Infrastructure Push Meets Rising Servicing Costs Amid Depreciation Pressures

As of June 2025, Tanzania’s total public debt stock reached TZS 116.6 trillion (approx. USD 45.4 billion at an exchange rate of TZS 2,569.46/USD), marking a 13.5% annual increase from TZS 102.8 trillion in June 2024. This growth reflects continued borrowing to fund major infrastructure projects like the Standard Gauge Railway (SGR) and Julius Nyerere Hydropower Plant, along with the financing of a fiscal deficit projected at 2.5% of GDP. The debt is composed of 70.7% external debt (TZS 82.4 trillion) and 29.3% domestic debt (TZS 35.5 trillion). While the external debt grew faster at 14.8%, concerns are rising over exchange rate vulnerability, as 67.6% of it is USD-denominated amid a 9.6% depreciation of the TZS. On the domestic side, long-term Treasury bonds dominate (83.2% of domestic debt), but heavy reliance on commercial banks (28.6%) is contributing to elevated lending rates of 15.5%, crowding out private sector credit. Despite being below the IMF’s 55% debt-to-GDP sustainability threshold, the growing debt servicing burden—absorbing ~40% of government expenditure— highlights the need for careful fiscal and monetary coordination.

Total Public Debt Stock

• Total National Debt:
  • Value: TZS 116.6 trillion (USD 45.4 billion at ~TZS 2,569.46/USD, per the provided exchange rate).
  • Annual Increase: +13.5% from TZS 102.8 trillion in June 2024 (USD 43.8 billion at June 2024’s 2,345.38 TZS/USD).
  • Context: The 13.5% increase aligns with earlier trends, with the national debt at USD 48,479.9 million (TZS ~124.5 trillion at 2,565.08 TZS/USD) in April 2025 and USD 48,217.0 million in February 2025. The rise reflects increased borrowing for infrastructure and fiscal deficits, supported by a 13.4% planned spending increase to TZS 57.04 trillion in FY 2025/26.
  • Debt-to-GDP Ratio: Estimated at ~44.3% in June 2025, based on Tanzania’s GDP of ~USD 105.1 billion in 2022, adjusted for 5.6% growth in 2024 and 6% projected for 2025 (~USD 102.6 billion). This is lower than the 47.36% reported for 2023 (USD 37,478 million), suggesting a slight decline in the debt-to-GDP ratio, as forecasted by Statista to reach 40.84% by 2029. However, World Economics estimates a higher GDP ($0.353 trillion), implying a lower ratio of ~29.2%, highlighting data inconsistencies.
  • Implications: The 13.5% increase reflects Tanzania’s ambitious infrastructure agenda (e.g., Standard Gauge Railway, Julius Nyerere Hydropower Plant) and fiscal deficits (2.5% of GDP projected for 2024/25). While sustainable per the IMF’s Debt Sustainability Analysis (DSA) (35% public debt-to-GDP, below the 55% benchmark), the rapid rise raises concerns about servicing costs, which absorb ~40% of government expenditures.

1. Domestic Debt

Domestic debt represents borrowing within Tanzania, primarily through Treasury bonds and bills, held by local creditors.

• Stock of Domestic Debt:
  • Value: TZS 35.5 trillion (USD ~13.8 billion) in June 2025.
  • Annual Increase: +11.1% from TZS 32.0 trillion in June 2024.
  • Monthly Increase: +0.9% from May 2025 (estimated at ~TZS 35.2 trillion, based on April 2025’s TZS 34,759.9 billion).
  • Context: The 11.1% rise follows a 1.5% monthly increase in April 2025 (TZS 34,759.9 billion) and a decline to TZS 34,014.1 billion in February 2025 due to reduced overdraft use. The increase reflects financing of a TZS 248.5 billion fiscal deficit in Zanzibar and Mainland deficits, with TZS 625.5 billion mobilized in April 2025 (TZS 421.7 billion in bonds, TZS 203.8 billion in bills).
  • Implications: The moderate 11.1% growth (vs. 14.8% for external debt) reflects fiscal prudence, with long-term bonds dominating to extend maturity profiles. However, high domestic borrowing (29% by commercial banks) raises lending rates to 15.5%, crowding out private sector credit, which weakened in Q4 2024.
• Domestic Debt by Instrument:

