In June 2025, Tanzania’s headline inflation rate stood at 3.3%, a slight increase from 3.2% in May 2025, remaining within the government’s 3–5% target and aligned with SADC/EAC benchmarks. However, the sharp rise in food inflation to 5.6% in May 2025, driven by supply chain disruptions and price spikes in staples like rice (2.5%), maize flour (0.8%), and cassava (4.2%), significantly impacts the cost of living, particularly for low-income households reliant on these goods. While energy and utilities inflation eased to 6.1% from 7.3% a year earlier, housing costs (7.2% annual increase) and non-food items like charcoal (1.5%) continue to strain budgets. With approximately 26% of Tanzanians living below the poverty line and 80% in the informal sector, these price pressures could exacerbate poverty, fuel wage demands, and challenge economic stability, despite a stable core inflation rate of 1.9%.

Key Inflation Metrics (June 2025)

• Headline Inflation: The annual headline inflation rate for June 2025 is 3.3%, slightly up from 3.2% in May 2025, but within the Tanzanian government's target range of 3–5% and aligned with Southern African Development Community (SADC) and East African Community (EAC) benchmarks. This indicates relative macroeconomic stability.
• Core Inflation: Excluding volatile items like unprocessed food and energy, core inflation decreased to 1.9% in June 2025 from 2.1% in May 2025, reflecting stable prices for non-volatile goods and services.
• Food Inflation: Food and non-alcoholic beverages, which constitute 28.2% of the NCPI basket, saw a 3.5% annual price increase in June 2025, up from a 0.7% monthly rise. Specific food items driving this include rice (2.5%), sorghum grains (1.2%), finger millet grains (7.0%), maize flour (0.8%), cooking bananas (3.9%), and dry cassava (4.2%). Food inflation has risen sharply from 1.6% in May 2024 to 5.6% in May 2025, primarily due to transportation disruptions and supply chain challenges.
• Energy, Fuel, and Utilities: Inflation in this sector decreased from 7.3% in May 2024 to 6.1% in May 2025, reflecting a decline in global oil prices. However, items like charcoal (1.5%) and diesel (0.7%) still saw monthly price increases in June 2025.
• Non-Food Items: Price increases in non-food items, such as garments for men and children (0.2–0.3%), footwear for children (0.3%), household furniture (0.4%), and laptop computers (0.6%), contributed to the overall NCPI rise from 119.85 in May 2025 to 120.18 in June 2025 (a 0.3% monthly increase).

Impact on Cost of Living

1. Food Price Pressures:
   • Food and non-alcoholic beverages, with a significant weight of 28.2% in the NCPI, are a major driver of the cost of living, especially for low-income households who allocate a large share of their budgets to food. The 5.6% food inflation rate in May 2025, coupled with specific increases in staples like rice, maize, and cassava, directly raises household expenses.
   • For example, a 7.0% rise in finger millet grains and 4.2% in dry cassava disproportionately affects rural and low-income households reliant on these staples. This could lead to reduced purchasing power and potential shifts to lower-quality or less nutritious food options, exacerbating food insecurity.
2. Non-Food and Energy Costs:
   • While energy inflation has moderated to 6.1%, the rise in charcoal and diesel prices still impacts household budgets, particularly for cooking and transportation. Urban households, reliant on purchased fuels, feel this pinch more acutely.
   • Non-food items like clothing, footwear, and household goods saw modest increases (e.g., 0.2–0.4%), which cumulatively add to living costs, especially for families with children or those maintaining homes.
3. Housing and Utilities:
   • The housing, water, electricity, gas, and other fuels category, with an 18% weight in the NCPI, recorded a 0.4% monthly decrease but a 7.2% annual increase. Rising rental costs (0.3%) and maintenance materials (0.2%) contribute to higher living expenses, particularly in urban areas like Dar es Salaam.

Impact on Poverty Levels

• Increased Poverty Risk: The sharp rise in food inflation (5.6%) outpaces headline inflation (3.3%), disproportionately affecting low-income households. According to the World Bank, approximately 26% of Tanzanians lived below the international poverty line ($2.15/day, 2017 PPP) in recent estimates. Higher food prices could push more households into poverty, particularly in rural areas where agriculture is a primary livelihood but supply disruptions increase costs.
• Nutritional Impact: Price spikes in staples like maize and rice may force households to reduce consumption or switch to less nutritious alternatives, potentially worsening malnutrition rates, especially among children. Tanzania’s 2022 Demographic and Health Survey reported 30% of children under five are stunted, and rising food costs could aggravate this.

Influence on Wage Demands

• Pressure for Higher Wages: The rising cost of living, driven by food and non-food price increases, is likely to spur demands for wage adjustments, particularly in urban areas and formal sectors. Public sector workers and trade unions may push for salary hikes to match the 3.3% headline inflation rate or the higher 5.6% food inflation rate.
• Informal Sector Challenges: Over 80% of Tanzania’s workforce is in the informal sector, where income adjustments are less structured. These workers may struggle to cope with rising costs, potentially leading to social unrest or increased reliance on government subsidies.

Economic Stability

• Stable Macroeconomic Environment: The headline inflation rate of 3.3% remains within the government’s 3–5% target and aligns with SADC/EAC benchmarks, signaling relative economic stability. The decline in core inflation to 1.9% further supports this, as it indicates controlled price growth in non-volatile sectors.
• External Factors: Easing global oil prices have reduced energy inflation, providing some relief to transport and production costs. However, transportation disruptions (e.g., weather-related issues or infrastructure bottlenecks) have driven food inflation, highlighting vulnerabilities in domestic supply chains.
• Policy Implications: The Bank of Tanzania is likely to maintain a cautious monetary policy to keep inflation within the target range. However, persistent food price increases may necessitate targeted interventions, such as subsidies for staples or investments in agricultural logistics, to stabilize prices.

Analytical Insights

• Sector-Specific Impacts: Food inflation’s dominance reflects Tanzania’s reliance on agriculture and vulnerability to supply shocks. While energy price relief is positive, the overall cost-of-living increase strains household budgets, particularly for the poor.
• Poverty and Inequality: The disproportionate impact of food inflation on low-income households could widen inequality, as wealthier households are better equipped to absorb price shocks. This may exacerbate urban-rural disparities, given higher urban exposure to non-food costs like rent and fuel.
• Wage Dynamics: Rising costs may fuel labor market tensions, but the informal sector’s dominance limits broad wage adjustments, potentially increasing reliance on social safety nets.
• Long-Term Stability: The stable headline inflation rate and declining core inflation suggest effective macroeconomic management, but addressing food supply chain issues is critical to sustaining this stability.

Conclusion

Inflation in Tanzania, at 3.3% in June 2025, remains manageable but masks sector-specific pressures, particularly in food (5.6%), which significantly impacts the cost of living for low-income households. This could exacerbate poverty and malnutrition risks, especially in rural areas. Wage demands are likely to rise, particularly in formal sectors, but the informal economy’s dominance limits broad relief. While macroeconomic stability is maintained, addressing food supply chain disruptions is critical to mitigating cost-of-living pressures and ensuring long-term economic stability. Targeted policies, such as food subsidies or infrastructure improvements, could alleviate these challenges.

Below is a table presenting the Annual Inflation Rates by Main Groups for June 2025, based on the data from the provided document. The table includes the main groups, their respective weights in the National Consumer Price Index (NCPI), and the 12-month percent change (annual inflation rate) for June 2025.

Notes:

• The 12-Month Percent Change represents the annual inflation rate for each group, calculated as the percentage change in the NCPI from June 2024 to June 2025 (base year: 2020 = 100).
• The Housing, Water, Electricity, Gas, and other group has the highest inflation rate at 7.2%, driven by items like rentals and utilities.
• Information and Communication recorded a 0.0% inflation rate, indicating price stability in this sector.
• The overall All Items Index inflation rate is 3.3%, reflecting a stable macroeconomic environment within Tanzania’s target range of 3–5%.

Below is a table summarizing key figures related to inflation in Tanzania for June 2025, drawn from the provided document and incorporating relevant details from the earlier context. The table focuses on essential metrics to provide a concise overview of inflation, its sectoral impacts, and related economic indicators.

Notes:

• Headline Inflation: The 3.3% rate in June 2025 aligns with SADC/EAC benchmarks, indicating macroeconomic stability.
• Food Inflation: The 5.6% rate (May 2025) and 3.5% for June 2025 reflect supply chain issues, notably transportation disruptions, impacting staples critical to low-income households.
• Core Inflation: The decline to 1.9% suggests stable pricing for non-volatile goods, beneficial for policy planning.
• Economic Context: Rising food and housing costs disproportionately affect low-income households, potentially increasing poverty and malnutrition risks. The informal sector’s dominance complicates wage adjustments, heightening pressure on social safety nets.
• Data Source: Figures are primarily from the provided NCPI document (June 2025), with poverty and stunting rates from external sources (World Bank, Demographic and Health Survey).

This table consolidates critical inflation-related figures to highlight their implications for cost of living and economic stability.

The Tanzania government’s fiscal performance in 2025, as evidenced by April 2025 data and the proposed 2025/26 budget, reflects a commitment to balancing fiscal discipline with development priorities. Domestic revenue collection of TZS 2,544.1 billion in April 2025, with tax revenue at TZS 2,105.3 billion (1.5% above target), indicates robust revenue mobilization (Bank of Tanzania, 2025). However, expenditure of TZS 3,287.3 billion suggests a monthly fiscal deficit. The proposed 2025/26 budget of TZS 56.49 trillion, with a fiscal deficit of 3% of GDP and 31% allocated to development spending, underscores efforts to fund infrastructure and social sectors while adhering to regional fiscal benchmarks. This analysis evaluates whether Tanzania maintains fiscal discipline while addressing development needs, focusing on the sustainability of its fiscal path and the balance between recurrent and development spending.

Tanzania Fiscal Discipline and Development Needs Analysis (2025)

Sustainability of Fiscal Path

Fiscal Discipline

• Revenue Mobilization:
  • April 2025 domestic revenue (TZS 2,544.1 billion) was nearly on target, with tax revenue (TZS 2,105.3 billion) exceeding projections by 1.5%, reflecting improved tax administration and compliance (BoT). The 2025/26 budget projects domestic revenue at TZS 40.47 trillion (71.6% of the budget), with tax revenue at TZS 32.31 trillion. This aligns with a tax-to-GDP ratio of 12.6% (2024/25), though still below the Sub-Saharan average of ~16%.
  • Strong revenue performance reduces reliance on external grants (TZS 1.07 trillion, ~1% of revenue by 2026), signaling greater fiscal self-reliance. However, low domestic tax collection signals weak consumer demand, potentially limiting revenue growth.
• Deficit Management:
  • The monthly fiscal deficit in April 2025 (~TZS 743.2 billion) reflects expenditure (TZS 3,287.3 billion) outpacing revenue (BoT). However, the proposed 2025/26 fiscal deficit of 3% of GDP aligns with the East African Community (EAC) and Southern African Development Community (SADC) benchmarks, indicating disciplined borrowing.
  • Financing through domestic borrowing (TZS 6.27 trillion) and external loans (TZS 8.68 trillion) avoids excessive external debt reliance, with public debt projected to decline from 46.3% of GDP in 2025 to 45% by 2027 under the IMF program (). Domestic debt stood at TZS 34.26 trillion in March 2025, with 29% held by commercial banks.
• Debt Sustainability:
  • Public debt at 46.3% of GDP (2025) is below the SADC threshold of 60%, supported by concessional borrowing and grants. Interest payments (TZS 6.49 trillion in 2025/26) are rising but manageable, reflecting improved debt management.
  • The government’s strategy to prioritize concessional loans and limit non-concessional borrowing mitigates debt distress risks, unlike earlier periods when the deficit reached 7% of GDP in 2022/23.

