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.

Government Securities and Interbank Cash Markets Thrive

In March 2025, Tanzania’s financial markets demonstrated robust investor confidence and liquidity strength, as shown by the performance of the government securities and interbank cash markets. The Bank of Tanzania conducted two Treasury bill auctions with a combined offer of TZS 218 billion, attracting bids worth TZS 662.5 billion, more than 3 times the offer, indicating high demand. The weighted average yield for T-bills dropped from 11.93% in February 2025 to 10.10%, reflecting investor optimism and lower inflation expectations. Similarly, the Treasury bond market saw strong participation, with 5-year and 15-year bonds oversubscribed, receiving TZS 200.5 billion and TZS 267.7 billion in bids respectively. Meanwhile, the Interbank Cash Market (IBCM) recorded total transactions of TZS 1,757.7 billion, dominated by 7-day maturities, with the average interbank rate slightly increasing to 8.12% from 8.06% in February. These developments underline a stable and active financial market environment supporting fiscal and monetary policy objectives in 2025.

1. Government Securities Market

Treasury Bills (T-Bills)

• In March 2025, the Bank of Tanzania conducted two T-bill auctions, each with a tender size of TZS 109 billion.
• These auctions were heavily oversubscribed, receiving bids totaling TZS 662.5 billion.
• Out of these, TZS 210.8 billion were accepted.
• The weighted average yield (WAY) dropped from 11.93% (Feb 2025) to 10.10% (Mar 2025), reflecting increased investor demand.

Treasury Bonds

• The Bank also held auctions for:
  • 5-year bond: Tender size TZS 77.8 billion → received TZS 200.5 billion in bids → TZS 151.6 billion accepted.
  • 15-year bond: Tender size TZS 148.4 billion → received TZS 267.7 billion in bids → TZS 146.5 billion accepted.
• The yield to maturity:
  • 5-year bond: Increased to 13.14%.
  • 15-year bond: Slightly decreased to 14.63%.

Implication: High demand for government securities shows strong investor confidence and liquidity in the market.

2. Interbank Cash Market (IBCM)

• The IBCM remained vibrant and active in facilitating short-term liquidity among banks.
• Total transactions in March 2025 amounted to TZS 1,757.7 billion, down from TZS 1,990.1 billion in February.
• The 7-day maturity transactions were dominant, making up 50.9% of all trades.
• Overnight transactions accounted for 7.3%.
• The overall interbank cash market interest rate slightly increased to 8.12% from 8.06% in February 2025.

Implication: The slight rate increase and high transaction volumes reflect active liquidity management by banks despite some market segmentation.

Summary Table

The data from the Government Securities Market and the Interbank Cash Market (IBCM) in Tanzania for March 2025 tells us several key things about the financial market conditions and investor behavior:

1. High Investor Confidence and Liquidity in the Market

• Oversubscription of Treasury bill and bond auctions (bids far exceeded offers) shows:
  • Strong investor demand for government securities.
  • Abundant liquidity in the financial system—investors, especially banks and pension funds, have cash to invest.
• Falling T-bill yields from 11.93% to 10.10% signal:
  • Investors are willing to accept lower returns, indicating confidence in macroeconomic stability and low inflation expectations.

2. Balanced Government Financing Strategy

• The government is actively using the domestic financial market to fund its budget through:
  • T-bills (short-term needs).
  • Bonds (medium to long-term financing).
• This approach helps reduce reliance on external debt and manage domestic borrowing costs.

3. Active Interbank Liquidity Management

• The IBCM transacted TZS 1.76 trillion, although slightly lower than the previous month.
• The interbank rate slightly rose to 8.12%, which still remains within the Bank of Tanzania’s policy corridor (centered around the 6% CBR ±2%).
• This suggests:
  • Banks are effectively managing short-term liquidity needs.
  • The market remains stable and well-functioning, with no significant liquidity stress.

4. Slight Yield Adjustments Reflect Market Dynamics

• The increase in 5-year bond yield (13.14%) and slight drop in 15-year yield (14.63%) show:
  • Investors may perceive more risk or uncertainty in the medium term.
  • But still maintain confidence in long-term fiscal management and economic outlook.

In Simple Terms:

• Investors trust the government and are keen to lend it money.
• The financial system is liquid and active.
• The central bank is maintaining a stable monetary environment.
• Tanzania’s domestic market is maturing as a reliable source of financing for the government.