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

Strong Recovery and Sustained Growth (2020-2023)

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

Recent Performance Overview

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

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

FDI as a Percentage of GDP: Long-Term Perspective

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

Historical FDI Performance (% of GDP)

Peak Investment Years (2005-2015)

Recent Period (2016-2023)

Early Growth Period (1990-2004)

Pre-Liberalization Era (1970-1989)

Key Trends and Analysis

Economic Transformation

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

The Golden Decade (2005-2015)

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

Recent Moderation

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

Post-Pandemic Recovery

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

Outlook and Implications

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

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

Data Source: TICGL Historical FDI data from 1970 to 2023

Institutional Challenges and Policy Implications for Equitable Infrastructure Delivery

TICGL’s Economic Research Centre has published a rigorous mixed-methods research paper authored by David Kafulila and Dr. Bravious Felix Kahyoza (PhD, FMVA, CP3P), which examines the critical bottlenecks in Public-Private Partnership (PPP) negotiations in Tanzania. The study reveals how institutional fragmentation, power asymmetries, and capacity deficits systematically undermine infrastructure delivery, while proposing evidence-based reforms to transform adversarial bargaining into integrative partnerships aligned with Tanzania’s Vision 2025.

Drawing on Dr. Kahyoza’s expertise in financial modeling, valuation, and PPP management, the paper offers a pragmatic framework for improving negotiation efficiency, institutional coordination, and stakeholder trust, essential for advancing sustainable and inclusive infrastructure development in Tanzania.

With Tanzania facing a USD 10-15 billion annual infrastructure gap and only 25 active PPP projects despite decades of liberalization, the negotiation phase has emerged as the decisive constraint on project success. The paper argues that prolonged negotiations (averaging 22 months versus 12-month benchmarks) and distributive bargaining tactics create a vicious cycle of delays, cost overruns, and terminations—threatening the nation's USD 50 billion infrastructure pipeline and industrialization ambitions.

Key Findings and Insights

• Excessive negotiation durations: Mixed-methods analysis of four landmark PPP cases across transport, energy, rail, and housing sectors reveals an average negotiation period of 22 months (SD=8.4)—150-175% longer than international benchmarks—with some cases like IPTL energy stretching beyond 24 months due to renegotiation loops.
• Power asymmetry dominance: Semi-structured interviews with 28 practitioners (government officials, private contractors, donors, and civil society) show that 75% of stakeholders characterized negotiations as "adversarial", with private firms leveraging superior technical expertise (financial modeling, risk assessment) against under-resourced public negotiators.
• Institutional challenges drive delays: Quantitative regression analysis reveals that institutional factors explain 62% of timeline variance (R²=0.62, p<0.01), with three primary culprits: legal gaps (28% delay increase), bureaucratic fragmentation (18% cost overruns), and capacity deficits (22% value-for-money loss).
• High project failure rates: Document analysis of 62 artifacts (contracts, audit reports, feasibility studies) combined with stakeholder testimony reveals that 29% of housing PPPs have terminated prematurely (29 out of 183 National Housing Corporation joint ventures), while 75% of analyzed cases fell below the 80% value-for-money threshold.
• Quantified financial impacts: The study measures transaction costs averaging 11.8% of project value (SD=4.2%), with notable outliers like the IPTL energy deal generating USD 200 million in government liabilities from fuel cost disputes and the RITES rail concession resulting in USD 50 million in asset reversion losses after termination.
• Thematic analysis insights: NVivo-coded examination of 1,247 excerpts identified four dominant dynamics: power asymmetries (32% of themes), delays and impasses (28%), stakeholder interactions (22%), and sectoral variances (18%)—with inter-coder reliability of 87% ensuring analytical rigor.
• Sectoral disparities compound challenges: ANOVA testing (F=5.2, p<0.01) confirmed significant sector effects, with infrastructure projects averaging 18% cost overruns due to bureaucratic inertia, while energy sector projects experienced 25% overruns from legal voids in unsolicited bid processes.
• Distributive versus integrative tactics: Only one case (TICTS port) achieved integrative bargaining breakthroughs through donor mediation and joint efficiency modeling, reducing container dwell times from 37 to 19 days (2001-2007)—demonstrating the transformative potential of collaborative approaches.