Balance Between Recurrent and Development Spending

• Recurrent Expenditure (69%):
  • The 2025/26 budget allocates TZS 38.98 trillion (69%) to recurrent spending, including TZS 9.17 trillion for salaries and pensions and TZS 6.49 trillion for interest payments. High recurrent costs, particularly wages (TZS 936.4 billion in January 2025), ensure public sector stability but constrain fiscal space for discretionary spending.
  • The share of “other charges” in recurrent expenditure has declined from 68% (2003/04) to 34% (2020/21), limiting flexibility for productivity-enhancing expenditures. This trend risks undermining operational budgets for infrastructure maintenance.
• Development Expenditure (31%):
  • Development spending of TZS 17.51 trillion (31%) in 2025/26, including TZS 7.72 trillion for capital payments, supports infrastructure (e.g., SGR, hydropower), agriculture, and health. This is a significant increase from TZS 15.96 trillion in 2024/25, aligning with priorities like the Third Five-Year Development Plan (FYDP III) and Vision 2025.
  • However, development budget execution rates have historically lagged at 67% (2017–2021), potentially slowing infrastructure growth. Reduced development spending in some years (e.g., TZS 1,393.3 billion in January 2025) could hinder long-term economic expansion.
• Sustainability Concerns:
  • Positive Trends: The 3% GDP deficit and declining debt-to-GDP ratio (46.3% to 45%) reflect fiscal discipline, supported by stable inflation (3.2% in May 2025) and robust reserves (USD 5,360 million, 4.2 months of import cover) (BoT). Strong revenue collection (99.5% of target) and controlled deficit spending enhance fiscal stability.
  • Challenges: High recurrent spending (69%) limits fiscal space for development projects, risking underinvestment in human capital (e.g., education at 3.3% of GDP, health at 1.2% vs. LMIC averages of 4.4% and 2.3%). Domestic borrowing may crowd out private sector credit, as seen with 29% of domestic debt held by commercial banks. Low budget execution rates and weak consumer demand further threaten development outcomes.

Conclusion

The Tanzania government maintains fiscal discipline through strong revenue mobilization (TZS 2,544.1 billion in April 2025, TZS 40.47 trillion projected for 2025/26), a controlled fiscal deficit (3% of GDP), and a sustainable debt profile (46.3% of GDP). Development spending (31% of the budget) supports critical sectors like infrastructure and agriculture, aligning with Vision 2025 and FYDP III. However, high recurrent expenditure (69%), particularly on salaries and interest, constrains fiscal flexibility, while low budget execution rates and potential crowding-out of private credit pose risks to long-term growth. To enhance sustainability, the government should improve budget execution, rationalize tax expenditures, and prioritize social spending to boost human capital, ensuring a balanced fiscal path that supports inclusive development.

In May 2025, credit to the private sector in Tanzania grew by 17.1%, a notable increase from 14.8% in April, reflecting robust lending activity (Bank of Tanzania, 2025). This growth, particularly in agriculture (29.8%), building and construction (27.9%), and transport and communication (25.6%), with personal loans comprising 35.7% of total credit, suggests a dynamic credit market. However, the extent to which this expansion supports economic development hinges on whether it fuels productive investments that enhance output, employment, and infrastructure, or if it is primarily absorbed by consumption, which may offer short-term benefits but limited long-term growth. This analysis examines the allocation of credit, its impact on key sectors, and its implications for sustainable economic development, drawing on the provided document and broader economic context.

• Credit Growth Overview:
  • Total Credit Growth: Private sector credit grew by 17.1% in May 2025, up from 14.8% in April 2025, indicating increased liquidity and banking sector confidence (Bank of Tanzania, 2025). This aligns with the Bank of Tanzania’s monetary policy stance, maintaining the Central Bank Rate at 6% to support economic activity amid global uncertainties.
  • Sectoral Distribution:
    • Agriculture: Credit growth reached 29.8%, reflecting significant investment in a sector critical to Tanzania’s economy, which employs about 65% of the workforce and contributes roughly 25% to GDP (World Bank, 2023).
    • Building and Construction: A 27.9% growth rate suggests strong investment in infrastructure, a key driver of economic development through job creation and improved connectivity.
    • Transport and Communication: With 25.6% growth, this sector benefits from credit supporting logistics and digital infrastructure, crucial for trade and innovation.
    • Personal Loans: Dominating at 35.7% of total credit, personal loans indicate a significant portion of credit is directed toward individual consumption or small-scale activities.
• Monetary and Financial Context:
  • Money Supply: Broad money (M2) growth supports credit expansion, with interbank cash market transactions rising to TZS 3,267 billion in May 2025 from TZS 2,111 billion in April, reflecting ample liquidity.
  • Interest Rates: The weighted average lending rate was 15.18% in May 2025, with a narrowed interest rate spread of 6.24% (down from 7.61% in May 2024), indicating improved credit affordability.
  • External Sector: A narrowing current account deficit to USD 2,117.5 million in May 2025, driven by strong export performance (e.g., gold and cashew nuts), supports economic stability, enabling banks to extend credit without external pressures.

Productive Investment vs. Consumption

1. Productive Investment:
   • Agriculture: The 29.8% credit growth in agriculture is promising, as it supports a sector vital for food security and rural livelihoods. Investments in irrigation, mechanization, or agro-processing could enhance productivity, reduce import reliance, and boost exports (e.g., cashew nuts, which contributed to a USD 578.5 million export increase in May 2025). However, the effectiveness depends on whether credit reaches smallholder farmers or is concentrated in large agribusinesses, as smallholders dominate Tanzania’s agricultural landscape.
   • Building and Construction: The 27.9% growth supports infrastructure projects, aligning with the government’s 2025/26 budget priorities for development spending (TZS 1,281.6 billion in April 2025). This can stimulate job creation and economic multipliers, enhancing long-term growth. For instance, infrastructure investments improve transport networks, reducing costs for businesses and supporting export growth (e.g., USD 5,360 million in foreign exchange reserves).
   • Transport and Communication: The 25.6% credit growth facilitates logistics and digital infrastructure, critical for Tanzania’s integration into regional markets like the EAC. Investments here could enhance trade efficiency, as evidenced by the improved current account surplus in Zanzibar (USD 396.2 million).
2. Consumption-Driven Credit:
   • Personal Loans: At 35.7% of total credit, personal loans dominate, suggesting a significant portion of credit is used for consumption or small-scale entrepreneurial activities. While personal loans can support micro-businesses or smooth household consumption, excessive reliance risks diverting funds from productive sectors. High consumption-driven borrowing may also strain repayment capacity, given the 15.18% lending rate, potentially increasing non-performing loans if incomes do not keep pace with inflation (3.2% in May 2025).
   • Risk of Over-Leveraging: The high share of personal loans raises concerns about debt sustainability, especially for informal sector workers (~80% of the workforce), who lack stable incomes. This could limit the transformative impact of credit on economic development if funds are not channeled into income-generating activities.
3. Economic Development Impacts:
   • Positive Contributions: Credit growth in agriculture, construction, and transport supports structural transformation. For example, agricultural credit aligns with government priorities to boost food production, potentially mitigating food inflation (3.9% in Zanzibar, p. 16). Infrastructure investments enhance connectivity, supporting Tanzania’s role as a regional trade hub. The narrowed current account deficit and stable reserves (4.2 months of import cover) provide a conducive environment for sustained credit growth.
   • Limitations: The dominance of personal loans suggests limited depth in productive investment. Without targeted policies to channel credit into high-impact sectors (e.g., manufacturing, which has lower credit growth), the economic multiplier effects may be constrained. Additionally, high lending rates (15.18%) could deter long-term investments in capital-intensive projects, limiting job creation and GDP growth.
   • External Context: Global uncertainties, such as geopolitical tensions and trade tariffs noted in the document, could dampen investor confidence, potentially reducing the effectiveness of credit in driving export-led growth. However, rising gold exports and stable oil prices provide some buffer.

Conclusion

Credit growth to the private sector in Tanzania, at 17.1% in May 2025, significantly supports economic development through substantial allocations to agriculture (29.8%), building and construction (27.9%), and transport and communication (25.6%). These sectors drive productivity, infrastructure, and trade, aligning with government priorities and contributing to economic stability, as evidenced by a narrowing current account deficit and robust reserves. However, the dominance of personal loans (35.7%) suggests a significant portion of credit is absorbed by consumption, potentially limiting long-term growth if not directed toward productive uses. To maximize economic development, policies should incentivize credit allocation to high-impact sectors like manufacturing and ensure smallholder farmers access agricultural loans, while managing risks of over-leveraging in the informal sector. This balanced approach can enhance the transformative impact of credit growth on Tanzania’s economy.

Below is a table summarizing key figures related to credit growth to the private sector in Tanzania and its implications for economic development, based on the provided Bank of Tanzania document (2025070510552448.pdf) and additional context from the previous analysis. The table focuses on critical metrics related to credit growth, sectoral allocation, and broader economic indicators to highlight their role in supporting economic development.

Notes:

• Credit Growth: The 17.1% growth in private sector credit (May 2025) reflects strong banking sector activity, supported by a stable monetary policy (Central Bank Rate at 6%) and increased liquidity (TZS 3,267B in interbank transactions).
• Sectoral Impact: High growth in agriculture (29.8%), building and construction (27.9%), and transport and communication (25.6%) supports productive investments, enhancing food security, infrastructure, and trade connectivity. However, personal loans (35.7%) suggest significant consumption-driven borrowing, which may limit long-term economic benefits.
• Economic Stability: A narrowed current account deficit (USD 2,117.5M) and robust reserves (USD 5,360M, 4.2 months of import cover) provide a stable environment for credit expansion. Stable inflation (3.2%) and declining food inflation in Zanzibar (3.9%) support purchasing power.
• Challenges: The dominance of personal loans and high lending rates (15.18%) may constrain productive investment, particularly in manufacturing, and pose risks of over-leveraging in the informal sector (~80% of workforce).
• Source: Figures are primarily from the Bank of Tanzania document (pages noted), with workforce and GDP data from World Bank (2023).

This table consolidates key figures to illustrate the extent to which credit growth supports economic development, highlighting both productive investments and consumption-driven challenges.

Tanzania’s external sector has shown resilience in 2025, with the current account deficit narrowing from USD 2,862.6 million in 2024 to USD 2,117.5 million in the year ending May 2025, driven by a robust 19.2% export growth to USD 16,994.7 million, particularly in gold (USD 3.84 billion), cashew nuts, and tourism (Bank of Tanzania, 2025, p. 14). Foreign exchange reserves of USD 5,360 million, covering 4.2 months of imports, exceed the national benchmark of 4 months, providing a buffer against external shocks. However, the economy’s reliance on a few key sectors raises concerns about diversification and sustainability. This analysis evaluates the resilience of Tanzania’s external sector to global economic shocks, focusing on export composition, sectoral dependence, and vulnerabilities to global commodity price fluctuations and geopolitical risks.

Explanation with Figures

• Current Account Performance:
  • The current account deficit improved significantly to USD 2,117.5 million in the year ending May 2025, down from USD 2,862.6 million in 2024, a reduction of approximately 26%. This improvement is attributed to strong export performance outpacing import growth.
  • Service payments rose by 27% to USD 8,447 million, driven by freight payments (47.7% of total service expenditures), indicating increased trade activity. The primary income account deficit widened to USD 1,902 million, reflecting higher external debt servicing costs.
• Export Growth:
  • Total exports grew by 19.2% to USD 16,994.7 million in the year ending May 2025, with significant contributions from gold (USD 3.84 billion), cashew nuts, and tourism. Gold exports alone accounted for roughly 22.6% of total exports, while cash crops and tourism bolstered service receipts.
  • Zanzibar’s current account surplus improved to USD 396.2 million from USD 423.9 million, driven by tourism-related service receipts.
• Foreign Exchange Reserves:
  • Reserves stood at USD 5,360 million in May 2025, slightly below USD 5,512.6 million in 2024 but sufficient to cover 4.2 months of imports, surpassing the national benchmark of 4 months and aligning with EAC/SADC standards.
  • The Tanzanian shilling depreciated by 3.86% annually, trading at TZS 2,884.42 per USD in April 2025, a modest depreciation that supports export competitiveness.
• Global Context:
  • Global economic uncertainties, including geopolitical tensions and trade protectionism, have dampened investor confidence and global growth prospects. Gold prices surged due to demand for safe-haven assets, while crude oil prices eased due to weaker demand and increased OPEC+ output.
  • Tanzania’s reliance on gold, a safe-haven commodity, provides a hedge against global volatility, but falling oil prices reduce import costs, supporting the trade balance.