• Context: Treasury bonds’ dominance (83.2%) aligns with earlier trends (e.g., April 2025), reflecting a shift to long-term instruments to reduce refinancing risks. Treasury bill yields rose to 11.7% by March 2024, and bond yields (e.g., 5-year bonds) increased by 40 basis points, indicating higher borrowing costs.
• Implications: The long-term bond focus improves debt sustainability by extending maturities, but rising yields strain fiscal resources, with TZS 890.9 billion allocated for domestic debt servicing in February 2025 (TZS 609.9 billion principal, TZS 281 billion interest).
• Domestic Debt by Creditor Category:

• Context: Commercial banks (28.6%) and pension funds (26.1%) remain key creditors, consistent with March 2025 (29% and 26.5%, respectively). The BoT’s 20.2% share reflects its role in liquidity management, while “Others” (18.1%) include growing retail investor participation via digital platforms like the Tanzania Instant Payment System (TIPS).
• Implications: The diversified creditor base reduces reliance on any single group, but high bank holdings limit private sector lending, with credit growth weakening in Q4 2024. Pension funds’ role supports financial inclusion (65% formal service adoption by 2021), but high yields risk fiscal strain.

2. External Debt

External debt comprises borrowing from foreign creditors, primarily for development projects, and is sensitive to exchange rate fluctuations.

• Stock of External Debt:
  • Value: TZS 82.4 trillion (USD 33.0 billion at 2,569.46 TZS/USD).
  • Annual Increase: +14.8% from TZS 71.8 trillion (USD ~30.6 billion) in June 2024.
  • Context: The USD 33.0 billion aligns with February 2025’s USD 35,039.8 million and April 2025’s USD 35,505.9 million, reflecting steady growth. The 14.8% increase is driven by disbursements (USD 109.9 million in April 2025) for infrastructure and budget support, with 78.3% held by the central government.
  • Implications: The faster growth of external debt (14.8% vs. 11.1% for domestic) reflects reliance on foreign financing for projects like SGR and hydropower, boosting long-term growth (6% GDP projected for 2025). However, the 9.6% TZS depreciation against the USD increases servicing costs, with USD 80.9 million serviced in April 2025. The IMF’s DSA rates external debt distress risk as moderate, with indicators below thresholds.
• External Debt by Borrower:

• Context: The central government’s 85.4% share (USD ~28.2 billion) aligns with March 2025’s 78.3%, reflecting its role in funding infrastructure (48% of World Bank’s USD 10 billion portfolio). Private sector debt (14.6%) supports FDI-driven projects (USD 3.7 billion registered in 2025), while public corporations’ negligible share (e.g., TZS 84 billion for SOEs in February 2025) indicates limited exposure.
• Implications: The government’s dominance ensures alignment with development goals, but private sector debt growth supports diversification (e.g., manufacturing, 156 projects in 2025). Negligible SOE debt reduces fiscal risk, per the IMF’s DSA.
• Disbursed External Debt by Use of Funds:

• Context: Transport (25.4%) includes SGR and TAZARA Railway (USD 1.4 billion from China), while social welfare (21.3%) and energy (16.4%) align with World Bank projects (USD 300 million for disaster preparedness, USD 227 million for conservation). Budget support (15.2%) reflects IMF’s USD 441 million ECF/RSF disbursements.
• Implications: The allocation prioritizes growth-enhancing sectors, supporting Vision 2050’s USD 1 trillion GDP target. However, low industry (4%) and agriculture (6.5%) shares limit structural transformation, with agriculture’s GDP share at 26% in 2022.
• External Debt by Currency Composition:

• Context: The USD’s 67.6% share (USD ~22.3 billion) is slightly lower than March 2025’s 67.7% and 2023’s 68.9%, reflecting efforts to diversify borrowings. EUR (17.2%) and CNY (3.4%) align with trade and financing from Europe and China, respectively. The 9.6% TZS depreciation against the USD and 10.4% against the EUR amplify servicing costs.
• Implications: High USD exposure (67.6%) increases vulnerability to TZS depreciation, with annual external debt service estimated at USD 1–2 billion. Concessional financing (e.g., IMF, World Bank) mitigates risks, but diversification into local currency debt is needed.

Summary Table: Tanzania National Debt (June 2025)

Key Insights and Policy Implications

1. Rising Debt Levels:
   • The TZS 116.6 trillion (USD 45.4 billion) debt, up 13.5%, reflects infrastructure investments (e.g., SGR, hydropower) and fiscal deficits (2.5% of GDP). While sustainable (35% debt-to-GDP per IMF), servicing costs (~40% of expenditures) strain fiscal space.
   • Policy: Enhance revenue mobilization (TZS 2,697.8 billion collected in January 2025, 98.3% of target) and prioritize concessional financing (e.g., IMF’s USD 441 million ECF/RSF) to reduce costs.
2. External Debt Dominance:
   • External debt (TZS 82.4 trillion, 70.7%) drives the increase, with 85.4% held by the central government for transport (25.4%) and social welfare (21.3%). The 67.6% USD share and 9.6% TZS depreciation raise servicing costs (USD 80.9 million in April 2025).
   • Policy: Diversify currency composition (e.g., increase CNY, SDR shares) and boost export earnings (USD 16,737.6 million in February 2025, +18.8%) to mitigate exchange rate risks.
3. Domestic Debt Stability:
   • Domestic debt (TZS 35.5 trillion, +11.1%) is dominated by long-term bonds (83.2%), reducing refinancing risks. Commercial banks (28.6%) and pension funds (26.1%) are key creditors, but high borrowing crowds out private credit.
   • Policy: Lower domestic borrowing rates (15.5% lending rates) via the 6% Central Bank Rate and expand retail bond markets via TIPS to diversify creditors.
4. Development Alignment:
   • External debt funds growth-enhancing sectors (transport, energy, social welfare), supporting Vision 2050’s USD 1 trillion GDP target. However, low industry (4%) and agriculture (6.5%) shares limit structural transformation.
   • Policy: Increase investments in agriculture (26% of GDP) and industry via MKUMBI II reforms to boost competitiveness and job creation (41,117 jobs projected in 2025).
5. Exchange Rate Risks:
   • The 9.6% TZS depreciation against the USD and high USD debt exposure (67.6%) increase servicing costs, with external debt service at ~2.89% of GNI in 2023.
   • Policy: Strengthen reserves (USD 5,307.7 million, 4.3 months of import cover) and promote tourism (USD 6,948.2 million in receipts) to stabilize the TZS.
6. Economic Context:
   • GDP Growth: 5.6% in 2024, projected at 6% in 2025, driven by agriculture, tourism, and infrastructure. Debt supports growth but diverts resources from social services.
   • Fiscal Deficit: 2.5% of GDP in 2024/25, financed by domestic and external borrowing, with TZS 1 trillion in arrears cleared annually.
   • Risks: TZS depreciation, global USD strength, and climate shocks (e.g., weather-induced food price volatility) increase debt costs.
   • Opportunities: FDI (USD 3.7 billion in 2025), tourism (2.2 million arrivals), and concessional financing (e.g., World Bank’s USD 527 million in 2025) support debt sustainability.