Institutional Bottlenecks: A Three-Pillar Analysis

The research employs New Institutional Economics (NIE) framework to dissect how formal rules (laws, regulations) and informal norms (patronage, hierarchy) create systemic negotiation failures:

1. Legal Gaps and Regulatory Ambiguity:

• Vague dispute resolution clauses in the 2010 PPP Act (amended 2023) prolonged 60% of analyzed cases
• Unsolicited proposal loopholes enabled the IPTL energy deal to bypass competitive bidding, resulting in tariff rates 6x higher than benchmark (Songas rates)
• Non-enforceable performance metrics led to RITES rail concession termination in 2011, with freight tonnage falling 70% from pre-concession levels
• Impact quantification: Legal gaps correlate with 40% renegotiation risk (logistic regression, OR=2.1, p<0.05)

2. Bureaucratic Fragmentation and Coordination Failures:

• Oversight divided between PPP Coordination Unit (Tanzania Investment Centre) and Finance Unit (Ministry of Finance) creates "bureaucratic ping-pong" cited by 82% of government informants
• Multi-agency approval processes: TICTS port negotiation required clearance from 5 separate agencies, while RITES faced prolonged Government of Tanzania vetoes (2008-2009)
• Housing sector bottlenecks: 21 stalled joint ventures awaiting approvals under inefficient first-come-first-served selection processes
• Economic impact: Infrastructure delays cost an estimated 1.2% of GDP annually in lost productivity (African Development Bank, 2012)

3. Capacity Deficits and Knowledge Asymmetries:

• 70% of public negotiators lack financial modeling expertise, enabling private partners to extract favorable terms (e.g., 75:25 equity splits favoring private sector in NHC joint ventures)
• TANESCO's untrained teams in IPTL negotiations led to government absorbing 80% of fuel cost risks, generating six-fold tariff increases
• Tegeta housing project stalled for 15 months over land valuation disputes due to inadequate appraisal capacity
• Performance correlation: Capacity deficits predict 30% higher termination likelihood (χ²=12.4, p<0.001)

Case Study Insights:

Evidence-Based Policy Recommendations

The study proposes a comprehensive three-pillar reform framework combining short-term operational fixes with long-term structural transformations:

Pillar 1: Streamlined Regulatory Frameworks

Short-term actions (0-2 years):

• Publish interim guidelines for unsolicited proposals requiring independent feasibility audits, reducing 40% termination risks
• Establish quarterly Controller and Auditor General (CAG) dashboards for real-time transparency monitoring
• Deploy standardized risk allocation templates for Power Purchase Agreements (PPAs) to prevent IPTL-type disputes

Long-term reforms (3-5 years):

• Amend PPP Act 2010 to create unified PPP Authority merging Ministry of Finance and Tanzania Investment Centre functions—projected to reduce delays by 25%
• Institutionalize performance bonds and adaptive clauses for climate-resilient projects per World Bank guidelines
• Establish specialized PPP tribunals to reduce judicial delays from 18-month average to 6 months, modeled on South African reforms

Expected impact: Align Tanzania with SADC PPP benchmarks, cutting renegotiation rates by 35%

Pillar 2: Capacity-Building for Negotiators

Implementation strategy:

• Launch mandatory training programs for 200+ public officials annually, covering:
  • Advanced financial modeling and risk assessment
  • Integrative bargaining tactics and game-theoretic strategies
  • Cultural competency for cross-stakeholder collaboration
• Partner with World Bank and IFC for USD 5-10 million in grant financing for certification programs
• Integrate bargaining simulations into civil service curricula at National Defence College

Pilot sectors: Energy and transport (targeting 55% reduction in drafting delays)

Expected impact: Boost value-for-money achievement from 25% to 80% of projects, mirroring Kenyan PPP Academy successes

Pillar 3: Fortified Transparency Mechanisms

Digital transformation initiatives:

• Mandate e-procurement portals for all PPP bids by 2026, eliminating 40% of corruption-related renegotiations
• Implement real-time risk tracking dashboards accessible to stakeholders and civil society
• Enforce anti-corruption clauses with mandatory CAG audits before contract closure

Accountability measures:

• Establish biannual multi-stakeholder PPP Forum with participation from government, private sector, donors, and civil society (including unions like TRAWU)
• Set performance targets: 80% VfM attainment and 50% timeline reduction within 5 years

Expected impact: Cut graft costs by 15-30% (Osei-Tutu et al., 2010), unlocking USD 50 billion in infrastructure investments

Stakeholder Roles Matrix:

Conclusion

Tanzania's PPP negotiation landscape represents a textbook case of institutional entrapment—where well-intentioned partnership frameworks collide with structural fragilities inherited from post-liberalization reforms. The research's mixed-methods rigor—combining qualitative depth (28 interviews, 62 documents) with quantitative precision (R²=0.62 explanatory models)—provides irrefutable evidence that negotiation bottlenecks, not technical project factors, constitute the primary constraint on infrastructure delivery.

The authors emphasize three critical insights for policymakers:

1. Negotiations are not merely transactional—they are institutional games: The dominance of distributive bargaining tactics (75% adversarial interactions) reflects deeper power asymmetries and capacity imbalances rather than strategic choices. Without addressing these root causes through NIE-informed reforms, Tanzania risks perpetuating a cycle of suboptimal outcomes that drain fiscal resources and deter foreign investment.

2. Sectoral nuances demand tailored interventions: The transport sector's relative success (TICTS achieving VfM through integrative pivots) versus energy's fiscal disasters (IPTL's USD 200M liabilities) and housing's termination crisis (29% failure rate) demonstrates that one-size-fits-all policies fail. Reforms must incorporate sector-specific risk matrices, stakeholder configurations, and technical complexities.

