%, though still elevated by modern standards.

Jakaya Kikwete Era (2005-2015): Sustainable Growth and Infrastructure

The Balanced Development Period

Context and Characteristics:

The Kikwete administration achieved Tanzania's best debt sustainability performance while increasing borrowing for development:

• Concessional Borrowing: Low-interest loans from multilateral institutions
• Infrastructure Investment: Roads, energy, water projects
• Maintained Sustainability: Debt grew slower than GDP
• Economic Growth: Sustained 6-7% annual GDP growth
• Debt Strategy: Strategic borrowing aligned with development plans

The 32% average debt-to-GDP ratio—the lowest in Tanzania's history—demonstrated that increased borrowing could be sustainable when matched by strong economic growth and prudent debt management. This era established the template for responsible development financing.

John Magufuli Era (2015-2021): Industrialization and Infrastructure Acceleration

The Infrastructure Revolution Period

Context and Characteristics:

President Magufuli's "Industrialization Agenda" drove the largest absolute debt increase to date:

• Standard Gauge Railway (SGR): Multi-billion dollar flagship project
• Industrialization Push: Manufacturing zones, energy projects
• Domestic Revenue Mobilization: Increased tax collection to support debt
• Infrastructure Blitz: Ports, airports, roads expanded rapidly
• "Development Debt" Philosophy: Borrowing justified by productive investments

The $2.22 billion average annual increase represented a threefold acceleration from the Kikwete era. However, the 37% debt-to-GDP ratio remained sustainable due to continued strong economic growth and the productive nature of investments.

Samia Suluhu Hassan Era (2021-Present): Unprecedented Expansion

The Rapid Growth Period

Context and Characteristics:

President Hassan's administration has overseen unprecedented debt expansion:

• Economic Reopening: Post-COVID recovery and expansion
• Infrastructure Continuation: Completing Magufuli-era projects
• Business-Friendly Reforms: Attracting investment, enabling growth
• Regional Integration: Supporting EAC and regional infrastructure
• Development Financing: Leveraging debt for transformation

The $6.25 billion annual average increase is nearly three times the Magufuli-era rate and represents the fastest debt accumulation in Tanzania's history. The $25 billion increase in just four years exceeds the total debt accumulated over the first 54 years of independence (1961-2015).

Comparative Presidential Performance

Debt Accumulation Rankings

Largest Absolute Increases:

Fastest Annual Growth Rates:

Debt Sustainability Rankings

Best Average Debt-to-GDP Ratios:

Historical Debt Trajectory: Key Milestones

Major Debt Milestones Timeline

*Estimated after relief

Growth Rate Periods

Debt Composition and Sustainability Analysis

Current Debt Structure (2025 Estimates)

Sustainability Indicators Assessment

Positive Factors:

• Debt-to-GDP ratio (48.2%) below 55% threshold
• Debt service (14.5%) below 18% danger zone
• Strong GDP growth averaging 5-6% annually
• Productive investment in infrastructure and industrialization
• Diversified creditor base reducing single-source risk
• Growing revenue collection capacity

Risk Factors:

• Rapid debt accumulation ($25B in 4 years under Hassan)
• Global interest rate increases affecting commercial debt
• Currency depreciation risks increasing debt burden
• Need to ensure investments generate adequate returns
• Potential for commodity price shocks affecting exports
• Regional economic headwinds

Economic Context: Debt vs. Development

The Development Debt Paradigm

Tanzania's recent debt expansion reflects a deliberate development strategy:

Infrastructure Returns:

• Standard Gauge Railway connecting regions and ports
• Julius Nyerere Hydropower Project (2,115 MW)
• Dar es Salaam Port expansion enhancing trade capacity
• Rural electrification expanding economic opportunities
• Road networks reducing transport costs

Economic Transformation:

• GDP growth from $66B (2020) to $79B (2023)
• Manufacturing sector expansion
• Service sector modernization
• Tourism infrastructure development
• Digital economy enablement

The Critical Question: Are debt-financed investments generating sufficient economic returns to justify the borrowing costs and ensure long-term sustainability?

International Comparative Perspective

Regional Comparison (East Africa, 2025 estimates)

Tanzania's 48.2% ratio compares favorably with regional peers, suggesting relatively better debt management despite rapid recent accumulation.

Global LIC Comparison

For Low-Income Countries (LICs):

• IMF Sustainable Threshold: 55% debt-to-GDP
• Tanzania's Position: 48.2% (within limits)
• Median LIC Ratio: ~45-50%
• Assessment: Tanzania is near median, within acceptable bounds

Policy Implications and Future Outlook

Strengths of Current Debt Position

1. Below Critical Thresholds: Both debt-to-GDP and debt service ratios sustainable
2. Productive Investment Focus: Debt financing real economic assets
3. Diversified Creditor Base: Reduced concentration risk
4. Strong Economic Growth: GDP expansion supporting debt capacity
5. Improving Revenue Collection: Domestic resource mobilization strengthening

Vulnerabilities and Concerns

1. Rapid Accumulation Rate: $6.25B/year unsustainable long-term
2. Investment Return Uncertainty: Need to ensure projects deliver expected benefits
3. Commercial Debt Share: Higher interest costs than concessional loans
4. External Shocks: Vulnerable to commodity prices, interest rates, currency movements
5. Debt Service Trajectory: Rising obligations requiring careful management

Critical Questions for Sustainability

Near-Term (2025-2030):

• Can the current $6.25B/year accumulation rate slow?
• Will infrastructure investments begin generating returns?
• Can revenue growth keep pace with debt service obligations?
• Will global economic conditions remain favorable?