Critical Examination of the Establishment Narrative

• Official Data Optimism: The BoT and IMF emphasize debt sustainability (35% debt-to-GDP, moderate distress risk), but the 13.5% debt increase and 9.6% TZS depreciation raise concerns about servicing costs, especially with USD-denominated debt (67.6%). The IMF’s DSA may understate risks if global interest rates rise or export growth (e.g., cloves -27.2% in Zanzibar) falters.
• Growth vs. Crowding Out: The narrative of debt-funded growth (e.g., 6% GDP in 2025) overlooks crowding-out effects, with high domestic borrowing (TZS 35.5 trillion) limiting private sector credit and raising lending rates (15.5%). This could hinder Vision 2050’s private sector-led goals.
• Concessional Financing: The reliance on concessional loans (e.g., IMF, World Bank) is presented as a strength, but increasing non-concessional borrowing (34% of external debt) raises costs, especially with TZS depreciation.
• Alternative Perspective: While the BoT highlights orderly TZS performance, X posts on regional debt (e.g., Kenya’s unsustainable debt) suggest broader vulnerabilities. Tanzania’s moderate risk rating may mask long-term challenges if exports or tourism underperform.

Between 2021/22 and 2025/26, Tanzania's debt service costs surged by 42–58%, from an estimated TZS 9–10 trillion to a confirmed TZS 14.22 trillion—now accounting for 25.2% of the national budget (TZS 56.49 trillion). Over this period, total public debt rose to approximately 46% of GDP, driven largely by external borrowing, which reached USD 33.9 billion in 2025/26 and remains 67.7% USD-denominated, exposing the country to exchange rate risks, especially following a 2.6% shilling depreciation in 2024/25. Domestic debt also expanded significantly to TZS 34.26 trillion, with the majority held by commercial banks and pension funds. Despite a stabilizing debt-to-GDP ratio and a manageable debt service-to-GNI ratio of 2.89% (2023), the growing reliance on non-concessional and foreign currency debt underscores fiscal vulnerabilities that require prudent debt management strategies to ensure long-term sustainability.

Escalating Service Costs

Tanzania's debt servicing landscape has undergone significant transformation over the past five years, reflecting the country's economic growth trajectory and evolving fiscal priorities. The most striking development is the substantial increase in debt service costs, which have risen from an estimated TZS 9-10 trillion in 2021/22 to TZS 14.22 trillion in 2025/26 – representing a 42-58% increase over the five-year period.

Key Performance Indicators at a Glance:

• Current Debt Service (2025/26): TZS 14.22 trillion (25.2% of national budget)
• Total Public Debt: Approximately 46% of GDP (2025/26)
• External Debt: USD 33.9 billion (67.7% USD-denominated)
• Domestic Debt: TZS 34.26 trillion
• Debt Service-to-GNI Ratio: 2.89% (2023 data)
• Five-Year Growth in Debt Service: 42-58% increase

Detailed Year-by-Year Analysis

2021/22 Financial Year: Foundation Period

The 2021/22 period established the baseline for Tanzania's modern debt management framework. With debt service costs estimated at TZS 9-10 trillion, the government maintained a relatively moderate debt burden at 43.6% of GDP. The debt composition showed a balanced approach with domestic debt at 15.9% of GDP and external debt forming the larger portion. Notably, domestic arrears stood at a manageable 1.8% of GDP, indicating effective short-term debt management.

The present value debt-to-GDP ratio of 31% remained well below the 55% benchmark, positioning Tanzania in the low-to-moderate debt distress risk category. External borrowing was predominantly concessional, reducing the overall cost burden and exchange rate exposure.

2022/23 Financial Year: Strategic Expansion

The government allocated TZS 9.1 trillion for debt servicing within a total budget of TZS 44.4 trillion, with TZS 7.4 trillion successfully disbursed by April 2023. This period marked a strategic shift as public debt increased to 45.7% of GDP (46.7% including domestic arrears), reflecting increased infrastructure investment.