Reliance on Key Sectors and Sustainability

1. Sectoral Dependence:
   • Gold (22.6% of Exports): Gold exports (USD 3.84 billion) are a cornerstone of Tanzania’s external sector, benefiting from high global prices driven by geopolitical tensions. However, this reliance exposes the economy to price volatility. A sharp decline in gold prices, as seen in past commodity cycles (e.g., 2011–2013), could significantly reduce export earnings.
   • Tourism: Tourism, particularly in Zanzibar, drives service receipts, contributing to a USD 396.2 million current account surplus. However, tourism is vulnerable to global shocks, such as pandemics or travel restrictions, as evidenced by a 30% drop in arrivals during COVID-19 (2020).
   • Cash Crops (e.g., Cashew Nuts): Strong performance in cashew nuts and other crops supports export growth. However, agricultural exports are susceptible to weather-related disruptions and global price fluctuations, with cashew prices historically volatile (e.g., 20% price drop in 2018–19).
2. Diversification:
   • Tanzania’s export base remains concentrated, with gold, tourism, and cash crops dominating. Manufacturing exports, which could enhance value addition, remain underdeveloped, contributing only ~8% to GDP compared to 15–20% in peer economies like Kenya. Limited diversification increases vulnerability to sector-specific shocks.
   • The Interbank Foreign Exchange Market (IFEM) saw improved liquidity from cash crop and gold exports, but over-reliance on these sectors risks instability if global demand weakens. For instance, a 10% drop in gold prices could reduce export earnings by ~USD 384 million, impacting reserves and the current account.
3. Sustainability and Resilience:
   • Positive Factors:
     • The 19.2% export growth and narrowed current account deficit (USD 2,117.5 million) reflect a robust external sector, supported by stable reserves (USD 5,360 million, 4.2 months of imports). This provides a buffer against shocks, such as rising trade tariffs noted globally.
     • Modest shilling depreciation (3.86%) enhances export competitiveness without triggering import-driven inflation, which remains stable at 3.2%.
     • Strong tax revenue (TZS 2,105.3 billion, +1.5% above target) and a fiscal deficit of 3% of GDP (2025/26) reduce reliance on external financing, bolstering resilience.
   • Vulnerabilities:
     • Heavy reliance on gold and tourism makes the external sector sensitive to global price swings and demand shocks. For example, a 20% decline in tourism receipts during a global recession could widen the current account deficit by ~USD 200–300 million (based on 2020 data).
     • Limited manufacturing growth restricts export diversification, with non-traditional exports (e.g., processed goods) constituting less than 15% of total exports.
     • Rising service payments (USD 8,447 million, +27%) and a wider primary income deficit (USD 1,902 million) due to debt servicing could strain reserves if export growth slows.
4. Global Shock Resilience:
   • Commodity Price Volatility: Gold’s safe-haven status cushions Tanzania against financial market shocks, but a prolonged global downturn could depress demand for cash crops and tourism, as seen in 2008–09.
   • Geopolitical Risks: Escalating trade tariffs and geopolitical tensions could disrupt export markets, particularly for cash crops in regional trade blocs like the EAC. Tanzania’s stable reserves and low inflation provide some insulation, but a sharp rise in oil prices could increase import costs, given oil’s significant share in imports.
   • Policy Buffers: The Bank of Tanzania’s monetary policy (Central Bank Rate at 6%) and foreign exchange interventions stabilize the shilling, while fiscal discipline (3% GDP deficit,) supports external sector stability. However, low budget execution rates for development spending (67%, 2017–2021) limit investments in export-enhancing infrastructure.

Conclusion

Tanzania’s external sector demonstrates resilience to global economic shocks, underpinned by a 19.2% export growth (USD 16,994.7 million), a narrowed current account deficit (USD 2,117.5 million), and robust foreign exchange reserves (USD 5,360 million, 4.2 months of imports). Strong performance in gold (USD 3.84 billion), cashew nuts, and tourism, alongside stable inflation (3.2%) and fiscal discipline, provides a buffer against global uncertainties like trade tariffs and geopolitical tensions. However, heavy reliance on gold (22.6% of exports) and tourism, combined with limited diversification into manufacturing, exposes the economy to commodity price volatility and external demand shocks. To enhance resilience, Tanzania should invest in value-added industries, diversify export markets, and improve infrastructure to reduce dependence on a few key sectors, ensuring sustainable export growth and external sector stability.

Table: Key Figures on Tanzania’s External Sector (2025)

Sources: Bank of Tanzania (2025); additional context from World Bank, IMF, sources (2023–2025).

Debt Structure and Figures

As of May 2025, Tanzania’s national debt stood at TZS 107.70 trillion, comprising TZS 72.94 trillion in external debt and TZS 34.76 trillion in domestic debt. The external debt stock, equivalent to approximately USD 34.1 billion (using an exchange rate of TZS 2,884.42 per USD from April 2025), was primarily held by multilateral institutions and directed toward key sectors such as transportation (21.5%) and telecommunications. The central government accounted for 78.3% of external debt (USD 26.7 billion), with 67.7% of this debt denominated in US dollars (USD 23.1 billion). Domestic debt, at TZS 34.26 trillion in March 2025, was largely financed by commercial banks (29%) and pension funds (26.5%), with Treasury bonds dominating at 78.2%.

In May 2025, principal repayments on external debt amounted to USD 267 million. Debt servicing costs are significant, with historical data indicating that external debt servicing consumed up to 40% of government expenditures in earlier years. For 2023, total debt service was 2.89% of Gross National Income (GNI), and in 2025, servicing the external debt (at concessional rates) and domestic debt (at 15.5% lending rates) could cost approximately USD 1–2 billion and TZS 5.31 trillion annually, respectively. These costs divert resources from productive investments, potentially straining fiscal space.

Impact on the Tanzania Shilling

The Tanzania Shilling’s stability in May 2025 is supported by several factors related to debt management and economic performance:

• Foreign Exchange Reserves: The Bank of Tanzania (BoT) reported foreign exchange reserves of USD 5,360 million in May 2025, covering 4.2 months of imports, which exceeds the national benchmark of 4 months. By March 2025, reserves had increased to USD 5,700 million, covering 3.8 months of imports, indicating sustained adequacy. These reserves provide a buffer against external shocks, reducing pressure on the Shilling and enabling the BoT to meet external debt obligations without significant currency devaluation.
• Export Performance: Robust export growth, particularly in gold (24.5% increase) and cashew nuts (141% increase), contributed to a 16.8% rise in exports to USD 16.7 billion in the year ending April 2025. Gold prices, at USD 2,983.25 per ounce in March 2025, further bolstered foreign exchange inflows, supporting the Shilling’s stability.
• Fiscal and Monetary Policy: The BoT maintained the Central Bank Rate (CBR) at 6% in April 2025 to safeguard economic stability amid global uncertainties. Prudent fiscal policy, with a fiscal deficit trending toward 3% of GDP, and stringent monetary policy have kept inflation low at 3.2% in May 2025, below the BoT’s 5% target. Low inflation reduces pressure on the Shilling by maintaining purchasing power and stabilizing import costs.

Despite these stabilizing factors, the Shilling experienced a 3.86% annual depreciation against the USD, trading at TZS 2,884.42 per USD in April 2025. This depreciation, though improved from the previous month, reflects pressures from external debt servicing and import demands. The high USD denomination of external debt (67.7%) exacerbates these pressures, as a depreciating Shilling increases the local currency cost of debt servicing by approximately TZS 2.37 trillion for the USD 34.1 billion external debt, based on a 2.6% depreciation rate.

Foreign Exchange Interventions and Their Role

The BoT’s interventions in the Interbank Foreign Exchange Market (IFEM) have been critical to maintaining the Shilling’s stability. In January 2025, the BoT sold USD 7 million to stabilize the exchange rate, preventing excessive depreciation amid a 1.37% month-on-month weakening of the Shilling (from TZS 2,420.84 to TZS 2,454.04 per USD). Similar interventions likely occurred in April and May 2025, as the document notes that seasonal inflows from cash crops and gold exports, combined with BoT actions, mitigated depreciation pressures. However, IFEM transactions declined significantly from USD 95.7 million in December 2024 to USD 16.3 million in January 2025, suggesting reduced market activity, possibly due to lower trade or investor participation.

These interventions, supported by adequate reserves, have ensured short-term stability, with the Shilling appreciating by 2.6% year-on-year from January 2024 to January 2025. The BoT’s ability to intervene is bolstered by improved current account performance, with the deficit narrowing by 31.1% to USD 2,021.5 million in the year ending January 2025, driven by strong export earnings and moderate import growth.

Potential Risks to Long-Term Shilling Stability

The composition of Tanzania’s external debt and reliance on commodity-driven inflows pose several risks to the Shilling’s long-term stability:

1. High USD Denomination of External Debt: With 67.7% of the USD 34.1 billion external debt denominated in US dollars (USD 23.1 billion), the Shilling is highly exposed to exchange rate fluctuations. A further depreciation, such as the 2.6% observed in 2024, increases debt servicing costs in local currency, potentially requiring the BoT to draw down reserves or increase borrowing, both of which could weaken the Shilling.
2. Commodity Price Volatility: Tanzania’s foreign exchange inflows heavily depend on gold and agricultural exports (e.g., cashew nuts, coffee). While gold prices were strong at USD 2,983.25 per ounce in March 2025, declines in coffee (-2%) and sugar (-1.5%) prices highlight vulnerability to global commodity market fluctuations. A downturn in gold prices or reduced export demand could strain reserves and pressure the Shilling.
3. Global Economic Uncertainties: The document highlights risks from global trade tariffs and geopolitical tensions, with the IMF projecting global growth at 2.8% in 2025. Rising global interest rates could increase external borrowing costs, particularly for non-concessional loans, further straining fiscal resources and reserves needed to stabilize the Shilling.
4. Fiscal Constraints and Crowding-Out Effects: High domestic borrowing (TZS 34.26 trillion) and lending rates (15.5%) crowd out private sector investment, weakening credit growth and economic diversification. This limits the economy’s ability to generate sustainable foreign exchange inflows, increasing reliance on volatile commodity exports and BoT interventions.
5. Climate and Structural Risks: Climate change could reduce agricultural output, a key export sector, with the World Bank estimating a potential 4% GDP growth reduction by 2050 due to climate impacts. Slow structural transformation and shallow financial markets further constrain Tanzania’s ability to diversify revenue sources, heightening Shilling vulnerability.

Mitigating Factors and Policy Measures

Tanzania’s authorities are implementing measures to mitigate these risks:

• Debt Sustainability: The IMF’s Debt Sustainability Analysis (DSA) classifies Tanzania’s risk of external debt distress as moderate, with public debt at 35% of GDP in 2024, well below the 55% benchmark. Access to concessional financing from multilateral institutions reduces servicing costs compared to commercial loans.
• Revenue Mobilization: The government collected TZS 2,441 billion in April 2025, with tax revenue exceeding targets by 1.5% due to improved administration. The proposed TZS 56.49 trillion 2025/26 budget aims to enhance revenue through new taxes and levies, reducing reliance on borrowing.
• Export Diversification: Investments in infrastructure (48% of World Bank financing) and sectors like manufacturing and tourism (projected to drive 6% GDP growth in 2025) aim to reduce reliance on commodity exports.
• Monetary Policy: The BoT’s 6% CBR and interventions in the IFEM demonstrate proactive management of liquidity and exchange rate stability. Food reserves (587,062 tonnes, with 32,598 tonnes released) help stabilize food prices, supporting low inflation and Shilling stability.