Medium-Term (2030-2040):

• Will Tanzania maintain debt-to-GDP below 55% threshold?
• Can the country transition from debt-driven to self-sustaining growth?
• Will infrastructure deliver transformative economic benefits?
• Can Tanzania graduate to middle-income status while managing debt?

Recommended Debt Management Strategies

For Maintaining Sustainability:

1. Moderate New Borrowing: Reduce annual debt accumulation from current pace
2. Prioritize Concessional Loans: Favor low-interest multilateral financing
3. Revenue Enhancement: Continue improving tax collection and domestic resources
4. Project Selection Rigor: Ensure investments have clear economic returns
5. Debt Service Planning: Maintain buffers and manage refinancing risks
6. Transparency and Monitoring: Regular debt sustainability assessments
7. Contingency Reserves: Build fiscal buffers for external shocks

Scenarios for 2030

Conservative Scenario

• Debt Level: ~$65-70 billion
• Debt-to-GDP: 45-48% (maintained sustainability)
• Annual Growth: Moderated to $2-3 billion/year
• Outcome: Sustainable path with reduced risk

Base Case Scenario

• Debt Level: ~$75-80 billion
• Debt-to-GDP: 48-52% (near threshold)
• Annual Growth: $4-5 billion/year
• Outcome: Manageable but requires careful monitoring

Risk Scenario

• Debt Level: ~$90-100 billion
• Debt-to-GDP: 55-60% (threshold breach)
• Annual Growth: Continued $6+ billion/year
• Outcome: Sustainability concerns, reform pressure

Conclusion: Six Decades of Fiscal Evolution

Tanzania's national debt journey from $0.2 billion in 1961 to $53.5 billion in 2025 reflects the country's economic evolution through distinct phases:

• Foundation Era (Nyerere): Building from independence ($0.2B → $4.5B)
• Crisis Era (Mwinyi): Economic challenges and unsustainable 130% debt-to-GDP
• Recovery Era (Mkapa): HIPC relief and stabilization
• Sustainable Growth Era (Kikwete): Best-ever 32% debt-to-GDP ratio
• Infrastructure Era (Magufuli): Development-focused expansion ($15.2B → $28.5B)
• Acceleration Era (Hassan): Unprecedented growth ($28.5B → $53.5B)

The current debt position presents both opportunity and challenge. At 48.2% of GDP, Tanzania remains within sustainable limits with manageable debt service. However, the unprecedented $6.25 billion annual accumulation rate under President Hassan—nearly three times the Magufuli pace—raises important questions about long-term sustainability.

The critical test ahead is whether debt-financed infrastructure investments deliver the economic transformation necessary to justify the borrowing. If the Standard Gauge Railway, power projects, and industrial zones generate expected productivity gains and economic returns, Tanzania's debt strategy will be vindicated. If returns disappoint, the country risks approaching unsustainable levels that could constrain future development options.

Success requires moderating the debt accumulation pace, ensuring productive use of borrowed funds, strengthening revenue collection, and maintaining the strong economic growth that has characterized Tanzania's recent performance. With prudent management, Tanzania can leverage its current debt position for transformative development while preserving fiscal sustainability for future generations.

The lesson from six decades of debt evolution is clear: sustainable development financing requires balancing ambition with prudence, ensuring that each borrowed dollar contributes to building a more prosperous and self-reliant Tanzania.

Data Sources: TICGL, World Bank, IMF, Bank of Tanzania, Trading Economics. Analysis current as of October 2025.

Over the past three decades, Tanzania has achieved remarkable progress in managing its trade balance—reducing the deficit from a severe -20.47% of GDP in 1993 to a more sustainable -3.82% in 2023. In the most recent four-year period, the deficit narrowed from -$3.16 billion in 2022 to -$3.02 billion in 2023, reflecting improved export competitiveness and balanced import management. Notably, 2020 marked a historic low deficit of just -0.96% of GDP, the smallest in decades, underscoring Tanzania’s growing economic resilience, diversification, and external stability.

Recent Trade Performance: A Story of Improvement (2020-2023)

Tanzania's trade balance has shown significant improvement over the past four years, with the trade deficit narrowing substantially from -$3.16 billion in 2022 to -$3.02 billion in 2023. More importantly, when measured as a percentage of GDP, the trade deficit has improved dramatically from its 2022 peak, reflecting enhanced export competitiveness and more balanced trade dynamics.

Recent Trade Balance Overview

The 2020 period marked a historic achievement, with Tanzania recording its smallest trade deficit as a percentage of GDP (-0.96%) in over two decades. While the deficit expanded in 2021 and 2022—likely due to post-pandemic import recovery and global commodity price increases—2023 shows a positive reversal with the deficit narrowing by 4.52%.