3. Short-term wins can catalyze long-term transformation: The proposed phased implementation—pilot training programs reducing drafting delays by 55% within 2 years, followed by legislative overhauls creating unified authorities by 2028—offers a pragmatic roadmap that balances urgency with sustainability.

By 2030, if these reforms are implemented, Tanzania could transform its PPP portfolio from 25 struggling projects to a robust ecosystem generating:

• 10,000 direct jobs in infrastructure sectors
• USD 10 billion in leveraged private investments
• 4% annual GDP contribution from accelerated project delivery
• 15% FDI increase through restored investor confidence

The study's contribution extends beyond Tanzania, offering Africa-centric theoretical advances that challenge Eurocentric PPP paradigms. By foregrounding informal institutional norms (patronage, hierarchy) alongside formal rules, the research enriches New Institutional Economics and provides a replicable analytical framework for SADC neighbors facing similar negotiation challenges.

The conclusion is unequivocal: Tanzania stands at a developmental crossroads. The choice is binary—invest in institutional reforms that transform adversarial negotiations into collaborative partnerships, or accept continued infrastructure deficits that undermine Vision 2025's middle-income ambitions. Resilient negotiations are not optional luxuries; they are existential necessities for sustainable development in the Global South.

📘 Read the Full Research Paper:
"The Dynamics of Negotiation in Tanzania's PPP Projects: Institutional Challenges and Policy Implications"
Authored by David Kafulila and Dr. Bravious Felix Kahyoza (PhD, FMVA)
Published by TICGL | Tanzania Investment and Consultant Group Ltd
🌐 www.ticgl.com

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

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

Tanzania Inflation Overview (September 2025)

Inflation by Main Consumption Group (September 2025)

Key Monthly Drivers (Aug–Sept 2025)

Price increases were observed in:

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

Economic Implications of Tanzania's September 2025 Inflation Data

1. Monetary Policy and Macroeconomic Stability

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

2. Impact on Household Consumption and Poverty

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

3. Sectoral and Supply-Side Dynamics

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

4. Broader Growth and Investment Outlook

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

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

A Quantitative Analysis for Equitable Allocation

TICGL’s Economic Research Centre has published a discussion paper authored by Dr. Bravious Felix Kahyoza (PhD, FMVA, CP3P) and David Kafulila, presenting groundbreaking quantitative research on risk allocation in Tanzania’s Public-Private Partnership (PPP) infrastructure projects. The study highlights how inequitable risk distribution adversely affects project performance and long-term sustainability, while proposing data-driven strategies to strengthen infrastructure delivery and fiscal efficiency in alignment with Tanzania’s Vision 2025.

With his expertise in financial modeling, valuation, and PPP management, Dr. Kahyoza provides a rigorous analytical framework to guide policymakers and investors toward balanced risk-sharing mechanisms, fostering resilient and performance-driven PPP implementation across Tanzania’s infrastructure sector.

Dr. Bravious Felix Kahyoza, a certified expert in Financial Modeling & Valuation Analyst (FMVA) and Certified PPP Professional (CP3P). leverages his expertise in project feasibility, risk management, and investment performance to provide actionable insights for improving Tanzania’s PPP frameworks and advancing national development goals.

With an estimated USD 15 billion annual infrastructure gap and only 20 active PPP projects as of 2024, Tanzania faces a critical juncture in infrastructure development. The paper argues that systematic risk-sharing imbalances—where the public sector bears 60-70% of total risks versus the optimal 40-50% benchmark—are causing 70% project delays, 20-50% cost overruns, and high-profile failures like the USD 10 billion Bagamoyo Port project, threatening the nation's economic transformation goals.

Key Findings and Insights

• Severe risk allocation imbalance: Quantitative analysis of 200 stakeholders across 18 major PPP projects (2010-2025) reveals that the public sector disproportionately absorbs exogenous risks—65% of political risks and 45% of financial risks—while private partners control 75% of construction risks, creating systemic inefficiencies.
• High perceived risk severity: Political risks scored highest in stakeholder perceptions (mean μ=4.2/5 on Likert scale), followed by financial risks (μ=3.8/5), reflecting concerns about regulatory instability, election-cycle disruptions, and currency fluctuations that deter private investment.
• Performance correlation confirmed: Statistical analysis demonstrates a strong positive correlation between equitable risk sharing and project performance (r=0.65, p<0.001), with multiple regression analysis showing that each unit increase in sharing equity boosts performance by 0.42 units (β=0.42, p<0.001).
• Factor analysis validation: Exploratory factor analysis identified two distinct risk clusters explaining 62.4% of variance: Factor 1 (Exogenous Risks)—political and financial risks with loadings of 0.72-0.85; and Factor 2 (Endogenous Risks)—construction and operational risks with loadings of 0.68-0.76.
• Institutional moderation effect: Regulatory stability and institutional capacity significantly moderate risk-sharing effectiveness (moderation β=0.28, p<0.01), with stronger governance frameworks boosting performance benefits by 25% in energy versus transport sectors.
• Quantified project impacts: Current imbalances contribute to 70% of projects experiencing 10-30% delays, with construction sector delays and financial constraints exacerbated by misaligned incentives and inadequate contractual protections.
• Regression model strength: The study's multiple linear regression models explain 58-62% of performance variance (R²=0.58-0.62), providing robust evidence for policy interventions and confirming that optimized risk allocation could reduce cost overruns by 15-20%.
• Below global benchmarks: Tanzania's private sector risk absorption (45-55% average) falls significantly below global standards of 60-70% in developed markets and even trails other African contexts, indicating substantial room for improvement through institutional strengthening.