Conclusion

In May 2025, Tanzania’s national debt developments and foreign exchange interventions have supported the Tanzania Shilling’s short-term stability, with reserves of USD 5,360 million (4.2 months of import cover) and export-driven inflows mitigating a 3.86% annual depreciation. BoT interventions in the IFEM, backed by strong gold and cashew nut exports, have prevented sharp fluctuations, maintaining the Shilling at TZS 2,884.42 per USD in April 2025. However, the high USD denomination of external debt (67.7% of USD 34.1 billion), reliance on volatile commodity exports, and global uncertainties pose risks to long-term stability. A potential further depreciation could increase debt servicing costs by TZS 2.37 trillion, straining reserves and fiscal space. Continued prudent fiscal and monetary policies, alongside diversification efforts, are critical to sustaining Shilling stability and supporting Tanzania’s projected 6% GDP growth in 2025.

Table: Key Economic Figures Impacting Tanzania Shilling Stability (May 2025)

Notes and Explanations

1. Debt Figures: The total national debt (TZS 107.70 trillion) and its breakdown into external (USD 34.1 billion) and domestic (TZS 34.26 trillion) components reflect Tanzania’s borrowing profile. The high USD denomination (67.7%) of external debt increases vulnerability to exchange rate fluctuations, as a 2.6% depreciation could raise servicing costs by approximately TZS 2.37 trillion (calculated as 2.6% of TZS 72.94 trillion).
2. Foreign Exchange Reserves: Reserves of USD 5,360 million in May 2025 and USD 5,700 million in March 2025 provide a buffer for debt servicing and exchange rate stabilization. The 4.2-month import cover exceeds the national benchmark, supporting short-term Shilling stability.
3. Exchange Rate: The Shilling’s depreciation to TZS 2,884.42 per USD reflects pressures from debt servicing and imports, mitigated by BoT interventions (e.g., USD 7 million sale in January 2025). The 2.6% appreciation from January 2024 to January 2025 indicates effective short-term management.
4. Export Performance: Strong export growth (USD 16.7 billion, up 16.8%) driven by gold and cashew nuts bolsters foreign exchange inflows, critical for reserve accumulation and Shilling stability. Gold’s high price (USD 2,983.25 per ounce) is a key factor but introduces volatility risk.
5. Current Account and Inflation: The narrowed current account deficit (USD 2,175 million) and low inflation (3.2%) reduce pressure on the Shilling, supporting its purchasing power and import affordability.
6. Debt Servicing Costs: Estimated based on historical data (2.89% of GNI in 2023) and domestic lending rates (15.5%). These costs strain fiscal resources, potentially requiring reserve drawdowns or further borrowing, which could weaken the Shilling.

This table provides a concise overview of the key figures driving the Tanzania Shilling’s stability in May 2025, highlighting the interplay between debt developments, foreign exchange interventions, and external sector performance, as well as underlying risks from debt composition and commodity reliance.

As of May 2025, Tanzania’s national debt reached TZS 107.70 trillion (approx. USD 39.88 billion), with external debt accounting for TZS 72.94 trillion (67.7%) and domestic debt at TZS 34.76 trillion (32.3%). The debt-to-GDP ratio stands at an estimated 47.8%, up from 46.9% in 2023, though projections suggest a decline to 40.84% by 2029 due to robust GDP growth. External debt is heavily exposed to currency risk, with 67.4% denominated in USD (approx. TZS 49.18 trillion), amplifying the cost of servicing amid a 3.82% depreciation of the shilling. Despite rising debt levels, the 2024 Debt Sustainability Analysis (DSA) by the IMF and government confirms that Tanzania’s debt remains sustainable, backed by USD 5.14 billion in reserves (covering 4.2 months of imports) and a narrowing fiscal deficit projected at 3.0% of GDP in 2025/26.

1. Overview of National Debt

• Tanzania’s national debt comprises external debt (owed to non-residents, repayable in foreign currency, goods, or services) and domestic debt (owed to residents, primarily in TZS). It includes public and publicly guaranteed (PPG) debt, covering central government, public corporations, and contingent liabilities, but excludes private sector debt unless specified.
• Total Debt Stock: As of May 2025, Tanzania’s total national debt stood at TZS 107.70 trillion (USD 39.88 billion at TZS 2,698.42/USD), with external debt at TZS 72.94 trillion (67.7%) and domestic debt at TZS 34.76 trillion (32.3%).
• Debt-to-GDP Ratio: The debt-to-GDP ratio was 46.9% in 2023 (), rising to an estimated 47.8% in 2024 (based on GDP of TZS 156.6 trillion in 2024, and projected debt growth). Forecasts suggest a decline to 40.84% by 2029 due to GDP growth outpacing debt accumulation.
• Sustainability: The 2024 Debt Sustainability Analysis (DSA) by the Tanzanian government and IMF indicates that the debt remains sustainable, with a low risk of external debt distress, supported by a fiscal deficit narrowing to 3.0% of GDP in 2025/26 and foreign exchange reserves covering 4.2 months of imports.

2. External Debt

• Overview: External debt includes loans from multilateral institutions, bilateral creditors, commercial lenders, and IMF credit, denominated primarily in USD (67.4%), Euro (16.6%), and Chinese Yuan (6.3%). It finances infrastructure (e.g., Standard Gauge Railway, Julius Nyerere Hydropower Plant), social services, and energy projects.
• May 2025 Figures:
  • Total External Debt: TZS 72.94 trillion (USD 27.04 billion), up from TZS 64 trillion in October 2022 () and TZS 53.32 trillion in June 2023 (), reflecting a 14% year-on-year increase from April 2024’s estimated TZS 64.1 trillion (based on USD 23.75 billion at TZS 2,698.42/USD).
  • Composition by Creditor:
    • Multilateral Institutions: ~45.7% (~TZS 33.33 trillion), led by World Bank-IDA (TZS 19.1 trillion in 2020/21,) and African Development Bank-ADF (TZS 5.5 trillion in 2020/21).
    • Commercial Creditors: ~30.5% (~TZS 22.25 trillion), including Credit Suisse AG (TZS 3.1 trillion in 2020/21,) and Standard Chartered Bank (TZS 1.6 trillion).
    • Bilateral Creditors: ~11.2% (~TZS 8.17 trillion), with Exim China at TZS 3.9 trillion in 2020/21.
    • Other: ~12.6% (~TZS 9.19 trillion), including IMF credit and other multilateral lenders.
  • Currency Composition:
    • USD: 67.4% (~TZS 49.18 trillion), increasing repayment costs due to TZS depreciation (3.82% in May 2025).
    • Euro: 16.6% (~TZS 12.11 trillion).
    • Chinese Yuan: 6.3% (~TZS 4.59 trillion).
    • Other Currencies: 9.7% (~TZS 7.08 trillion).
  • Sector Allocation (based on September 2024,):
    • Transport and Telecommunications: 21.5% (~TZS 15.68 trillion), e.g., SGR, port upgrades.
    • Social Welfare and Education: 20.8% (~TZS 15.17 trillion).
    • Energy and Mining: ~15% (~TZS 10.94 trillion), e.g., Julius Nyerere Hydropower Plant.
    • Agriculture: 5.1% (~TZS 3.72 trillion), low given its 25% GDP contribution.
    • Tourism: 1.6% (~TZS 1.17 trillion), underfunded despite 19.5% GDP contribution.
• Trends and Drivers:
  • Growth: External debt rose from TZS 47.07 trillion (USD 20.8 billion) in April 2022 () to TZS 72.94 trillion in May 2025, driven by non-concessional borrowing for infrastructure (e.g., SGR,) and increased disbursements (USD 31.43 billion disbursed, USD 5.04 billion undisbursed in September 2024,).
  • Key Projects: The 2025/26 budget allocates TZS 7.72 trillion for capital projects (), with external loans (TZS 8.68 trillion) funding energy (e.g., hydropower) and transport (e.g., SGR, Dar es Salaam port).
  • Currency Risk: The 67.4% USD-denominated debt exposes Tanzania to exchange rate fluctuations, with the TZS depreciating 3.82% annually in May 2025 (Document, Page 12). A 10% TZS depreciation could increase debt servicing by ~TZS 4.92 trillion.
• Economic Implications:
  • Positive: External borrowing supports growth (5.5% GDP in 2024, 6% projected in 2025,), with investments in infrastructure boosting trade (24% intra-African trade rise,) and competitiveness (e.g., AfCFTA,).
  • Risks: High USD exposure (67.4%) and rising commercial borrowing (30.5% of disbursements,) increase servicing costs, with external debt service at TZS 6.49 trillion in 2025/26 (). Global interest rate hikes and TZS depreciation (web:19) exacerbate costs.
  • Sustainability: The IMF’s 2024 DSA confirms low distress risk, with reserves (USD 5,136.6 million, 4.2 months import cover) and concessional loans (72.5% of external debt,) mitigating risks.elibrary.imf.orgelibrary.imf.org

3. Domestic Debt

• Overview: Domestic debt includes Treasury bonds (78.9%), Treasury bills (8.8%), and domestic arrears (1.1% of GDP in 2022/23,), held by commercial banks, pension funds, and the BoT. It finances recurrent spending (e.g., wages) and development projects.
• May 2025 Figures:
  • Total Domestic Debt: TZS 34.76 trillion (USD 12.88 billion), up from TZS 32.62 trillion in September 2024 and TZS 28.92 trillion in June 2023 (), a 6.5% increase from September 2024.
  • Composition by Creditor:
    • Commercial Banks: 28.8% (TZS 10.14 trillion, down from 29.7% in September 2024).
    • Pension Funds: 26.1% (TZS 9.20 trillion, down from 26.7%).
    • Bank of Tanzania: 20.3% (TZS 7.16 trillion, down from 20.5%).
    • Others (public institutions, private companies, individuals): 17.7% (TZS 6.24 trillion, up from 15.2%).
    • Insurance Companies: 5.2% (TZS 1.84 trillion, down from 9%).
    • BoT Special Funds: 1.8% (TZS 0.62 trillion, down from 2%).
  • Instrument Breakdown:
    • Treasury Bonds: 78.9% (TZS 27.43 trillion), preferred for long maturities.
    • Treasury Bills: 8.8% (TZS 3.06 trillion), used for short-term financing.
    • Domestic Arrears: ~1.1% of GDP (~TZS 1.72 trillion, based on 2024 GDP of TZS 156.6 trillion).
• Trends and Drivers:
  • Growth: Domestic debt rose from TZS 22.37 trillion in April 2022 () to TZS 34.76 trillion in May 2025, driven by borrowing for development projects (TZS 1.90 trillion in 2024/25,) and rollover of maturing securities (TZS 3.54 trillion).
  • Interest Rates: Treasury bill rates rose to 11.7% by March 2024 from 5.8% in March 2023, while Treasury bond yields (e.g., 20-year) increased by 2–2.9% (). Domestic debt servicing cost TZS 5.31 trillion in 2024/25.
  • Creditor Dynamics: Commercial banks (28.8%) and pension funds (26.1%) dominate, reflecting a robust domestic bond market. The BoT’s 20.3% share aligns with monetary policy (6% CBR).
• Economic Implications:
  • Positive: Domestic borrowing reduces reliance on volatile external funds, with Treasury bonds (78.9%) offering stable long-term financing (). The 2025/26 budget’s TZS 6.27 trillion domestic borrowing plan supports infrastructure.
  • Risks: Rising interest rates (11.7% for T-bills,) and arrears (TZS 1.72 trillion) strain fiscal space. High domestic debt (32.3% of total) crowds out private sector credit, with lending rates at 15.5%.
  • Sustainability: The domestic debt-to-GDP ratio (~22.2%, based on TZS 156.6 trillion GDP) is manageable, but increasing yields and arrears require fiscal discipline.

