Tanzania's Government Debt to GDP ratio stood at 38.3% in 2022, rising to 53.4% by mid-2023 as the national debt reached USD 42.68 billion, up from USD 38.27 billion in June 2022. The country’s GDP hit an all-time high of USD 79.16 billion in 2023, reflecting strong economic growth with an average annual growth rate of 5.5%. However, debt is growing faster at 6% annually, signaling a moderate rise in the debt-to-GDP ratio, which is projected to reach 54.7% by 2030. Tanzania’s growing debt suggests ongoing investment in infrastructure but calls for careful debt management to maintain fiscal stability.

1. Government Debt to GDP Ratio:
   • 2022: Tanzania's government debt was 38.30% of the country's GDP. This ratio indicates the size of the government's debt in relation to the country's economic output.
   • Historical Trend:
     • Between 2001 and 2022, the Government Debt to GDP ratio averaged 35.26%.
     • The highest ratio recorded was in 2001 at 50.20%, a time when the country was undergoing structural reforms and grappling with high debt burdens.
     • The lowest ratio was in 2008, at 21.50%, following debt relief initiatives like the Heavily Indebted Poor Countries (HIPC) program, which led to significant reductions in Tanzania's debt burden.
2. GDP Trend:
   • Over the period from 1960 to 2023, Tanzania’s GDP grew significantly. On average, it was around USD 19.48 billion.
   • The highest GDP value was reached in 2023, at USD 79.16 billion, showcasing the steady growth of the economy over the years.
   • In 1960, Tanzania’s GDP was much smaller, at USD 2.65 billion, reflecting the economy's size shortly after gaining independence.
3. National Debt Stock as of June 2023:
   • By the end of June 2023, Tanzania's national debt, which includes both public domestic and external debt as well as private sector external debt, stood at USD 42,681 million.
   • This debt level represented 53.4% of GDP. This increase reflects borrowing for development projects, as well as increased demand for credit by the private sector.
   • June 2022 figures show the national debt at USD 38,265.63 million, indicating a significant increase in debt over the course of a year, a rise of approximately 11.5% in nominal terms.

Forecast Tanzania's Government Debt to GDP ratio until 2030

• GDP growth rate: 5.5% per year (average recent growth rate).
• Debt growth rate: 6% per year (assuming continued public investment and infrastructure development).

Forecast Table: Tanzania's Government Debt to GDP Ratio (2024–2030)

Assumptions:

• GDP growth rate: 5.5% per annum, reflecting recent growth trends in Tanzania’s economy.
• Debt growth rate: 6% per annum, reflecting continued borrowing for infrastructure, development, and other national programs.
• Debt to GDP ratio remains slightly increasing due to debt growth outpacing GDP growth slightly.

Tanzania's economic situation and fiscal policy

1. Government Debt Trends:

• Tanzania's Government Debt to GDP ratio has fluctuated over time, with a relatively high point in 2001 (50.20%) and a significant low in 2008 (21.50%) due to debt relief initiatives like HIPC.
• The current debt-to-GDP ratio, 38.30% in 2022, is moderate compared to historical highs. However, the increase in the ratio to 53.4% in 2023 indicates a rising debt burden due to higher borrowing for development projects and infrastructure investments.
• The forecast suggests the debt-to-GDP ratio will continue to rise moderately until 2030, reaching around 54.7%. This is not yet alarming, but continued growth in debt without corresponding economic growth may increase debt-servicing challenges.

2. Economic Growth:

• Tanzania’s economy has experienced steady GDP growth, with GDP reaching an all-time high of USD 79.16 billion in 2023.
• The forecasted GDP growth at an annual rate of 5.5% reflects a positive trend, suggesting that Tanzania will continue to grow, though the government will need to ensure that this growth is sustainable and inclusive.

3. Debt Growth Outpacing GDP:

• While GDP is growing, the government debt is growing at a slightly faster rate (6% vs. 5.5% GDP growth). This implies that Tanzania is borrowing more quickly than it is growing economically.
• A rising debt-to-GDP ratio indicates that the government is relying on debt to finance its projects. If this borrowing leads to productive investments, such as in infrastructure or social services, the economy will benefit in the long term. However, if the debt becomes unsustainable or poorly managed, it could create fiscal pressures.

4. Debt Sustainability and Risks:

• The projected increase in the debt-to-GDP ratio through 2030 highlights the importance of debt sustainability. While a ratio around 54-55% is manageable, it signals a need for vigilance in fiscal policy.
• External factors such as global economic conditions, interest rates, and currency fluctuations could exacerbate debt burdens. For example, if Tanzania’s external debt (part of the national debt) grows in foreign currencies, currency depreciation could make debt repayments more costly.

5. Implications for Policy:

• Debt management will be critical for Tanzania to maintain fiscal stability. The government must balance borrowing with its ability to generate revenue, avoiding excessive debt levels that could hinder growth.
• Continued investment in infrastructure and development is necessary to support GDP growth, but careful planning is essential to ensure that borrowed funds are used effectively and that projects yield returns that boost productivity.
• Tanzania should also focus on diversifying its economy to reduce dependence on external factors and enhance resilience to economic shocks.

Conclusion:

Tanzania's rising debt levels and growing GDP reflect both opportunities and challenges. While the country is investing in its future, managing the pace of borrowing and ensuring sustainable economic growth will be key to maintaining long-term stability. If well-managed, the projected rise in the debt-to-GDP ratio can support development, but mismanagement or unforeseen shocks could put fiscal stability at risk.