Structural Challenges and Root Causes

The research identifies multiple interconnected factors driving risk allocation imbalances in Tanzania's PPP ecosystem:

Institutional Capacity Gaps:

• Limited technical expertise among 70% of public negotiators in Special Purpose Vehicles (SPVs) at municipal level
• Weak contract enforcement mechanisms leading to opportunistic bargaining by private parties
• Inadequate feasibility analysis causing 40% of implemented concessions to exceed budget

Regulatory and Legal Weaknesses:

• Ambiguous dispute resolution clauses in the 2010 PPP Act (amended 2023) increasing public exposure during political cycles
• Lengthy approval processes through PMO-RALG and Attorney General causing up to 3-year preparation delays
• Absence of mandatory viability gap funding mechanisms to support demand-risk sharing

Financial Constraints:

• Public sector contingent liabilities reaching TZS 500 billion (USD 200 million) in unresolved court cases as of 2023
• Over-optimistic revenue projections without proper risk-adjusted discount rates
• Macroeconomic volatility (inflation, currency fluctuations) disproportionately absorbed through public guarantees

Information Asymmetries:

• Unequal access to project information favoring private contractors in contract negotiations
• Limited transparency in risk assessment methodologies
• Absence of standardized risk matrices tailored to Tanzanian context

Case Study Evidence:

• Bagamoyo Port PPP: USD 10 billion project halted due to unresolved revenue-sharing clauses and environmental risk allocation disputes
• Standard Gauge Railway (SGR): Government absorbed majority of financial burden from land acquisition disputes and currency fluctuations
• UTT Land Demarcation PPP: Three-year delay in Mtwara Mikindani due to bureaucratic approval bottlenecks

Data-Driven Recommendations for Equitable Risk Allocation

To transform Tanzania's PPP framework from its current state of systemic imbalance to a model of sustainable, equitable partnership, the paper proposes comprehensive, evidence-based reforms:

1. Legislative and Regulatory Reforms:

• Amend the PPP Act (2023) to mandate viability gap funding with public exposure capped at 40% of total project risks
• Establish quantitative risk allocation thresholds in PPP regulations: maximum 25% public share for political risks, 40-45% for financial risks
• Implement fast-track dispute resolution mechanisms with binding arbitration clauses to reduce legal contingent liabilities
• Harmonize with EAC protocols on cross-border infrastructure to attract USD 50 billion in regional FDI

2. Institutional Capacity Building:

• Launch mandatory training programs for 500+ public negotiators annually covering:
  • Advanced contract negotiation techniques
  • Risk quantification methodologies (factor analysis, regression modeling)
  • Financial modeling and feasibility analysis
  • Performance-based contract design
• Establish a PPP Centre of Excellence at University of Dar es Salaam for continuous skills development
• Deploy standardized risk matrices based on study findings for all new PPP tenders

3. Financial Mechanism Innovations:

• Create a Risk Mitigation Facility with USD 500 million capitalization to provide:
  • Currency hedging instruments (reducing forex exposure from 45% to 25%)
  • Political risk insurance through multilateral partnerships
  • Performance bonds and guarantees for private partners
• Implement performance-based payment structures linking disbursements to risk management KPIs
• Establish blended finance vehicles combining public resources, development finance, and commercial capital

4. Enhanced Project Preparation:

• Require comprehensive risk impact assessments using factor analysis for all projects exceeding USD 50 million
• Develop lifecycle risk allocation schedules adjusting sharing ratios across preparation, construction, operation, and transfer phases
• Mandate independent third-party risk audits before financial close
• Apply sensitivity analysis (bootstrapping with 1,000 resamples) to test risk scenarios

5. Transparency and Monitoring Systems:

• Deploy digital PPP management platforms for real-time risk tracking and performance monitoring
• Publish quarterly risk allocation reports showing actual vs. planned distributions
• Establish annual PPP performance audits measuring:
  • Timeline adherence (targeting 30% improvement)
  • Cost variance (reducing overruns from 20-50% to <10%)
  • Risk-sharing equity index (achieving 70-80 score on 0-100 scale)
• Create stakeholder feedback mechanisms to capture perception shifts

6. Sector-Specific Strategies:

• Transport sector: Implement demand-risk sharing mechanisms (60% private, 40% public) with minimum revenue guarantees for first 5 operational years
• Energy sector: Leverage higher regulatory stability to increase private risk absorption to 70-75%, using Power Purchase Agreements (PPAs) as anchors
• Cross-sectoral: Develop insurance pools for force majeure events (10% shared allocation), reducing public contingent liabilities

Conclusion

Tanzania's PPP infrastructure program stands at a critical inflection point. The quantitative evidence presented in this study—drawn from rigorous statistical analysis of 200 stakeholders and 18 major projects—unequivocally demonstrates that current risk allocation patterns are unsustainable and systematically disadvantage the public sector while deterring private investment.