4. Economic Implications and Outlook

• Debt Sustainability: The 2024 DSA confirms sustainable debt, with a debt-to-GDP ratio of 47.8% in 2024, projected to decline to 40.84% by 2029 (). Reserves (USD 5,136.6 million, Document, Page 12) and concessional loans (72.5% of external debt,) mitigate risks. The fiscal deficit is projected at 3.0% of GDP in 2025/26.
• Economic Growth: Debt-funded projects (e.g., SGR, hydropower) drive 6% GDP growth in 2025 (), with exports (USD 16,994.7 million, Document, Page 14) and FDI (USD 3.7 billion in January–May 2025,) supporting stability.
• Risks: USD-denominated debt (67.4%) and TZS depreciation (3.82%, Document, Page 12) increase servicing costs. Low agriculture (5.1%) and tourism (1.6%) allocations () limit growth in key sectors. Geopolitical tensions and climate shocks (e.g., La Niña) pose risks.
• Outlook: The 2025/26 budget (TZS 56.49 trillion,) prioritizes revenue mobilization (16.7% of GDP) and infrastructure, with TZS 14.95 trillion in loans (TZS 8.68 trillion external, TZS 6.27 trillion domestic). Diversifying exports (e.g., manufacturing,) and reducing arrears will enhance sustainability

Tanzania National Debt - May 2025: Key Figures

Note: USD conversion based on exchange rate of TZS 2,698.42/USD (May 2025).

In May 2025, the Tanzanian Shilling (TZS) demonstrated relative stability amid ongoing external and domestic pressures, with an annual depreciation rate of 3.82%, easing slightly from 3.86% in April. The exchange rate reached TZS 2,698.42/USD, up from TZS 2,684.41/USD in April and TZS 2,598.94/USD a year earlier. This moderate depreciation reflects a balancing act between strong foreign exchange inflows—such as USD 3.91 billion from tourism and USD 3.84 billion from gold exports—and heightened demand for imports, which grew to USD 17.69 billion. The Bank of Tanzania (BoT) intervened with USD 53 million in the Interbank Foreign Exchange Market (IFEM), which saw a liquidity surge to USD 110.8 million in May, up from just USD 12.9 million in April. Backed by USD 5.1 billion in reserves and supported by gold purchases and de-dollarization reforms, the TZS remains more resilient than many regional currencies, with depreciation kept below 5%—a testament to BoT’s measured interventions and policy coordination.

1. Exchange Rate Trends

• Overview: The Tanzania Shilling (TZS) exchange rate against the US Dollar (USD) is a critical indicator of Tanzania’s external competitiveness and macroeconomic stability. Managed under a flexible exchange rate regime, the TZS is influenced by supply and demand dynamics in the Interbank Foreign Exchange Market (IFEM), with periodic Bank of Tanzania (BoT) interventions to mitigate volatility. The BoT’s medium-term goal is to maintain stability while ensuring adequate foreign exchange reserves.
• May 2025 Performance:
  • Exchange Rate:
    • May 2024: TZS 2,598.94/USD
    • April 2025: TZS 2,684.41/USD (depreciation from May 2024)
    • May 2025: TZS 2,698.42/USD (further depreciation from April 2025)
  • Annual Depreciation Rate:
    • May 2025: 3.82% (calculated as [(2,698.42 - 2,598.94) / 2,598.94] × 100)
    • April 2025: 3.86%, indicating a slight improvement in the depreciation pace.
  • Monthly Depreciation: From April to May 2025, the TZS depreciated by 0.52% ((2,698.42 - 2,684.41) / 2,684.41 × 100), reflecting moderate pressure.
• Context and Analysis:
  • Historical Trends: The TZS has faced steady depreciation pressures, with an average rate of 2,680.62/USD in April 2025, up 3.9% from 2,579.88/USD in April 2024. By September 2024, the TZS hit a peak of 2,724.57/USD, a 12.6% annual depreciation (web:23). The May 2025 rate of 2,698.42/USD shows a stabilization compared to September 2024, aligning with earlier reports of a 2% appreciation by late 2024.
  • Seasonal Patterns: The slight depreciation in May 2025 (0.52% month-on-month) contrasts with a stronger TZS in late 2024, when it rallied 10% due to tourism and agricultural inflows. May’s depreciation reflects reduced seasonal inflows post-tourism peak (August–October) and increased import demand.
  • Regional Comparison: The TZS has been more stable than regional peers like the Kenyan Shilling (24% weaker against TZS over 2022–2023) and Burundian Franc, reflecting Tanzania’s robust reserves and export growth. However, the TZS remains sensitive to USD strength, as seen in its 3.47% appreciation from 2022 to 2023.
  • Economic Drivers:
    • Export Inflows: Gold exports (USD 3,835.5 million, +23.1% year ending April 2025) and tourism receipts (USD 3,910 million estimated, web:4) bolstered the TZS, with 2,662,219 tourist arrivals in 2024 (+20%). Cash crops like cashew nuts (+141%) and coffee (+66.3%) also supported inflows.
    • Import Pressures: Imports of goods and services rose 9.6% to USD 17,686 million (year ending May 2025), driven by capital goods and industrial inputs, increasing USD demand.
    • Global USD Strength: The USD’s global rally in 2025, driven by US Federal Reserve policies, pressured emerging market currencies, including the TZS.
  • Implications:
    • Stability: The 3.82% annual depreciation is moderate compared to 12.6% in September 2024, reflecting effective BoT interventions and reserve adequacy (USD 5,136.6 million, 4.2 months of import cover).
    • Economic Impact: Depreciation makes exports (e.g., gold, tourism) more competitive but raises import costs (e.g., fuel, USD 2,578.5 million), potentially fueling inflation (3.0% in May 2025). The shilling’s stability supports investor confidence, with USD 3.7 billion in project registrations in January–May 2025.
    • Outlook: The TZS is expected to stabilize around 2,700–2,800/USD in 2025, supported by gold purchases (976.51 kg by November 2024) and tourism growth (+20% projected). However, shilling depreciation risks persist due to import demand and global USD strength.

2. Interventions by Bank of Tanzania

• Overview: The BoT employs a flexible exchange rate policy, intervening in the IFEM to smooth excessive volatility while maintaining market-driven rates. Interventions involve buying or selling USD to balance supply and demand, supported by monetary tools like the 6% Central Bank Rate (CBR) and liquidity management. The BoT’s gold purchases and de-dollarization policies further bolster reserves and TZS stability.
• May 2025 Performance:
  • BoT Intervention: USD 53 million sold in May 2025 via the IFEM to meet import needs for critical goods (e.g., fuel, industrial inputs).
  • IFEM Market Activity:
    • May 2025: USD 110.8 million in transactions, up from USD 12.9 million in April 2025 and USD 10.8 million in May 2024.
    • Growth: The 759% month-on-month increase (April to May 2025) and 925% year-on-year increase (May 2024 to May 2025) reflect improved liquidity.
  • Key Measures:
    • USD Sales: The USD 53 million sale addressed import-driven USD demand, particularly for fuel (USD 2,578.5 million imports) and industrial equipment.
    • Gold Purchases: The BoT acquired 976.51 kg of gold by November 2024 toward a 6-tonne target by June 2025, reducing USD reliance. In 2024/25, 418 kg was purchased.
    • De-dollarization: Since March 2025, domestic transactions must use TZS, increasing USD supply (daily retail FX turnover rose from USD 40 million to USD 70 million). This aligns with May 2025’s ban on foreign currency pricing.
    • FX Regulations: BoT circulars (e.g., daily FX transaction reporting by banks) tightened oversight, reducing speculative trading and stabilizing IFEM activity.
• Context and Analysis:
  • Intervention Scale: The USD 53 million sale in May 2025 is significant compared to a net USD 2.5 million sale in July 2024 but lower than 2023’s USD 506 million annual interventions. This reflects targeted action to address seasonal import peaks.
  • IFEM Liquidity: The surge to USD 110.8 million in May 2025 transactions (from USD 12.9 million in April) align with January 2025’s USD 16.3 million, down from December 2024’s USD 95.7 million (web:4). The increase reflects gold (USD 3.1 billion in July 2024, web:23) and cash crop inflows (e.g., cashew, TZS 743 billion in October 2024).
  • Policy Effectiveness: The BoT’s interventions, combined with a 5.75% CBR cut in July 2025, stabilized the TZS at 2,698.42/USD. Reserves rose to USD 5,323.6 million in January 2025 (4.3 months of import cover), supporting intervention capacity.
  • De-dollarization Impact: The March 2025 regulations increased USD liquidity, with retail FX turnover doubling to USD 70 million daily. However, some businesses face higher costs due to mandatory TZS use.
  • Economic Drivers:
    • Gold and Tourism: Gold prices rose from USD 2,310/oz to USD 3,326/oz, boosting inflows by USD 2 billion. Tourism (2,662,219 arrivals) and agriculture (cashew, coffee) drove USD supply.
    • Monetary Policy: The CBR at 5.75% (post:1) and interbank rates at 7.98% encouraged TZS liquidity, with Interbank Cash Market (IBCM) transactions at TZS 2,245.8 billion in January 2025.
• Implications:
  • Stabilization: The USD 53 million sale and USD 110.8 million IFEM activity cushioned the TZS against import pressures, maintaining a 3.82% depreciation rate (web:24).
  • Reserve Sustainability: Reserves (USD 5,136.6 million) exceed the 4-month benchmark, but sustained interventions risk depletion if imports grow (USD 17,686 million).
  • Business Impact: De-dollarization boosts TZS demand but raises costs for import-reliant firms (e.g., double conversion losses for Yuan trades). The IMF urges market-clearing rates to avoid re-emerging FX pressures.
  • Outlook: Continued gold purchases (5,022.85 kg by July 2025) and tourism inflows (+20% projected) will support TZS stability. The BoT’s prudent interventions and FX regulations are expected to keep depreciation below 5% in 2025.

3. Key Causes of Depreciation

• Overview: The TZS’s 3.82% annual depreciation in May 2025 reflects a mix of domestic and global factors. The BoT’s flexible exchange rate policy allows market-driven adjustments, but structural trade imbalances and external pressures drive depreciation.
• Key Causes:
  1. High Demand for Imports:
     • Details: Imports of capital goods (e.g., industrial equipment) and industrial inputs rose 9.554% to USD 17,686 million (year ending May 2025, Document, 16). Imports of industrial supplies and transport equipment increased in January 2025, supporting manufacturing (9% GDP) and construction (7%).
     • Impact: High USD demand for infrastructure (e.g., SGR, Julius Nyerere Hydropower Plant, web:10) and fuel (USD 2,578.5 million) outpaced export inflows, pressuring the TZS.
  2. Global Strengthening of the USD:
     • Details: The USD strengthened globally in 2023, driven by US Federal Reserve rate hikes and safe-haven demand. Despite 2025 rate cuts, the USD remained robust, affecting emerging market currencies like the TZS.
     • Impact: The TZS’s 3.82% depreciation aligns with regional trends (e.g., Kenyan Shilling, web:4), exacerbated by Tanzania’s 67.4% USD-denominated external debt (USD 35.6 billion, provided data).
  3. Moderate Foreign Exchange Inflows:
     • Details: Gold exports (USD 3,835.5 million) and tourism receipts (USD 3,910 million estimated, web:5) mitigated depreciation, with 2,662,219 arrivals in 2024 (+20%). Cash crops (cashew, coffee, added inflows, but these were insufficient against import growth.
     • Impact: Seasonal inflows peaked in August–October 2024, declining by May 2025, reducing USD supply and contributing to the TZS’s 0.52% monthly depreciation.