External debt composition rose to 63.3% of total debt, indicating a pivot toward international financing for development projects. The shift toward non-concessional borrowing began during this period, driven by infrastructure financing needs. Despite this increase, the present value debt-to-GDP ratio remained sustainable at 31.8%.

2023/24 Financial Year: Acceleration Phase

Debt servicing allocation reached TZS 10.48 trillion, representing a 15% increase from the previous year. This increase occurred within a Ministry of Finance budget of TZS 15.94 trillion, highlighting debt service as a major fiscal priority. Total public debt climbed to 47.36% of GDP, with external debt reaching USD 30.533 billion by July 2023.

The debt structure showed concerning trends with external debt comprising 73% of total obligations, significantly increasing Tanzania's exposure to exchange rate fluctuations. Total national debt reached approximately TZS 69.44 trillion in 2022, continuing its upward trajectory through 2023.

2024/25 Financial Year: Consolidation Efforts

Debt service costs are estimated at TZS 11-12 trillion within a national budget of TZS 49.35 trillion. External debt peaked at USD 32.89 billion in September 2024, subsequently reaching USD 33.905 billion by January 2025. The central government held 78.1% of external debt, indicating concentrated fiscal responsibility.

Domestic debt stabilized at TZS 32.62 trillion in September 2024, with Treasury bonds dominating at 78.9% of domestic obligations. The debt-to-GDP ratio showed signs of stabilization, with projections indicating a gradual decline to 40.84% by 2029, suggesting improved debt sustainability measures.

2025/26 Financial Year: Current Trajectory

The current budget allocation confirms TZS 14.22 trillion for debt servicing, including TZS 6.49 trillion specifically for interest payments. This represents the highest debt service allocation in the five-year period, occurring within a total budget of TZS 56.49 trillion. External debt stands at USD 33.905 billion, with the government holding 76.4% of these obligations.

Domestic debt has grown to TZS 34.26 trillion as of March 2025, primarily held by commercial banks (29-33%) and pension funds (26.5-27.6%). The USD-dominated debt structure (67.7-68.1%) continues to pose exchange rate risks, particularly given the 2.6% depreciation of the Tanzanian Shilling in 2024/25.

Tanzania National Debt Service Costs (2021/22–2025/26)

Key Observations

1. Trend in Debt Service Costs: Debt service costs have increased steadily, from an estimated TZS 9–10 trillion in 2021/22 to TZS 9.1 trillion in 2022/23, TZS 10.48 trillion in 2023/24, an estimated TZS 11–12 trillion in 2024/25, and a confirmed TZS 14.22 trillion in 2025/26. This reflects growing borrowing, particularly external debt (73% of total debt in 2024), and larger budgets (TZS 44.4 trillion in 2022/23 to TZS 56.49 trillion in 2025/26). The 18–29% jump from 2024/25 to 2025/26 is driven by increased interest payments (TZS 6.49 trillion in 2025/26) and a higher debt stock.
2. Debt Composition: External debt, predominantly USD-denominated (67.7–68.1%), reached USD 33.905 billion in 2025, exposing Tanzania to exchange rate risks, with a 2.6% shilling depreciation in 2024/25 increasing repayment costs. Domestic debt, mainly Treasury bonds (78.9% in 2024), rose from an estimated TZS 22.17 trillion in 2021/22 to TZS 34.26 trillion in 2025/26, held primarily by commercial banks (29–33%) and pension funds (26.5–27.6%).
3. Sustainability: Tanzania’s debt-to-GDP ratio increased from 43.6% in 2021/22 to 47.36% in 2023/24, stabilizing at ~46% in 2024/25–2025/26, with a projected decline to 40.84% by 2029. The debt service-to-GNI ratio was 2.8915% in 2023, indicating moderate debt distress risk per IMF and World Bank analyses. However, reliance on non-concessional borrowing and USD exposure poses challenges, particularly with shilling depreciation.