Historical Trade Balance Analysis: Three Decades of Evolution

The Critical Years: Deep Deficits (1990-1999)

The early 1990s represented Tanzania's most challenging period for external trade, with the deficit reaching a staggering -20.47% of GDP in 1993. This period coincided with economic liberalization and structural adjustment programs. The consistent improvement from 1993 onwards—declining from -20.47% to -4.69% by 1999—demonstrates the gradual success of economic reforms in improving trade competitiveness.

The Commodity Boom and Bust Cycle (2000-2010)

Milestone Achievement: 2002 stands out as a remarkable year when Tanzania achieved a rare trade surplus of +1.06% of GDP—the only positive trade balance recorded in the entire 34-year dataset. This brief surplus was followed by a return to deficits, which widened significantly during the 2007-2008 global commodity price boom, reaching -10.10% in 2008.

The Investment-Driven Deficit Era (2011-2015)

This period saw persistently high trade deficits, with 2011 recording the second-worst deficit (-12.90%) in Tanzania's modern history. These large deficits reflected substantial imports of capital goods and machinery for infrastructure development, including major projects in energy, transportation, and mining sectors.

Stabilization and Gradual Improvement (2016-2023)

The most recent period shows general improvement with trade deficits stabilizing between -1% and -4% of GDP—substantially better than the double-digit deficits of earlier years. The 2019-2020 period marked particular success, with deficits below -1% of GDP.

Comprehensive Historical Summary

Trade Balance Performance by Decade

Most Significant Trade Deficit Years

Best Trade Balance Performance

Understanding Tanzania's Trade Dynamics

Import Composition Factors

Tanzania's persistent trade deficits reflect the country's development needs:

• Capital Goods Imports: Machinery, equipment, and technology for industrialization
• Intermediate Goods: Raw materials and components for manufacturing
• Consumer Goods: Products to meet growing domestic demand
• Energy Products: Petroleum imports despite domestic gas resources
• Food Imports: Supplementing domestic agricultural production

Export Performance Evolution

Tanzania's export basket has diversified over time:

• Traditional Exports: Coffee, cotton, tea, cashews, tobacco
• Mining Products: Gold as the leading export, along with other minerals
• Tourism Services: Growing service exports
• Manufacturing: Emerging light manufacturing exports
• Agricultural Products: Expanding into horticulture and processed foods

The 2020-2023 Period: Detailed Analysis

Why 2020 Was Exceptional

The remarkably low trade deficit in 2020 (-0.96% of GDP) resulted from:

• Reduced imports due to pandemic-related economic slowdown
• Maintained export performance in key commodities
• Lower global oil prices reducing import costs
• Currency dynamics favoring export competitiveness

The 2021-2022 Expansion

The widening of the trade deficit in 2021-2022 reflected:

• Post-pandemic economic recovery driving import demand
• Global commodity price increases (especially oil and food)
• Resumed infrastructure development projects
• Economic reopening and consumption recovery

2023 Improvement

The 4.52% narrowing of the deficit in 2023 indicates:

• Enhanced export competitiveness
• Improved terms of trade
• More efficient import management
• Continued economic diversification benefits

Regional and Global Context

Comparison with Development Stage

For a developing economy like Tanzania, trade deficits are not inherently negative. They often indicate:

• Active capital accumulation and infrastructure investment
• Technology transfer through equipment imports
• Growing domestic consumption reflecting rising incomes
• Ongoing industrialization process

Sustainability Considerations

Trade deficits become concerning when:

• Financed primarily by unsustainable debt rather than FDI
• Driven by consumption rather than investment goods
• Exports fail to grow over time
• Foreign exchange reserves become constrained

Tanzania's recent performance suggests manageable deficits, with the 3-4% range representing a sustainable level given continued FDI inflows ($1.63 billion in 2023) and growing export capacity.

Policy Implications and Future Outlook

Progress Achieved

Comparing the current -3.82% deficit (2023) with the -20.47% deficit of 1993 demonstrates remarkable progress in:

• Export development and diversification
• Import efficiency and management
• Overall economic balance and competitiveness

Challenges Ahead

To further improve trade balance, Tanzania needs to:

• Continue diversifying export products and markets
• Enhance value addition in key export sectors
• Improve productivity and competitiveness
• Develop import substitution industries
• Strengthen regional trade integration

Opportunities

Tanzania is well-positioned to improve its trade balance through:

• Expanding natural gas exports as LNG projects come online
• Growing manufacturing sector for regional markets
• Enhanced agricultural productivity and processing
• Tourism sector recovery and growth
• Digital services export potential

Conclusion

Tanzania's trade balance trajectory over three decades tells a story of significant progress from crisis-level deficits to more manageable and sustainable levels. The improvement from -20.47% of GDP in 1993 to -3.82% in 2023 represents an 81% reduction in the deficit-to-GDP ratio—a major achievement in external sector management.

The 2020 accomplishment of reducing the deficit to just -0.96% of GDP demonstrates Tanzania's potential for balanced trade, while the subsequent widening and recent narrowing show the economy's responsiveness to global conditions and policy interventions.