The authors emphasize that risk-sharing is not a zero-sum game but rather a strategic optimization challenge. The study's findings—particularly the 0.65 correlation between equitable sharing and performance and the 0.42 standardized regression coefficient—provide compelling evidence that properly balanced risk allocation can simultaneously:

• Reduce project delays by 15-30%
• Decrease cost overruns from 20-50% to below 10%
• Increase private sector confidence and participation
• Improve value-for-money outcomes for taxpayers
• Accelerate infrastructure delivery toward Vision 2025 goals

The research makes three vital contributions to PPP scholarship and practice:

Theoretical Advancement: By integrating Transaction Cost Theory with the World Bank Risk Allocation Framework and adding Tanzanian-specific moderators (institutional capacity, regulatory stability), the study extends global PPP theory into underrepresented African contexts—where only 12% of global PPP literature focuses despite disproportionate infrastructure needs.

Practical Tools: The study delivers actionable instruments including validated risk matrices, equitable sharing indices (0-100 scale), and performance prediction models that PPP practitioners can immediately deploy in project preparation and contract negotiation.

Policy Blueprint: The evidence-based recommendations provide a comprehensive reform roadmap for the Tanzanian government, addressing legislative gaps, capacity constraints, and financial mechanisms required to unlock the USD 15 billion annual infrastructure investment needed for middle-income country status.

By 2030, if these reforms are implemented, Tanzania could transform its PPP portfolio from 20 struggling projects to a robust pipeline of 50+ high-performing partnerships, positioning the nation as an East African leader in infrastructure finance and demonstrating that equitable risk-sharing is the foundation for sustainable public-private collaboration.

The study concludes with an urgent call to action: risk allocation reform is not optional—it is imperative for realizing Tanzania's development aspirations. Through data-driven policy, institutional strengthening, and transparent governance, Tanzania can turn PPP challenges into opportunities, converting its infrastructure gap into a catalyst for inclusive economic transformation.

📘 Read the Full Research Paper:
"Exploring the Dynamics of Risk Sharing in Tanzania's PPP Infrastructure Projects"
Authored by Dr. Bravious Felix Kahyoza (PhD, FMVA) and David Kafulila
Published by TICGL | Tanzania Investment and Consultant Group Ltd
🌐 www.ticgl.com

Authored by Dr. Bravious Felix Kahyoza (PhD, FMVA, CP3P) and Amran Bhuzohera

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

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

Key Findings

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

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

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

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

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

Policy Insights

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

To counter these vulnerabilities, the paper proposes:

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

Implications for Vision 2025 and Beyond

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

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

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

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

1. Exchange Rate Movements

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

2. Interbank Foreign Exchange Market (IFEM)

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

3. Drivers of Stability

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

Table: Tanzanian Shilling Exchange Rate and Movements

*approximate figure based on annual depreciation reported in 2024.

Implications for Tanzania's Economic Development

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

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

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

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

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

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

Overall Summary and Forward Outlook

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

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

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

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

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

2. Composition of Public Debt

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

3. Composition of External Debt by Borrower

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

4. Composition of Domestic Debt by Creditor Category

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

5. Key Ratios and Indicators

Implications for Tanzania's Economic Development

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

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

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

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

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

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

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

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

Overall Summary and Forward Outlook

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

The Government Domestic Debt composition as of August 2025 from the Bank of Tanzania's Monthly Economic Review (September 2025) highlights a diversified creditor base, with total stock at TZS 37,129.8 billion (up 5% m-o-m, driven by bond issuance). This structure—dominated by institutional investors like pension funds (27.2%) and commercial banks (28.4%)—signals deepening domestic financial markets, enabling cost-effective funding for growth initiatives amid 6%+ Q3 GDP estimates and 3.4% inflation. In the broader context of the document, this supports fiscal operations (e.g., July revenues 103% of target) and monetary easing (CBR at 5.75%), while aligning with IMF and World Bank assessments of moderate debt distress risk and medium carrying capacity. As of September 2025, total public debt stands at ~50% of GDP (sustainable under 55% threshold), with IDA commitments reaching USD 9 billion to finance 35 operations. These trends imply enhanced fiscal flexibility for infrastructure and social spending, fostering inclusive growth toward Vision 2050, though rising stock (national debt up 13.5% y-o-y to TZS 116.6 trillion by June) underscores needs for revenue mobilization to mitigate crowding-out risks.