• Import Dependency: Tanzania’s trade deficit (USD 1,009 million in Q3 2024, web:16) and reliance on capital goods imports (23.5% of total, web:5) drive USD demand. Manufacturing and construction growth amplify this, despite reduced petroleum imports (-7%).
• Global USD Dynamics: The USD’s strength in 2025, despite US rate cuts, reflects global economic uncertainty, impacting TZS alongside other African currencies. The TZS’s 3.82% depreciation is moderate compared to 12.6% in September 2024.
• Inflow Moderation: Gold prices rose to USD 3,326/oz, boosting inflows by USD 2 billion, but production limits (1.9 million oz) constrain gains. Tourism’s USD 4 billion contribution and agricultural exports (e.g., cashew, TZS 743 billion) are seasonal, with May 2025 inflows lower than Q3 2024 peaks.
• Economic Drivers:
  • Trade Imbalance: Exports grew 19.2% to USD 16,994.7 million (year ending May 2025, Document, Page 16), but imports (USD 17,686 million) outpaced them, widening the current account deficit to USD 2,117.5 million.
  • Policy Response: BoT’s de-dollarization (web:18) and gold purchases increased USD supply, but import demand and USD strength offset gains.
• Implications:

• Economic Costs: Depreciation raises import costs, potentially increasing inflation (projected 5% in 2025) and debt servicing (TZS 5.31 trillion for domestic debt). External debt (67.4% USD-denominated) faces higher TZS costs.
• Competitiveness: A weaker TZS boosts export competitiveness (e.g., gold, tourism), supporting 6% GDP growth in 2025. However, import reliance risks trade imbalances.
• Outlook: Enhanced export diversification (e.g., manufacturing) and import substitution can reduce USD demand. BoT’s reserve management and FX regulations will mitigate depreciation, targeting a 3–5% range.

Tanzania Shilling Stability - May 2025: Key Figures

Tanzania’s inflation trends in May 2025 reflect a stable but nuanced economic environment. Headline inflation at 3.2% is well within regional and national targets, supported by declining non-food and core inflation (2.1%). However, rising food inflation (5.6%), driven by supply-demand imbalances and higher staple food prices, is a growing concern. The decline in energy inflation (6.1%) due to falling charcoal and petroleum prices has helped balance overall inflation. Government interventions, particularly the NFRA’s release of 47,238 tonnes of food and increased stocks to 509,990 tonnes, demonstrate effective supply-side management. In Zanzibar, lower headline inflation (4.2%) reflects improved food supply dynamics. Continued monetary policy vigilance, agricultural investment, and infrastructure improvements will be critical to sustaining inflation stability amidst global and domestic risks.

1. Headline Inflation

• Stability at 3.2%: The annual headline inflation rate in Tanzania remained steady at 3.2% in May 2025, consistent with April 2025. This stability reflects a balance between rising food prices and declining non-food inflation, keeping overall inflation within the national target range.
• Regional Benchmark Compliance: The 3.2% rate aligns with the Southern African Development Community (SADC) target of 3–7% and the East African Community (EAC) benchmark of ≤8%. This positions Tanzania as a stable performer in the region, avoiding the hyperinflationary pressures seen in some neighboring economies.
• Implications: The consistency in headline inflation suggests effective monetary policy management by the Bank of Tanzania (BoT), particularly in maintaining the Central Bank Rate (CBR) at 6% to shield the economy from external shocks like trade tariffs and geopolitical tensions. Stable inflation supports consumer purchasing power and investor confidence, critical for sustaining economic growth amidst global uncertainties.

2. Food Inflation

• Increase to 5.6%: Food inflation rose to 5.6% in May 2025, up from 5.3% in April 2025 and significantly higher than 1.6% in May 2024. This increase is a key driver of inflationary pressure in Tanzania, given the high weight of food in the Consumer Price Index (CPI) basket.
• Drivers of Food Inflation:
  • Supply-Demand Imbalances: Heavy rains disrupted transportation networks, hindering the distribution of agricultural goods. These likely caused temporary shortages, pushing up prices for staple foods.
  • Higher Staple Food Prices: Maize and rice, critical components of the Tanzanian diet, saw notable price increases. These staples are highly sensitive to supply chain disruptions and weather-related challenges, which are common in Tanzania’s rain-dependent agricultural sector.
• Context and Implications: Food inflation’s rise reflects Tanzania’s vulnerability to climatic shocks, as agriculture remains a cornerstone of the economy. The significant jump from 1.6% in May 2024 to 5.6% in May 2025 underscores the impact of seasonal and logistical challenges. This trend could strain low-income households, for whom food constitutes a large share of expenditure, potentially increasing poverty risks if unchecked.

3. Non-Food Inflation

• Decline in Non-Food Inflation: Non-food inflation decelerated in May 2025, helping to offset the rise in food inflation and stabilize headline inflation. The document does not specify the exact rate, but the decline indicates softer price pressures in categories like housing, transport, and services.
• Implications: The reduction in non-food inflation suggests stable or declining costs in imported goods, manufactured products, or services, possibly due to favorable global commodity price trends (e.g., declining petroleum prices) or effective domestic policy measures. This balance is crucial for maintaining overall inflation within target ranges, as non-food items often have a lower weight in the CPI but are sensitive to external price shocks.

4. Core Inflation

• Easing to 2.1%: Core inflation, which excludes volatile items like energy, utilities, and unprocessed food, dropped to 2.1% in May 2025 from 2.2% in April 2025. This measure reflects underlying inflationary pressures and is a key indicator for monetary policy.
• Shifting Influence: The document notes that core inflation’s share in overall inflation is shrinking, while food inflation’s influence is rising. This shift highlights the growing dominance of food prices in driving Tanzania’s inflation dynamics.
• Implications: The easing of core inflation suggests that non-volatile price pressures are well-contained, likely due to stable monetary conditions and the BoT’s efforts to keep the 7-day interbank rate within the 4–8% target band. However, the increasing influence of food inflation indicates that supply-side factors (e.g., agricultural productivity, weather) are becoming more critical to inflation management.

5. Energy, Fuel, and Utilities

• Decline to 6.1%: Inflation in the energy, fuel, and utilities category fell to 6.1% in May 2025 from 7.3% in April 2025. This decline contributed significantly to moderating overall inflation.
• Key Drivers:
  • Falling Wood Charcoal Prices: As a widely used energy source in Tanzania, particularly in rural areas, the decline in charcoal prices likely reflects improved supply or reduced demand pressures.
  • Global Petroleum Price Easing: The global commodity market saw softer crude oil prices due to weaker demand and increased OPEC+ output. This translated into lower prices for petrol, diesel, and kerosene in Tanzania, easing transport and household energy costs.
• Context and Implications: The decline in energy inflation is a positive development for Tanzania, where fuel and energy costs directly impact transport and production expenses. Lower petroleum prices reduce input costs for businesses, potentially supporting economic activity. However, reliance on wood charcoal highlights the need for sustainable energy transitions to reduce environmental impacts and price volatility.

6. Monthly Inflation Movements

• Month-on-Month Inflation at 0.1%: On a month-to-month basis, overall inflation was minimal at 0.1% in May 2025. This low rate indicates stable price movements in the short term, despite annual food inflation pressures.
• Implications: The subdued month-on-month inflation suggests that price spikes are not accelerating rapidly, giving policymakers room to monitor trends without immediate intervention. However, the annual food inflation increases warrants vigilance to prevent broader price pressures.

7. Inflation by Key Categories (Annual, May 2025)

• Analysis:
  • Food & Non-Alcoholic Beverages (5.6%): The highest inflation rate among categories, driven by supply chain disruptions and higher staple food prices. This category’s weight in the CPI basket makes it a dominant factor in headline inflation.
  • Housing, Water, Electricity, Gas (3.4%): Moderate inflation reflects stable utility costs, supported by declining energy prices. This category benefits from global petroleum trends and domestic infrastructure investments.
  • Transport (1.7%): Low inflation is likely due to falling fuel prices, which reduce transport costs. This is significant for Tanzania’s economy, where transport costs influence goods distribution.
  • Education (3.2%): Stable inflation suggests controlled fee increases, possibly due to government subsidies or regulated private sector pricing.
  • Services (1.0%): The lowest inflation rate indicates subdued price pressures in service sectors like telecommunications and personal services, possibly due to competition or technological efficiencies.
  • Goods (4.2%): Higher than services, reflecting the impact of food and imported goods prices on overall goods inflation.
• Implications: The divergence between goods (4.2%) and services (1.0%) inflation highlights the supply-side pressures on physical goods, particularly food, compared to more stable service sectors. Policymakers may prioritize addressing food supply constraints to balance inflation across categories.

8. Government Intervention

• National Food Reserve Agency (NFRA) Actions:
  • Release of 47,238 Tonnes: In May 2025, the NFRA released 47,238 tonnes of food to stabilize food prices. This intervention aimed to counter supply shortages caused by heavy rains and transportation challenges.
  • Stock Increase to 509,990 Tonnes: NFRA food stocks grew to 509,990 tonnes in May 2025, up by 170,000 tonnes from May 2024. This increase was driven by:
    • Good Harvest: Favorable agricultural output in the 2024/25 season boosted food supply.
    • Increased Funding: Enhanced government funding for grain procurement strengthened NFRA reserves.
• Implications: The NFRA’s proactive measures demonstrate a robust response to food inflation pressures. The significant stock increase provides a buffer against future supply shocks, potentially mitigating price volatility in 2025/26. However, sustained investment in agricultural infrastructure (e.g., irrigation, storage, and transport) is needed to address structural supply chain issues.

9. Zanzibar-Specific Inflation Trends

• Decline in Headline Inflation: In Zanzibar, annual headline inflation fell to 4.2% in May 2025 from 4.3% in April 2025 and 5.3% in May 2024. This decline was primarily driven by:
  • Easing Food Inflation: Food inflation dropped to 3.9% in May 2025 from 4.1% in April 2025 and 8.9% in May 2024, attributed to improved domestic production and stable imports, particularly for sugar, rice, and yellow cooking bananas.
  • Monthly Increase: Month-on-month inflation rose to 1.0% in May 2025 from 0% in April 2025, indicating short-term price pressures.
• Implications: Zanzibar’s lower inflation rate compared to May 2024 reflects successful supply-side interventions and stable import flows. The region’s reliance on tourism and imports makes it sensitive to global price trends, but improved agricultural output has helped moderate food prices. The month-on-month increase suggests ongoing monitoring is needed to prevent renewed inflationary pressures.

10. Broader Economic Context

• Global Influences: The document highlights global factors impacting Tanzania’s inflation, such as declining crude oil prices due to weaker demand and increased OPEC+ output. These trends have lowered energy costs, supporting the decline in energy and fuel inflation. However, geopolitical tensions and trade protectionism pose risks to global commodity prices, which could indirectly affect Tanzania’s import-dependent sectors.
• Monetary Policy Support: The BoT’s decision to maintain the CBR at 6% and keep the 7-day interbank rate within 4–8% has helped anchor inflation expectations. This stability is critical in a context of global economic uncertainty, as noted in the document’s discussion of the Global Economic Policy Uncertainty Index and Trade Policy Uncertainty Index.
• External Sector Performance: The narrowing of Tanzania’s current account deficit to USD 2,117.5 million in the year ending May 2025, driven by strong export performance (e.g., gold, cashew nuts), supports foreign exchange stability. This stability helps moderate imported inflation, particularly for fuel and manufactured goods.