As Tanzania continues its development journey, maintaining trade deficits in the 3-4% range while building export capacity, attracting productive FDI, and investing in competitiveness appears to be a sustainable path. The long-term trend toward improvement provides optimism that Tanzania can achieve even better trade balance outcomes in the years ahead.

Data Source: TICGL Historical trade balance data from 1990 to 2023

From a negligible 0.22% of GDP in the 1970s to a strong $1.63 billion in 2023, Tanzania’s Foreign Direct Investment (FDI) story reflects over five decades of transformation and resilience. Following economic liberalization in the mid-1990s, FDI surged from near zero in 1990–1991 to over 4% of GDP by 1999, peaking at 5.66% in 2010 during Tanzania’s golden decade of investment expansion. Despite a pandemic-related dip in 2020, FDI rebounded sharply—rising from $943.8 million in 2020 to $1.63 billion in 2023, a 13.18% annual increase—demonstrating sustained investor confidence and Tanzania’s continued role as one of East Africa’s most attractive investment destinations.

Strong Recovery and Sustained Growth (2020-2023)

Tanzania's foreign direct investment (FDI) has demonstrated remarkable resilience and growth in recent years, recovering strongly from the economic disruptions of 2020. The country attracted $1.63 billion in FDI during 2023, representing a 13.18% increase from the previous year and marking three consecutive years of growth since the pandemic-induced decline.

Recent Performance Overview

The period from 2020 to 2023 tells a compelling story of economic recovery and increasing investor confidence in Tanzania's economy:

The 2020 decline of 22.47% reflects the global economic uncertainty caused by the COVID-19 pandemic. However, the subsequent recovery has been robust, with 2021 showing the strongest year-on-year growth at 26.14%, followed by steady expansion in 2022 and 2023.

FDI as a Percentage of GDP: Long-Term Perspective

Examining FDI as a proportion of GDP reveals important insights into the evolving relationship between foreign investment and Tanzania's economic development. The country experienced its peak FDI-to-GDP ratio in 2010 at 5.66%, followed by another strong period from 2012-2013 when ratios exceeded 4.5%.

Historical FDI Performance (% of GDP)

Peak Investment Years (2005-2015)

Recent Period (2016-2023)

Early Growth Period (1990-2004)

Pre-Liberalization Era (1970-1989)

Key Trends and Analysis

Economic Transformation

The data reveals Tanzania's economic transformation from a virtually closed economy in the 1980s and early 1990s to an increasingly attractive destination for foreign investors. The liberalization reforms of the mid-1990s marked a turning point, with FDI ratios climbing from 0% in 1990-1991 to over 4% by the late 1990s.

The Golden Decade (2005-2015)

The period between 2005 and 2015 represents Tanzania's most successful era for attracting FDI relative to GDP size. During this decade, the country consistently maintained FDI levels above 2% of GDP, with multiple years exceeding 4%. This period coincided with major mining investments, telecommunications sector growth, and infrastructure development projects.

Recent Moderation

Since 2016, FDI as a percentage of GDP has stabilized at a lower level, generally ranging between 1.4% and 2.1%. While this represents a moderation from the peak years, it reflects a more mature investment environment and steady, sustainable foreign capital inflows.

Post-Pandemic Recovery

The post-2020 recovery is particularly noteworthy. Not only has Tanzania regained its pre-pandemic FDI levels in absolute terms, but the country has also improved its FDI-to-GDP ratio from 1.43% in 2020 to 2.06% in 2023, surpassing even the 2019 level of 1.99%.

Outlook and Implications

Tanzania's consistent FDI growth over the past three years signals renewed international confidence in the country's economic prospects. The government's ongoing infrastructure investments, natural resource development, and efforts to improve the business environment appear to be yielding positive results.

As Tanzania continues to position itself as a key investment destination in East Africa, maintaining this growth trajectory while ensuring that foreign investments contribute to sustainable development and local economic capacity will be crucial for long-term prosperity.

Data Source: TICGL Historical FDI data from 1970 to 2023

Tanzania's National Consumer Price Index (NCPI) release for September 2025, issued by the National Bureau of Statistics on October 8, 2025, reveals a stable macroeconomic environment characterized by headline inflation holding steady at 3.4% year-over-year—the highest level since June 2023 but well within the Bank of Tanzania's (BoT) target range of 3-5%. This marks no change from August 2025, with the overall NCPI edging up slightly to 119.86 (2020=100) from 119.77, driven by modest price increases in select food and non-food items. Food and non-alcoholic beverages inflation eased to 7.0% from 7.7%, reflecting a -0.6% monthly dip in the index, while non-food inflation ticked up to 1.9% from 1.6%. Core inflation, excluding volatile items like unprocessed food and energy, rose modestly to 2.2% from 2.0%, signaling underlying price pressures remain contained.

This stability, amid robust GDP growth of 5.4% in Q1 2025, underscores Tanzania's resilient post-pandemic recovery and effective policy framework.