Recent analyses, including SECO's 2025 Economic Report, emphasize this diversification as key to sustaining 6% growth through improved fiscal health and market depth.

1. Overview

• Total Domestic Debt Stock: TZS 37,129.8 billion (a 5% increase from July 2025).
• The increase was mainly attributed to the issuance of government bonds, which continue to dominate the domestic debt portfolio.

2. Composition by Creditor Category

3. Analysis

• Pension funds and commercial banks are the largest domestic creditors, collectively holding over 55% of total government domestic debt.
• BoT’s share (19%) represents central bank holdings from monetary policy operations and special facilities.
• Non-traditional holders (other financial institutions and individuals) represent about one-fifth (19%) of the total, reflecting increased market participation.

Implications for Tanzania's Economic Development

1. Total Domestic Debt Stock: Steady Growth Reflects Proactive Fiscal Management

• Key Observations Recap: TZS 37,129.8 billion (+5% from July), primarily from bond issuance (TZS 1,480.7 billion in August auctions).
• Implications for Economic Development:
  • Funding for Capital Projects: The bond-driven rise provides long-term, low-cost resources (yields down to 13.91-14.42%), aligning with July's TZS 1,634.4 billion development spending (77% domestic). This bolsters sectors like transport (20.3% of external debt use) and agriculture (30.1% credit growth), targeting 6.2% FY 2025/26 growth per IMF projections.
  • Debt Sustainability Buffer: At ~35% of GDP, the increase maintains moderate risk, per July 2025 IMF/WB assessments, freeing space for private investment amid TZS appreciation (6.6% in August).
  • Risks: Accelerated issuance could elevate service costs (9.4% of July expenditures), potentially crowding out private credit if global rates rise.

2. Composition by Creditor Category: Diversification Enhances Market Resilience

• Key Observations Recap: Pension funds (TZS 10,116.5 billion, 27.2%) and banks (TZS 10,558.3 billion, 28.4%) hold >55%; BoT 19%; others 19.2%.
• Implications for Economic Development:
  • Institutional Investor Dominance: High pension/bank shares reflect strong domestic savings mobilization (deposits up 20.2% y-o-y), channeling funds to pro-growth bonds and reducing external vulnerability (external debt USD 35.4 billion). This deepens markets, as noted in SECO's report, supporting FDI in mining/tourism (exports up 14.8%).
  • Broadened Participation: 19.2% "others" (non-banks, individuals) indicates retail inclusion, fostering financial literacy and stability amid 21% M3 growth.
  • BoT Role: 19% holdings from policy ops ensure liquidity (IBCM rates at 6.48%), but cap monetization risks to preserve inflation anchors (3-5% target).

Overall Summary and Forward Outlook

August's domestic debt profile implies a resilient financing ecosystem for Tanzania's development: diversified creditors and bond focus sustain fiscal buffers, enabling 6% growth while managing risks. This complements external stability (reserves USD 6.2 billion) and positions Tanzania as an EAC outperformer. By Q4 2025, continued trends could trim debt-to-GDP to 48%, per IMF, but prioritizing tax reforms (revenues at 16.5% GDP target) will counter y-o-y rises and unlock 7% potential.

The external debt data from the Bank of Tanzania's Monthly Economic Review (September 2025) for end-August 2025 shows a modest 0.6% monthly rise to USD 35,389.3 million, maintaining a sustainable profile at around 50% of GDP amid robust macroeconomic indicators like 6%+ Q3 growth estimates, 3.4% inflation, and TZS appreciation (6.6% in August). This composition—government-dominated, growth-oriented uses, and heavy USD exposure—implies continued fiscal space for infrastructure and social investments, supporting Vision 2050's goals of upper-middle-income status by 2050 through job creation in agriculture, manufacturing, and tourism. However, USD dominance (66.1%) heightens vulnerability to global rate hikes or TZS volatility, despite recent strengthening. As of October 2025, IMF assessments affirm debt indicators remain below thresholds, with positive short-term growth impacts from borrowing, though long-term sustainability hinges on revenue mobilization (taxes at 13.1% of GDP) and export diversification.

These trends align with the document's external sector strength (e.g., gold exports up 35.5% y-o-y) and World Bank projections of sustained 6% growth, financed by FDI and concessional loans.