11. Potential Risks and Outlook

• Risks:
  • Food Supply Volatility: Continued reliance on rain-fed agriculture makes Tanzania vulnerable to weather shocks, which could exacerbate food inflation.
  • Global Commodity Price Fluctuations: While petroleum prices have eased, any reversal due to geopolitical events or OPEC+ policy changes could increase energy inflation.
  • Logistical Challenges: Transportation disruptions, as seen with heavy rains, highlight the need for improved infrastructure to ensure stable food distribution.
• Outlook:
  • The BoT’s proactive monetary policy and NFRA interventions should help keep inflation within target ranges in the near term. The 509,990-tonne food stock provides a strong buffer against short-term supply shocks.
  • Investments in agriculture, as outlined in the proposed 2025/26 budget, could enhance food security and reduce inflation volatility.
  • Continued global easing of petroleum prices and stable export performance (e.g., gold, cashew nuts) will support low non-food and energy inflation, provided global uncertainties do not escalate.

Below is a structured table summarizing the key figures related to Tanzania’s inflation trends as of May 2025, drawn from the provided Bank of Tanzania. The table focuses on data from relevant sections and the narrative. The table is organized to clearly present the inflation metrics and related government interventions.

Tanzania Inflation Trends (May 2025) - Key Figures

Notes

1. Context:
   • Mainland Tanzania: The 3.2% headline inflation is within the SADC (3–7%) and EAC (≤8%) benchmarks, reflecting effective monetary policy (e.g., Central Bank Rate at 6%).
   • Food Inflation Drivers: The rise to 5.6% is due to supply-demand imbalances from heavy rains affecting transportation and higher prices for staples like maize and rice.
   • Zanzibar: The decline in inflation (4.2%) is driven by improved food supply, particularly for sugar, rice, and yellow cooking bananas.
   • NFRA Intervention: The release of 47,238 tonnes and increased stocks to 509,990 tonnes highlight proactive measures to curb food price volatility.

1. Total Domestic Debt Stock

• Overview: Tanzania’s domestic debt stock represents obligations issued in Tanzania Shillings (TZS), primarily through Treasury bills (T-Bills) and Treasury bonds, to finance budget deficits and support monetary policy objectives. The Bank of Tanzania (BoT) issues these securities, with Treasury bonds dominating due to their longer maturities (2–25 years). Domestic debt is a critical component of Tanzania’s public debt, complementing external debt (USD 35.60 billion in May 2025) and supporting fiscal needs under the Third Five-Year National Development Plan (2021/22–2025/26).
• May 2025 Performance:
  • Total Domestic Debt Stock: TZS 35,201.1 billion (approximately USD 13.04 billion at an exchange rate of ~TZS 2,698/USD, consistent with, noting a 2.6%-shilling depreciation).
  • Context: The domestic debt stock increased from TZS 34,759.9 billion in April 2025 (implied by provided creditor data) to TZS 35,201.1 billion in May 2025, a 1.3% rise (TZS 441.2 billion). This aligns with earlier trends, as September 2024 reported TZS 32.62 trillion, and April 2025 reached TZS 34.75 trillion, reflecting an 8.8% increase from June 2024. The growth is driven by increased Treasury bond issuances (78.9% of domestic debt in September 2024), supporting infrastructure and budget deficits (TZS 743.2 billion in April 2025).
• Economic Drivers:
  • Fiscal Needs: The 2024/25 budget of TZS 49.35 trillion, with a 3% GDP deficit target, relies on domestic borrowing (TZS 6.27 trillion planned for 2025/26) to finance recurrent (61%) and development (39%) spending. High demand for Treasury bonds (e.g., TZS 794 billion in subscriptions for a 25-year bond in May 2025) reflects investor confidence.
  • Monetary Policy: The BoT’s Central Bank Rate (CBR) at 6% and interbank rates near 8% (Document, Page 7) drive high T-Bill yields (8.89%) and bond yields (15.29% for 25-year bonds), attracting institutional investors but crowding out private sector credit (15.1% growth in April 2025, slower than 18.4% a year earlier).
  • Market Dynamics: The shift to market-aligned Treasury bond coupon rates in January 2025 enhances liquidity and price discovery, boosting bond market activity (bond turnover up 592.52% by May 16, 2025).
• Implications: The domestic debt stock (TZS 35,201.1 billion, ~22% of GDP based on 2024 GDP of TZS 156.6 trillion) remains sustainable, with a low risk of distress. However, high yields (15.5% average lending rates) and crowding-out effects may limit private sector growth, particularly for SMEs (15% loan access in 2023). The BoT’s liquidity injections (e.g., reverse repos, gold purchases) aim to ease pressures, but fiscal discipline is needed to manage debt servicing costs (TZS 172.0 billion interest in April 2025).

2. Government Domestic Debt by Creditor Category

• Overview: Domestic debt is held by institutional and individual investors, with commercial banks, pension funds, and the BoT as primary creditors. Treasury bonds (78.9% of domestic debt) are favored for their long-term stability, while T-Bills (8.8% in March 2024) support short-term financing. Creditor composition reflects the banking sector’s role in government financing and the growing participation of non-bank investors.
• May 2025 Performance:
  • Creditor Breakdown:
    • Commercial Banks: TZS 10,138.2 billion (28.8%).
    • Pension Funds: TZS 9,203.9 billion (26.1%).
    • Bank of Tanzania (BoT): TZS 7,158.2 billion (20.3%).
    • Others (incl. public institutions, private companies, individuals): TZS 6,244.5 billion (17.7%).
    • Insurance Companies: TZS 1,840.0 billion (5.2%).
    • BOT Special Funds: TZS 616.3 billion (1.8%).
  • Key Insight: Commercial banks and pension funds hold 54.9% of domestic debt, reflecting their dominant role in financing government activities, consistent with September 2024 (28.9% and 26.4%, respectively).
• Context and Analysis:
  • Commercial Banks (28.8%): Banks hold TZS 10,138.2 billion, down slightly from 29.7% (TZS 9,678.8 billion) in September 2024, but up from 28.9% (TZS 10,049.9 billion) in April 2025. With 33 commercial banks among 45 licensed banks in January 2025, their role reflects strong banking sector assets (TZS 54,263 billion in 2023). High bond yields (15.29% for 25-year bonds) attract banks, but this crowds out private sector lending (15.1% growth in April 2025).
  • Pension Funds (26.1%): Pension funds hold TZS 9,203.9 billion, slightly up from 26.4% (TZS 9,171.1 billion) in April 2025 and 27.6% (TZS 8,991.4 billion) in September 2024. Their long-term investment horizon aligns with Treasury bonds, supporting fiscal stability. Combined pension assets (USD 13 billion in East Africa) are underutilized in private equity, indicating potential for further debt market participation.
  • Bank of Tanzania (20.3%): The BoT’s TZS 7,158.2 billion share (up from 20.5% or TZS 7,119.2 billion in April 2025) reflects its role in monetary policy alignment, holding bonds to regulate money supply. The BoT has no outstanding external debt, focusing on domestic instruments.
  • Others (17.7%): The TZS 6,244.5 billion held by others (public institutions, private companies, individuals) marks a significant rise from 15.2% (TZS 4,956.0 billion) in September 2024, driven by retail investor interest in high-yield bonds (e.g., TZS 794 billion subscriptions in May 2025).
  • Insurance Companies (5.2%): The TZS 1,840.0 billion share, down from 5.8% (TZS 1,904.2 billion) in September 2024, reflects limited insurance sector growth (5% of financial assets). Regulatory constraints limit their bond market participation.
  • BOT Special Funds (1.8%): The TZS 616.3 billion share, up from 1.2% (TZS 389.0 billion) in September 2024, indicates increased use of special funds for targeted financing, though their role remains minor.
• Economic Drivers:
  • Bond Market Boom: Treasury bonds (80% of domestic debt in April 2025) drive creditor participation, with a 25-year bond auction in May 2025 attracting TZS 794 billion in bids. The shift to market-aligned coupon rates in January 2025 enhances investor appeal.
  • Banking Sector Strength: Commercial banks’ 28.8% share reflects their TZS 54,263 billion asset base and 17.4% growth in 2023, though high bond holdings reduce private sector credit availability (15.5% lending rates).
  • Pension and Insurance: Pension funds’ 26.1% share aligns with their USD 13 billion regional asset pool, but low insurance participation (5.2%) reflects shallow non-bank financial markets.
• Implications: The concentration of debt in banks and pension funds (54.9%) ensures stability but risks crowding out private credit, as noted in April 2025 (15.1% credit growth vs. 18.4% prior year). The rise in “Others” (17.7%) diversifies the investor base, reducing rollover risk. However, high yields (8.89% T-Bills, 15.29% bonds) increase debt servicing costs (TZS 5.31 trillion annually at 15.5% rates), straining fiscal space.

3. Comparison with April 2025

• Overview: The month-on-month change in domestic debt by creditor reflects shifting investor dynamics, driven by high-yield bond auctions and monetary policy conditions. The total debt stock rose by TZS 441.2 billion (1.3%), with varying changes across creditor categories.
• Comparison:
  • Commercial Banks: Increased from TZS 10,049.9 billion to TZS 10,138.2 billion (+TZS 88.3 billion, +0.9%).
  • Pension Funds: Increased from TZS 9,171.1 billion to TZS 9,203.9 billion (+TZS 32.8 billion, +0.4%).
  • Bank of Tanzania (BoT): Increased from TZS 7,119.2 billion to TZS 7,158.2 billion (+TZS 39.0 billion, +0.5%).
  • Others: Increased from TZS 5,996.8 billion to TZS 6,244.5 billion (+TZS 247.7 billion, +4.1%).
  • Insurance Companies: Decreased from TZS 1,858.4 billion to TZS 1,840.0 billion (-TZS 18.4 billion, -1.0%).
  • BOT Special Funds: Increased from TZS 564.5 billion to TZS 616.3 billion (+TZS 51.8 billion, +9.2%).
• Context and Analysis:
  • Significant Growth in “Others”: The TZS 247.7 billion increase in “Others” (17.7% share) is the largest, reflecting growing retail and non-bank institutional interest, driven by high bond yields (e.g., TZS 794 billion subscriptions for a 25-year bond). This aligns with bond market turnover rising 592.52% by May 16, 2025, indicating broader market participation.
  • Modest Bank and Pension Growth: Commercial banks (+TZS 88.3 billion) and pension funds (+TZS 32.8 billion) saw modest increases, consistent with their dominant roles (54.9% combined). Banks’ growth reflects strong asset bases (TZS 54,263 billion in 2023), while pension funds’ steady rise aligns with long-term investment strategies.
  • BoT and Special Funds: The BoT’s TZS 39.0 billion increase maintains its 20.3% share, supporting monetary policy (7-day interbank rate at 7.98%, Document, Page 7). The TZS 51.8 billion rise in BOT Special Funds (9.2%) suggests targeted financing, possibly for liquidity management.
  • Insurance Decline: The TZS 18.4 billion decrease in insurance holdings (5.2% share) reflects regulatory limits and a focus on shorter-term assets, as insurance assets remain small compared to pensions.
  • Economic Drivers: The 1.3% debt stock increase (TZS 441.2 billion) is driven by a record TZS 794 billion bond auction in May 2025, with institutional investors (banks, pensions) absorbing most issuances. Tight monetary policy (CBR at 6%) and high interbank rates (7.98%) encourage bond investments over private lending, as noted in April 2025 (15.1% credit growth slowdown).
• Implications: The rise in “Others” (+4.1%) diversifies the creditor base, reducing reliance on banks and pensions, which lowers rollover risk. However, the modest growth in bank holdings (+0.9%) and decline in insurance (-1.0%) suggest liquidity constraints, as banks prioritize bonds over private credit. The BoT’s increased share (20.3%) supports fiscal financing but may strain monetary policy if liquidity tightens further (interbank rates near 8% ceiling).