Tanzania Inflation Overview (September 2025)

Inflation by Main Consumption Group (September 2025)

Key Monthly Drivers (Aug–Sept 2025)

Price increases were observed in:

• Food items: sorghum flour (+3.6%), bread (+1.0%), chicken (+5.0%), sweet potatoes (+7.6%), cassava (+2.2%), cocoyams (+8.9%), fruits (+2.2%), and dried peas (+4.0%).
• Non-food items: alcoholic beverages (+0.6%), men’s garments (+0.9%), kerosene (+1.1%), and charcoal (+2.7%).

Economic Implications of Tanzania's September 2025 Inflation Data

1. Monetary Policy and Macroeconomic Stability

• Support for Accommodative Stance: The unchanged headline rate and easing food pressures reinforce the BoT's decision to hold the Central Bank Rate (CBR) at 5.75% during its October 2, 2025, Monetary Policy Committee meeting. This reflects confidence in sustained inflation within the 3-5% target, avoiding the need for tightening that could stifle growth. Prudent monetary policy has historically anchored expectations, contributing to the shilling's relative stability (projected 3.7% depreciation in 2025) and low borrowing costs, which bolster private sector credit expansion.
• Risk Mitigation: Core inflation's slight uptick suggests mild demand-pull pressures from economic expansion, but the overall trajectory—fluctuating between 3.0% and 3.4% over the past year—indicates no overheating. This reduces the likelihood of imported inflation from global commodity shocks, such as energy prices, which have eased regionally.

2. Impact on Household Consumption and Poverty

• Relief for Low-Income Households: Food items, weighting 28.2% of the NCPI basket, drove much of the monthly index increase (e.g., +8.9% for cocoyams, +7.6% for sweet potatoes), yet annual food inflation's decline to 7.0% eases cost-of-living pressures for rural and urban poor households, who spend over 50% of income on food. This could sustain consumption resilience, supporting poverty reduction efforts amid 5.4% Q1 growth.
• Mixed Non-Food Pressures: The +0.3% rise in non-food inflation, fueled by essentials like kerosene (+1.1%) and charcoal (+2.7%), may strain urban budgets amid seasonal energy demands. However, stable categories like health (0.0% monthly change) and education (+0.0%) provide buffers, potentially stabilizing real disposable incomes and consumer confidence.

3. Sectoral and Supply-Side Dynamics

• Agricultural Resilience: Despite monthly spikes in crops like sorghum flour (+3.6%) and dried peas (+4.0%), the food index's -0.6% drop points to improved harvests or supply chain efficiencies, possibly from favorable 2025 rainy seasons. This bodes well for Tanzania's agriculture sector (25% of GDP), enhancing export competitiveness in East Africa and curbing imported food inflation.
• Energy and Manufacturing Pressures: Gains in the Energy, Fuel, and Utilities Index (+0.9% monthly to 3.7% annually) highlight vulnerabilities to global oil dynamics, but contained rises (e.g., liquefied hydrocarbons +0.1%) reflect BoT's forex interventions. Non-food drivers like clothing (+0.3% monthly) suggest manufacturing cost pass-throughs, potentially pressuring small enterprises but signaling domestic production gains.
• Services Sector Boost: Stable services inflation (1.3% annually) in areas like restaurants (+1.0%) and recreation (-0.1% monthly) aligns with tourism recovery, a key growth driver projected at 6% GDP expansion for 2025.

4. Broader Growth and Investment Outlook

• Pro-Growth Environment: Stable inflation complements fiscal prudence, with the IMF endorsing Tanzania's trajectory for 6% GDP growth in 2025, driven by infrastructure and mining investments. Low inflation volatility enhances investor confidence, attracting FDI (e.g., in natural gas) and supporting the shilling's stability against regional peers like Kenya's higher inflation.
• Potential Risks: Persistent food volatility (still 7.0%) could re-emerge from climate events, while global factors like OECD-projected G20 inflation moderation to 2.9% in 2026 offer tailwinds but underscore external dependencies. If non-food trends accelerate, it might prompt BoT vigilance.

In summary, September 2025's inflation data signals a "soft landing" for Tanzania's economy—stable prices fostering inclusive growth without derailing expansion. This positions the country favorably in East Africa, where peers face higher volatility, and supports the BoT's projection of inflation averaging 3.4% for the year. Policymakers should prioritize agricultural diversification and energy security to sustain this momentum into 2026.

Authored by Dr. Bravious Felix Kahyoza (PhD, FMVA) and Amran Bhuzohera

This discussion paper explores how macroeconomic dynamics—such as GDP growth, inflation, exchange rate volatility, and fiscal policies—affect private sector resilience and competitiveness in Tanzania. Using annual and quarterly time-series data (2000–2024), the study applies ARDL and VECM econometric models to uncover both short- and long-term relationships between macroeconomic shocks and private sector performance.

Tanzania’s private sector contributes approximately 35% of GDP and employs over 80% of the national workforce, making it central to achieving the targets of Vision 2025 and AfCFTA integration. Yet, despite strong recovery momentum after COVID-19, the sector continues to face currency depreciation, inflation pressures, and investment bottlenecks that affect growth sustainability.

Key Findings

Stable but Vulnerable Growth:
Private sector contribution to GDP rose from 26% in 2000 to 43% in 2024, averaging 35.5%. However, this growth remains fragile due to inflationary shocks and foreign exchange volatility.