1. External Debt Stock by Borrower

• Total external debt stock: USD 35,389.3 million (up 0.6% from July 2025).
• By borrower category:
  • Central Government: USD 28,598.9 million (80.8%)
  • Private Sector: USD 6,786.7 million (19.2%)
  • Public Corporations: USD 3.8 million (0.0%)

2. Disbursed Outstanding Debt by Use of Funds (Percentage Share)

• Balance of Payments (BoP) & Budget Support: 22.5%
• Transport & Telecommunication: 20.3%
• Agriculture: 5.2%
• Energy & Mining: 12.9%
• Industries: 3.4%
• Social Welfare & Education: 21.5%
• Finance & Insurance: 4.0%
• Tourism: 0.8%
• Real Estate & Construction: 4.4%
• Other: 5.0%

3. Disbursed Outstanding Debt by Currency Composition (Percentage Share)

• US Dollar (USD): 66.1%
• Euro (EUR): 17.6%
• Chinese Yuan (CNY): 6.4%
• Other currencies: 9.9%

Table 1: External Debt Stock by Borrower (Aug 2025)

Table 2: Disbursed Outstanding Debt by Use of Funds (Aug 2025)

Table 3: Disbursed Outstanding Debt by Currency Composition (Aug 2025)

Implications for Tanzania's Economic Development

1. External Debt Stock by Borrower: Government-Led Borrowing for Public Investments

• Key Observations Recap: Central government holds 80.8% (USD 28,598.9 million), private sector 19.2% (USD 6,786.7 million), with public corporations negligible.
• Implications for Economic Development:
  • Public Sector Leverage for Infrastructure and Inclusion: The government's dominance enables targeted funding for high-multiplier projects, aligning with 20.3% allocation to transport/telecom and 21.5% to social welfare/education, which boosted FY 2024/25 growth to 5.6%. This supports human capital development (e.g., STEM training) and connectivity, critical for Vision 2050's 7% medium-term growth target.
  • Private Sector Growth Catalyst: Rising private share (up from 15-18% historically) reflects deepening financial markets, channeling FDI into mining (12.9% use) and energy, with 16.2% credit growth aiding MSMEs (36% of loans). IMF notes this mix sustains external balances, with current account deficit at 2.6% of GDP.
  • Risks: Heavy public reliance could crowd out private borrowing if global conditions tighten, per Deloitte's 2025 outlook, potentially raising fiscal deficits beyond 3% of GDP.

2. Disbursed Outstanding Debt by Use of Funds: Pro-Growth Allocation with Social Focus

• Key Observations Recap: Top uses: BoP/budget support (22.5%), social welfare/education (21.5%), transport/telecom (20.3%), energy/mining (12.9%); lower in agriculture (5.2%) and tourism (0.8%).
• Implications for Economic Development:
  • Balanced Investment for Structural Transformation: High shares in social/education (21.5%) and transport (20.3%) foster human capital and logistics, key to agriculture's 30% GDP role and manufacturing expansion (3.4% credit growth). This allocation has driven productivity gains, with SECO's 2025 report crediting debt-financed projects for 10-15% infrastructure coverage increase.
  • Sectoral Gaps and Opportunities: Under-allocation to agriculture (5.2%) limits resilience to shocks (e.g., food inflation at 7.7%), but energy/mining (12.9%) bolsters exports (gold at USD 4.32 billion y-o-y). Research indicates positive short-term growth from such debt, potentially adding 0.5-1% to GDP via spillovers.
  • Risks: Low tourism/real estate (0.8%/4.4%) misses diversification potential; Taylor & Francis analysis warns misallocation could raise non-performing loans if returns lag.

3. Disbursed Outstanding Debt by Currency Composition: USD Exposure Amid Diversification Efforts

• Key Observations Recap: USD 66.1%, EUR 17.6%, CNY 6.4%, other 9.9%.
• Implications for Economic Development:
  • Funding Stability from Multilateral Ties: USD/EUR dominance ensures concessional terms (e.g., from IMF/WB), supporting 373.2 billion TZS foreign-financed development in July. CNY rise (6.4%) ties to Belt and Road projects in energy/transport, enhancing infrastructure without immediate fiscal strain.
  • Exchange Rate Resilience: Recent TZS appreciation mitigates USD risks, but 69.8% effective exposure (per TICGL) could amplify costs if reversed, pressuring imports (e.g., oil). IMF projects indicators below thresholds, aiding 6% growth.
  • Risks: Currency mismatches heighten volatility; Deloitte warns of credit rating downgrades if oil/fertilizer prices spike (Chart 1.5), eroding reserves (USD 6.2 billion).

Overall Summary and Forward Outlook

August's external debt dynamics imply a sustainable enabler of Tanzania's development: government-led, productive uses sustain 6% growth and inclusion, while currency risks are buffered by reserves and exports. This reinforces FY 2025/26's 6.2% projection, with debt at 45-50% GDP. As of October 8, 2025, positive FDI trends mitigate vulnerabilities, but boosting non-USD borrowing and agriculture allocation will ensure long-term viability toward 7% growth.