4. Key Takeaways

• Concentration and Stability: Commercial banks (28.8%) and pension funds (26.1%) dominate, ensuring stable financing but crowding out private credit (15.5% lending rates). The 54.9% combined share aligns with September 2024 (56.1%), reflecting institutional reliance.
• Broadening Investor Base: The significant rise in “Others” (17.7%, +TZS 247.7 billion) indicates growing retail and non-bank participation, driven by high-yield bonds (15.29% for 25-year bonds). This diversification enhances market resilience and aligns with the BoT’s market-aligned coupon rate reform.
• Debt Sustainability: Domestic debt (TZS 35,201.1 billion, ~22% of GDP) remains sustainable, with a low risk of distress. However, high servicing costs (TZS 5.31 trillion annually at 15.5% rates) and crowding-out effects challenge private sector growth. The 2025/26 budget’s TZS 6.27 trillion borrowing plan requires careful management to maintain fiscal space.
• Risks and Opportunities: The increase in “Others” reduces rollover risk, but high bond yields and tight liquidity (interbank rates near 8%) may elevate borrowing costs. The BoT’s liquidity tools (reverse repos, gold purchases) and IMF support (USD 441 million in April 2025) mitigate risks, while bond market reforms enhance efficiency.

Summary Table – May 2025

Additional Insights and Outlook

• Fiscal Context: The domestic debt stock (TZS 35,201.1 billion) supports the 2024/25 budget’s 3% GDP deficit target, financed through bonds (80%) and T-Bills (8.8%). The 1.3% increase from April 2025 reflects strong bond demand, but high yields (15.29%) increase servicing costs, straining fiscal space (TZS 172.0 billion interest in April 2025).
• Market Dynamics: The rise in “Others” (17.7%) aligns with bond market growth (592.52% turnover increase by May 16, 2025), driven by market-aligned coupon rates. This diversification reduces dependence on banks (28.8%) and pensions (26.1%), enhancing resilience.
• Risks: High bond holdings by banks crowd out private credit (15.1% growth), impacting SMEs. Shilling depreciation (2.6%) and tight liquidity (7.98% interbank rate) may elevate costs, requiring BoT interventions (reverse repos).
• Outlook: The 2025/26 budget’s TZS 40.47 trillion revenue target and 6% GDP growth projection rely on sustained domestic borrowing. Continued bond market reforms and IMF support (USD 441 million) will bolster sustainability, but balancing public and private sector financing is critical.

Tanzania Domestic Debt by Creditor - May 2025: Key Figures

Note: USD conversion based on exchange rate of ~TZS 2,698/USD.

1. External Debt Stock by Borrower

• Overview: Tanzania’s external debt includes obligations owed to non-residents, repayable in foreign currency, goods, or services. It encompasses public and publicly guaranteed (PPG) debt (central government and public corporations) and private sector debt. The Bank of Tanzania (BoT) defines external debt based on residency, covering long-term debt, short-term debt, and use of IMF credit. The total external debt stock reflects Tanzania’s financing needs for development projects, balance of payments (BoP) support, and private sector investments.
• May 2025 Performance:
  • Total External Debt Stock: USD 35.60 billion.
  • Borrower Breakdown:
    • Central Government: USD 27.12 billion (76.2% of total).
    • Private Sector: USD 8.48 billion (23.8% of total).
    • Public Corporations: USD 0.004 billion (0.01% of total).
• Context and Analysis:
  • Central Government Dominance: The central government’s 76.2% share (USD 27.12 billion) underscores its role as the primary borrower, funding large-scale infrastructure (e.g., Standard Gauge Railway, Julius Nyerere Hydropower Plant) and social programs (e.g., education, health). This aligns with November 2024 data, where the central government held 76.8% (USD 25.43 billion) of a USD 33.14 billion external debt stock. The slight decrease in share (from 76.8% to 76.2%) may reflect increased private sector borrowing or debt repayments.
  • Private Sector Growth: The private sector’s 23.8% share (USD 8.48 billion) indicates growing external borrowing, up from 23.2% (USD 7.70 billion) in November 2024. This reflects private investments in sectors like manufacturing, agriculture, and tourism, supported by foreign direct investment (FDI) inflows (USD 922 million in 2021). The increase suggests improved access to commercial loans, though at higher costs compared to multilateral financing.
  • Negligible Public Corporations: Public corporations’ 0.01% share (USD 4 million) is consistent with their minimal role, as seen in September 2024 (USD 3.8 million). This reflects limited borrowing by state-owned enterprises (SOEs), possibly due to government guarantees (2.8% of GDP for National Insurance Corporation) or reliance on central government funding.
  • Economic Drivers: The external debt stock rose from USD 33.14 billion in November 2024 to USD 35.60 billion in May 2025, a 7.4% increase, driven by new disbursements for infrastructure and BoP support. Multilateral creditors (e.g., World Bank, IMF) account for 72.5% of PPG debt, offering concessional terms, while commercial borrowing (30.5% of new disbursements in FY2022/23) has grown, increasing debt servicing costs. The BoT reports no outstanding external debt (Document, Page 12), aligning with IMF findings.
  • Implications: The central government’s dominance (76.2%) places repayment burdens on public finances, requiring robust revenue mobilization (TZS 2,544.1 billion in April 2025). The private sector’s growing share (23.8%) supports economic diversification but exposes it to commercial loan risks. The negligible public corporation share minimizes SOE-related fiscal risks, but contingent liabilities (3% of GDP) warrant monitoring. Tanzania’s debt sustainability remains moderate, with a low risk of external debt distress, supported by IMF financing (USD 441 million approved in April 2025).

2. Disbursed Outstanding Debt by Use of Funds

• Overview: Disbursed outstanding debt (DOD) reflects funds already utilized from external borrowings, allocated across sectors to drive Tanzania’s development goals under the Third Five-Year National Development Plan (2021/22–2025/26). Key sectors include infrastructure, social services, and BoP support, aligning with Vision 2050’s focus on industrialization and human capital.
• May 2025 Allocation:
  • Sectoral Breakdown (% of DOD):
    • Transport & Telecommunications: 21.5%
    • Budget Support / Balance of Payments: 20.2%
    • Social Welfare & Education: 20.1%
    • Energy & Mining: 13.7%
    • Agriculture: 5.2%
    • Real Estate & Construction: 4.6%
    • Industry: 4.1%
    • Finance & Insurance: 3.8%
    • Tourism: 1.7%
    • Other: 5.2%
• Context and Analysis:
  • Infrastructure Focus: Transport & Telecommunications (21.5%) remains the largest recipient, consistent with September 2024 (21.5%) and December 2019 (27%). Funds support projects like the Standard Gauge Railway (SGR) and Dar es Salaam Maritime Gateway, enhancing connectivity and trade (exports up 16.8% in April 2025, Document, Page 14). This aligns with the 2025/26 budget’s TZS 7.72 trillion for capital payments.
  • Budget Support: BoP support (20.2%) reflects reliance on external financing to stabilize foreign exchange reserves (USD 5.7 billion, 4 months of import cover). This is critical amid shilling depreciation (2.6% in 2025) and global risks (e.g., trade tensions).
  • Social Investments: Social Welfare & Education (20.1%) supports human capital development (e.g., 28,000 health workers trained in 2025/26), aligning with Vision 2050’s goals. The slight drop from 20.8% in September 2024 may indicate reallocation to other sectors.
  • Energy & Mining: 13.7% funds projects like the Julius Nyerere Hydropower Plant (3,680 MW), reducing power shortages. The decline from 14.8% in September 2024 suggests completion of major projects or slower disbursements.
  • Underfunded Sectors: Agriculture (5.2%) and Tourism (1.7%) receive low shares, despite contributing 27% and 17% to GDP, respectively. This may reflect reliance on domestic or private funding, but underinvestment risks growth in these sectors.
  • Economic Drivers: The sectoral allocation aligns with Tanzania’s development priorities, but the low share for agriculture (5.2%) contrasts with its 65% employment share, suggesting under prioritization. The 2025/26 budget’s focus on agricultural reforms (e.g., irrigation, TZS 2.6 trillion) aims to address this. Commercial borrowing’s rise (30.5% of new disbursements) increases costs but supports infrastructure and BoP needs.
  • Implications: The focus on transport (21.5%) and social services (20.1%) supports long-term growth (6% GDP projected for 2025), but low allocations to agriculture and tourism may limit inclusive growth. Efficient project implementation is critical to ensure debt-financed investments (USD 35.60 billion) yield returns, as emphasized by the IMF. The high BoP share (20.2%) underscores vulnerability to external shocks, requiring robust export growth (gold, cashew nuts).

3. Disbursed Outstanding Debt by Currency Composition

• Overview: The currency composition of external debt reflects the denominations in which Tanzania’s obligations are repayable, exposing the country to exchange rate risks. The dominance of major currencies like the USD and Euro is driven by multilateral and commercial creditors.
• May 2025 Composition:
  • Currency Breakdown (% of DOD):
    • US Dollar (USD): 67.4%
    • Euro (EUR): 16.7%
    • Chinese Yuan (CNY): 6.3%
    • Other Currencies: 9.6%
• Context and Analysis:
  • USD Dominance: The 67.4% USD share aligns with February 2023 (68.9%) and November 2024 (67.4%), reflecting reliance on multilateral (e.g., World Bank, IMF) and commercial creditors. The USD’s dominance exposes Tanzania to exchange rate risks, as a 2.6% shilling depreciation in 2025 increases debt servicing costs (e.g., USD 447.9 million in bilateral debt service in 2024).
  • Euro and Yuan: The 16.7% Euro share supports financing from European creditors (e.g., EU, export credits), while the 6.3% Yuan share reflects Chinese loans for infrastructure (e.g., SGR). Both are stable, with Euro usage consistent (17% in 2019) and Yuan growing due to China’s role in energy and transport projects.
  • Other Currencies: The 9.6% share includes currencies like the Japanese Yen and SDRs (IMF credit), aligning with multilateral financing (72.5% of PPG debt). This diversification mitigates some currency risk but remains minor.
  • Economic Drivers: The USD’s dominance is driven by multilateral loans (47.2% of debt stock) and commercial borrowing (30.5% of new disbursements), which favor USD denominations. The shilling’s depreciation (8% in 2023, 2.6% in 2025) increases servicing costs, with external debt service projected at TZS 5.2 trillion in 2025/26. Foreign exchange reserves (USD 5.7 billion, Document, Page 12) provide a buffer, covering 4 months of imports.
  • Implications: The 67.4% USD share heightens vulnerability to shilling depreciation, increasing debt servicing costs (TZS 4,714.8 billion in FY2024/25). Diversifying currency composition or boosting exports (16.8% growth in April 2025) is critical to manage risks. The IMF’s USD 441 million support in April 2025 strengthens reserves, but prudent debt management is needed to maintain sustainability.

Summary Snapshot

Additional Insights and Outlook

• Debt Sustainability: Tanzania’s external debt (USD 35.60 billion, 47.36% of GDP in 2023) remains sustainable, with a moderate risk of distress. The fiscal deficit (2.5% of GDP in 2024/25) and strong revenue performance (TZS 2,544.1 billion in April 2025) support repayment capacity. However, rising commercial borrowing (30.5% of new disbursements) and shilling depreciation (2.6%) increase costs.
• Policy Support: The 2025/26 budget’s TZS 40.47 trillion revenue target and IMF’s USD 441 million financing bolster fiscal space. The BoT’s reserves (USD 5.7 billion, Document, Page 12) and export growth (16.8%) mitigate currency risks.
• Risks: High USD exposure (67.4%) and low agriculture/tourism allocations (5.2%, 1.7%) pose risks to inclusive growth. Upcoming elections (October 2025) may increase fiscal pressures, potentially widening deficits (TZS 743.2 billion in April 2025).
• Outlook: Continued infrastructure and social investments (42.3% of DOD) support 6% GDP growth, but diversifying funding (e.g., domestic bonds, TZS 32.62 trillion stock) and boosting agriculture/tourism allocations are critical. Enhanced debt transparency, as per IMF’s September 2024 assessment, will strengthen sustainability.

Tanzania External Debt Overview - May 2025: Key Figures