Exchange Rate Sensitivity:
The Tanzanian shilling depreciated by 9.6% year-on-year, increasing import costs by 12% and constraining SME margins. Despite this, depreciation stimulated limited export competitiveness—reflecting an adaptive but pressured private sector.

Long-Run Cointegration Confirmed:
The ARDL model confirms strong long-run relationships between macroeconomic variables, with a significant equilibrium adjustment rate of 4.6% per year. GDP growth showed a mild negative elasticity (–0.274), while inflation exerted a positive long-run effect (+0.255), suggesting adaptive price behavior.

Macroeconomic Influence on Private Growth:
Variance decomposition revealed that 43.7% of private sector growth was driven by GDP dynamics, 30.4% by inflation, and 20.6% by exchange rate movements—illustrating that domestic demand and stability remain the most crucial levers of resilience.

AfCFTA and Structural Transition:
Regional integration through AfCFTA could raise private sector output by up to 28% in freight and manufacturing industries by 2030. However, persistent supply shocks and fiscal deficits (3.8% of GDP on average) threaten to dilute these benefits unless supported by targeted SME financing and inflation control.

Policy Insights

The study emphasizes that macroeconomic stability is the cornerstone of private sector resilience. Persistent depreciation, inflation spikes, and limited fiscal space constrain Tanzania’s ability to maintain private-sector-led growth.

To counter these vulnerabilities, the paper proposes:

• Inflation Targeting (3–5% Band): Strengthening BoT’s inflation control and forward guidance to protect SME credit channels.
• Export Credit Guarantees: Through TanTrade, to hedge SMEs against exchange rate volatility under AfCFTA markets.
• Fiscal Incentives for SMEs: Offering tax rebates up to 30% for firms investing in manufacturing and green technologies.
• Macroeconomic Resilience Fund (MRF): A proposed TZS 1 trillion facility to buffer shocks, fund innovation, and promote climate-resilient infrastructure.

Implications for Vision 2025 and Beyond

The analysis reinforces that macroeconomic governance directly determines Tanzania’s competitiveness under AfCFTA and Vision 2050. Achieving sustained 6% GDP growth and raising private contribution to 45% of GDP by 2030 will depend on coordinated fiscal-monetary reforms, stable exchange rates, and continuous SME support.

By merging econometric evidence with policy action, this research provides actionable insights for the Bank of Tanzania, Ministry of Finance and Planning, and private sector actors striving for inclusive, shock-resistant growth.

Read the Full Paper:
“Macroeconomic Forces and Private Sector Resilience: An Econometric Analysis of Trends, Challenges, and Policy Pathways in Tanzania (2000–2024)”
Published by TICGL | Economic Research Centre

The Tanzania Shilling's (TZS) notable appreciation in August 2025—6.6% monthly and a 7.6% year-on-year reversal from prior depreciation—underscores a robust external sector, enhancing macroeconomic stability and bolstering growth prospects. This aligns with the Bank of Tanzania's (BoT) Monthly Economic Review (September 2025), which highlights export-driven inflows amid easing global oil prices, contributing to low inflation (3.4%) and estimated Q3 GDP growth above 6%. As of early October 2025, the TZS has further strengthened to around TZS 2,456 per USD, continuing the upward trend and reflecting sustained forex reserves (over USD 6 billion). In the broader context, the IMF's 2025 outlook projects 6.0% GDP growth and 4.0% inflation for Tanzania, driven by such external resilience, while the World Bank's regional updates note Sub-Saharan Africa's momentum amid global uncertainties. These dynamics imply reduced import costs, heightened investor confidence, and a virtuous cycle for private sector expansion (e.g., 16.2% credit growth), though they risk export competitiveness if over-appreciation persists.

1. Exchange Rate Movements

• In August 2025, the Tanzanian shilling appreciated against the US dollar.
• Exchange rate:
  • August 2025: TZS 2,490.16 per USD
  • July 2025: TZS 2,666.79 per USD
    → This shows a monthly appreciation of about 6.6%.
• On a year-on-year basis:
  • August 2024: The shilling had depreciated by 10.3%.
  • August 2025: It appreciated by 7.6%, reversing the prior trend.
• Against other major currencies, the shilling remained broadly stable.

2. Interbank Foreign Exchange Market (IFEM)

• Turnover:
  • August 2025: USD 101.5 million traded.
  • July 2025: USD 162.5 million traded.
    → Lower activity compared to July.
• Bank of Tanzania intervention: Auctioned USD 19.5 million to reduce volatility.

3. Drivers of Stability

• Adequate inflows from:
  • Cash crops exports
  • Tourism earnings
  • Gold exports
• Supported further by the easing of global oil prices, which reduced pressure on the import bill.

Table: Tanzanian Shilling Exchange Rate and Movements

*approximate figure based on annual depreciation reported in 2024.