Focusing on the current account, exports (service receipts), and imports (service payments)

The External Sector Performance data from the Bank of Tanzania's Monthly Economic Review (September 2025) for August 2025 underscores a resilient trade balance, with the current account deficit narrowing by 43.1% year-on-year to USD 187.2 million, driven by surging service exports (up 9.4%) and moderated import payments (down 7.1%). This reflects robust tourism and gold inflows amid lower global oil prices, aligning with the document's broader export strength (14.8% y-o-y growth to USD 16.89 billion) and supporting Q3 GDP estimates above 6%. In the context of October 2025 updates, IMF assessments confirm 5.4% Q1 growth and 3.4% inflation, projecting 6.0% annual GDP expansion fueled by external buffers. These trends imply enhanced foreign exchange reserves (over USD 6 billion), reduced import inflation pressures (e.g., energy at 2.6%), and fiscal space for infrastructure, positioning Tanzania for sustained 6%+ growth under Vision 2050. However, over-reliance on tourism (63% of services) and gold exposes to global shocks like commodity volatility.

World Bank and SECO reports highlight tourism's overtake of gold as the top earner ($3.92 billion to May 2025), diversifying inflows and aiding poverty reduction via rural jobs.

1. Current Account

• The current account deficit narrowed to USD 187.2 million in August 2025, down from USD 329.1 million in August 2024.
• This improvement was driven by strong growth in exports of goods and services, especially tourism and gold, alongside a decline in imports of goods (mainly oil).
• On a 12-month cumulative basis, the deficit stood at USD 2,642.7 million, compared with USD 3,943.8 million in the year ending August 2024 — a 33% improvement.

2. Exports – Services Receipts by Category (August 2025)

Total services receipts amounted to USD 449.4 million, up from USD 410.7 million in August 2024, marking a 9.4% annual growth.
The main contributors were travel (tourism), transport, and financial services.

Tourism remains the leading foreign exchange earner, accounting for nearly two-thirds (63%) of total service exports, reflecting continued recovery of the hospitality sector.

3. Imports – Services Payments (August 2025)

Total services payments reached USD 435.5 million, compared to USD 468.9 million in August 2024, reflecting a 7.1% decline — mainly due to reduced freight and oil-related payments.

Transport and travel dominate the country’s service import bill, accounting for over 70% of total service payments.

4. Summary Table: Current Account and Service Trade (USD Million)

Implications for Tanzania's Economic Development

1. Current Account: Narrowing Deficit Signals External Resilience

• Key Observations Recap: Deficit at USD 187.2 million (from USD 329.1 million YoY); 12-month cumulative USD 2,642.7 million (33% improvement from USD 3,943.8 million).
• Implications for Economic Development:
  • Boost to Reserves and Currency Stability: The 43% narrowing enhances forex buffers, underpinning TZS appreciation (6.6% in August) and low inflation (3.4%). This supports 21% M3 growth and private credit (16.2%), enabling imports for agriculture (30.1% credit rise) without depleting reserves.
  • Trade Diversification Momentum: Tourism and gold surges (gold at USD 4.32 billion y-o-y, up 35.5%) narrow the deficit to ~2.5% of GDP, per IMF, fostering FDI in services (projected 10-15% rise). This aids structural shifts, with exports up 14.8% overall.
  • Risks: Cumulative deficits persist; oil rebound (Chart 1.5) could widen gaps, per Deloitte outlooks.

2. Exports – Services Receipts: Tourism-Led Inflows Drive Inclusive Growth

• Key Observations Recap: Total USD 449.4 million (up 9.4% YoY); travel (tourism) USD 282.8 million (63%), transport USD 122.6 million (27.3%).
• Implications for Economic Development:
  • Hospitality Sector Recovery: Tourism's dominance (now top earner at USD 3.92 billion to May) generates rural jobs (hospitality ~1 million employed), boosting remittances and consumption amid 5.5% unemployment. This ties to 11.4% credit growth in hotels/restaurants.
  • Service Economy Expansion: Transport/financial gains (30.1% combined) support logistics for exports, aligning with 20.3% external debt use in telecom/transport for connectivity.
  • Risks: Seasonal dips; diversification into construction (1.2%) needed for resilience.

3. Imports – Services Payments: Cost Reductions Ease Inflationary Pressures

• Key Observations Recap: Total USD 435.5 million (down 7.1% YoY); transport USD 178.2 million (40.9%), travel USD 131.5 million (30.2%).
• Implications for Economic Development:
  • Lower Input Costs for Productivity: Freight/oil declines (tied to global easing) cut manufacturing expenses (3.4% credit growth), reinforcing 2.6% energy inflation and food stability (7.7%).
  • Business Travel Efficiency: 30.2% travel share reflects FDI inflows, but moderation aids deficit narrowing, per AfDB.
  • Risks: 70%+ transport/travel dominance vulnerable to fuel spikes.

Overall Summary and Forward Outlook

August's external metrics imply a dynamic trade engine for Tanzania's development: deficit narrowing and service surpluses (USD 13.9 million) sustain 6% growth, with tourism/gold diversification reducing vulnerabilities. IMF's September visit affirms this trajectory, projecting 6.0% GDP and 4.0% inflation. By Q4 2025, sustained trends (e.g., gold records) could trim deficits further, but boosting non-tourism services (e.g., ICT) will ensure 7% medium-term potential amid global uncertainties.