Implications for Tanzania's Economic Development

1. Exchange Rate Movements: Enhanced Purchasing Power and Inflation Anchor

• Key Observations Recap: The TZS appreciated to TZS 2,490.16 per USD in August (from TZS 2,666.79 in July), marking a 6.6% monthly gain and a 7.6% y-o-y appreciation—flipping the 10.3% depreciation seen in August 2024. Stability held against other majors (e.g., EUR, GBP).
• Implications for Economic Development:
  • Trade Balance Improvement and Import Affordability: The stronger TZS lowers costs for essential imports like fuel and machinery, easing the trade deficit (projected at 6-7% of GDP). This supports manufacturing (3.4% credit growth) and agriculture (30.1% credit rise), key to the 6%+ growth estimate. With oil prices moderating (Chart 1.5), the appreciation could shave 0.5-1% off imported inflation, per IMF models, freeing household budgets for consumption and aiding poverty reduction (targeting 20% rate by 2025).
  • Investor Confidence and Capital Inflows: The reversal from 2024's weakness signals policy credibility, attracting FDI (up 15% y-o-y in H1 2025) in mining and tourism. The World Bank notes this stability underpins Tanzania's upper-middle-income aspirations by 2030, with forex reserves covering 4.5 months of imports.
  • Risks: Prolonged appreciation (now at TZS 2,456/USD as of October 8) could erode export margins for non-gold sectors, potentially slowing diversification. BoT's vigilant monitoring mitigates this, but global USD strength (from US rate cuts) poses upside risks.

2. Interbank Foreign Exchange Market (IFEM): Deeper Market Liquidity with Managed Volatility

• Key Observations Recap: Turnover fell to USD 101.5 million (from USD 162.5 million in July), prompting BoT to auction USD 19.5 million for stability.
• Implications for Economic Development:
  • Market Maturation and Reserve Buffering: Lower turnover reflects seasonal normalization post-July peaks, but BoT's intervention (via auctions) ensures smooth liquidity, building reserves to USD 6.2 billion by September. This enhances financial deepening, with foreign currency deposits up 14.1% y-o-y (Table 2.3.1), supporting 21% M3 growth and cross-border trade.
  • Reduced Volatility for Business Planning: Targeted sales curb speculation, fostering predictability for exporters (e.g., gold firms). The African Development Bank links such stability to 10-12% annual export growth, critical for Tanzania's 14.8% total export rise to USD 16.89 billion in the year to August.
  • Risks: Declining activity could signal reduced private inflows if tourism dips seasonally; however, October data shows rebounding volumes amid sustained gold sales.

3. Drivers of Stability: Export-Led Resilience and Commodity Tailwinds

• Key Observations Recap: Appreciation fueled by cash crops, tourism earnings, and gold exports, plus lower oil import bills.
• Implications for Economic Development:
  • Diversified Revenue Streams: Gold exports hit a record USD 4.32 billion (up 35.5% y-o-y) for the year to August, comprising 25.6% of total exports, while tourism reached USD 3.92 billion (up 8%) by May. Cash crops (e.g., coffee, cotton) added seasonal USD 200-300 million inflows. This export boom (total +14.8%) narrows the current account deficit to 3.5% of GDP, per IMF estimates, funding infrastructure like Julius Nyerere Hydropower Project.
  • Inflation and Fiscal Relief: Easing oil prices (down 5-7% globally) cut import costs by USD 150 million annually, reinforcing the 3-5% inflation target and enabling fiscal space (deficit at 4.5% GDP). The World Bank's October 2025 Africa's Pulse credits such factors for Tanzania's outperformance in SSA growth.
  • Risks: Over-reliance on gold (volatile at USD 3,368/oz) and tourism (weather-sensitive) exposes to shocks; diversification into cashews/tobacco (up 10% in H2) is key.

Overall Summary and Forward Outlook

The TZS's August appreciation implies a fortified foundation for Tanzania's development: cheaper imports control inflation, export inflows drive reserves, and stability attracts investment, aligning with 6% GDP targets. This contrasts with 2024's pressures, showcasing effective BoT tools amid global trade tariffs. Into Q4 2025, continued trends (e.g., gold at record highs) could push growth to 6.2%, per IMF, but BoT may intervene if appreciation exceeds 5% quarterly to protect exporters. Structural reforms—like boosting non-traditional exports—will sustain this momentum toward 7% medium-term growth.

The national debt profile from the Bank of Tanzania's Monthly Economic Review (September 2025) for August 2025 reveals a manageable 2.3% monthly increase to TZS 124.8 trillion (USD 47.2 billion), with external debt comprising 70.3% (TZS 87.7 trillion) and domestic at 29.7% (TZS 37.1 trillion). This structure—government-dominated (80.8% share) and increasingly concessional—implies sustained fiscal capacity to finance growth-oriented investments like infrastructure and social programs, supporting Q3 GDP estimates above 6% and low inflation (3.4%). As of early October 2025, debt remains at moderate risk of distress, with a debt-to-GDP ratio of ~46.3% projected for the year, per recent assessments, enabling Tanzania to leverage borrowing for Vision 2050's upper-middle-income goals amid resilient exports (e.g., gold and tourism). However, heavy external reliance (81% central government) exposes to FX risks from TZS fluctuations, despite recent appreciation (6.6% in August), underscoring needs for revenue diversification to cap service costs at ~20% of revenues.

These dynamics align with IMF and World Bank evaluations affirming moderate sustainability, with economic recovery projected to drive 6.0% GDP growth in 2025. Below, implications are detailed by category, linking to development enablers like credit expansion (16.2% y-o-y) and sectoral investments.

1. Overview of Tanzania’s National Debt (as of August 2025)

• Total Public Debt (External + Domestic):
  → TZS 124.8 trillion
  (equivalent to about USD 47.2 billion)
• This represents an increase of 2.3% from TZS 122.0 trillion in July 2025.
• The rise was mainly due to new disbursements from external creditors and continued issuance of government bonds in the domestic market.

2. Composition of Public Debt

External debt continues to dominate Tanzania’s debt structure, accounting for about 70% of the total debt portfolio.

3. Composition of External Debt by Borrower

The central government is the main external borrower, holding about four-fifths (81%) of all external debt.

4. Composition of Domestic Debt by Creditor Category

The domestic debt market remains dominated by institutional investors, mainly pension funds and commercial banks, holding over 55% combined.

5. Key Ratios and Indicators

Implications for Tanzania's Economic Development

1. Overview and Composition of Public Debt: Balanced Growth for Productive Financing

• Key Observations Recap: Total TZS 124.8 trillion (+2.3% m-o-m), external TZS 87.7 trillion (70.3%), domestic TZS 37.1 trillion (29.7%); rise from external disbursements and bonds.
• Implications for Economic Development:
  • Infrastructure and Recovery Catalyst: The modest uptick funds high-return projects (e.g., transport/energy, 33.2% of external uses), aligning with July's TZS 1,634.4 billion development spending and boosting 14.8% credit to construction. This supports 6.0% growth projections, with debt-financed capex adding 1-2% to GDP via multipliers in mining (3.2% credit growth) and agriculture (30.1%).
  • Sustainability Amid Resilience: At 46.3% of GDP, the portfolio's concessional tilt (e.g., from IDA/IMF) keeps distress risk moderate, providing buffers against global uncertainties (Chart 1.1a). Domestic growth (5% m-o-m) deepens markets, reducing rollover risks and crowding-out.
  • Risks: 2.3% monthly pace could push debt-to-GDP above 50% if exports soften; President Samia's September defense highlights productive use but calls for efficiency.

2. Composition of External Debt by Borrower: Public-Led External Leverage

• Key Observations Recap: Central government TZS 70.9 trillion (80.8%), private TZS 16.8 trillion (19.2%).
• Implications for Economic Development:
  • Public Investment Multipliers: Government dominance channels funds to social/education (21.5% use) and BoP support (22.5%), enhancing human capital and stability for 5.5% unemployment reduction. This ties to 6.5% Zanzibar growth spillover, per October updates.
  • Private Sector Catalyst: 19.2% private share (up historically) reflects FDI in energy/mining (12.9% use), fostering diversification beyond gold (35.5% export rise).
  • Risks: 80.8% concentration amplifies fiscal pressures if global rates rise; IMF notes need for private borrowing caps.

3. Composition of Domestic Debt by Creditor: Institutional Deepening for Stability

• Key Observations Recap: Banks TZS 10.6 trillion (28.4%), pensions TZS 10.1 trillion (27.2%), BoT TZS 7.1 trillion (19.0%), others TZS 6.8 trillion (18.3%).
• Implications for Economic Development:
  • Market Maturation: >55% institutional hold (banks/pensions) mobilizes savings (deposits +20.2% y-o-y), funding bonds at lower yields (13.91-14.42%), which eases private credit costs (15.07% lending rate).
  • Inclusive Financing: 18.3% "others" (individuals/NBFIs) broadens participation, supporting MSME loans (36% of credit) and financial inclusion in rural areas.
  • Risks: BoT's 19% share risks quasi-fiscal expansion; Q3 report shows domestic at TZS 34.3 trillion, signaling steady but monitored growth.

4. Key Ratios and Indicators: Moderate Risk with Growth Upside

• Key Observations Recap: Government 80.8%, private 19.2%; external 70.3%, domestic 29.7%.
• Implications for Economic Development:
  • Fiscal Space Optimization: 80.8% government share ensures targeted spending (e.g., TZS 41.8 billion Zanzibar development), while 29.7% domestic reduces FX exposure, aligning with SECO's 2025 report on USD 47.66 billion stock.
  • Resilience Metrics: Moderate risk supports 3.8% SSA growth context, with debt service sustainable at 20% revenues, freeing resources for ag/tourism.
  • Risks: USD-heavy external (66.1%) vulnerable to appreciation reversals; Allianz projects 46.3% GDP stability but urges reforms.

Overall Summary and Forward Outlook

August's debt rise implies a strategic tool for Tanzania's development: sustainable levels finance 6%+ growth and inclusion, with diversification mitigating risks in a resilient SSA economy (3.8% regional projection). External dominance funds recovery, while domestic deepening enhances stability. By year-end 2025, trends could hold debt at 46% GDP, but boosting revenues (16.5% GDP target) and non-concessional shifts will unlock 7% potential amid elections (October 28).