Strong Tax Revenue Spurs Resilience Amid Budget Deficit Pressures

In May 2025, Tanzania's central government revenue collection reached TZS 2,880.2 billion, surpassing the target by 3.1% (approximately TZS 86.9 billion above expectations). This robust performance was primarily fueled by strong tax revenue of TZS 2,339.7 billion, which exceeded its target by 4.1% (TZS 92.1 billion above target), highlighting the success of digital tax reforms and compliance enforcement. Meanwhile, non-tax revenue underperformed slightly, reaching TZS 428.8 billion, just 2.1% below its TZS 437.8 billion target. On the expenditure side, the government spent TZS 3,150.4 billion, with 70.3% allocated to recurrent expenses and 29.7% to development projects. This resulted in a budget deficit of TZS 270.2 billion, likely covered through borrowing. Despite the deficit, the strong tax performance underscores Tanzania’s steady progress toward fiscal sustainability and development financing aligned with Vision 2050.

1. Central Government Revenues – May 2025

Central government revenue collection is a critical indicator of Tanzania’s fiscal health and its ability to finance public services and development projects. In May 2025, the central government’s revenue performance was robust, exceeding the target by 3.1%, driven primarily by strong tax revenue collection.

Total Revenue Collection

• Total Revenue: TZS 2,880.2 billion
• Performance vs. Target: Exceeded the target by 3.1% (approximately TZS 86.9 billion above the estimated target of TZS 2,793.3 billion, calculated as 2,880.2 ÷ 1.031).
• Context: This strong performance aligns with Tanzania’s ongoing efforts to enhance domestic revenue mobilization, a key priority to reduce reliance on external borrowing and donor funding. The African Development Bank notes that Tanzania’s fiscal policy has focused on improving revenue performance to narrow the fiscal deficit, projected at 2.5% of GDP in FY 2024/25.

Revenue Breakdown

The following table summarizes the revenue components for May 2025:

• Central Government Revenue:
  • Amount: TZS 2,768.5 billion, accounting for 96.1% of total revenue.
  • Performance: Exceeded the target, reflecting effective revenue collection strategies. The strong performance is consistent with earlier reports, such as the February 2025 Monthly Economic Review, which noted tax revenue reaching TZS 2,222.3 billion in January 2025, surpassing the monthly target by 0.3%.
  • Context: The central government’s revenue includes taxes (e.g., VAT, income tax, corporate tax) and non-tax sources (e.g., fees, dividends from state-owned enterprises). The high share of central government revenue underscores its dominance in overall revenue collection.
• Tax Revenue:
  • Amount: TZS 2,339.7 billion, representing 81.2% of total revenue.
  • Performance: Exceeded the target by 4.1% (approximately TZS 92.1 billion above the estimated target of TZS 2,247.6 billion, calculated as 2,339.7 ÷ 1.041).
  • Key Drivers: Enhanced tax administration and compliance efforts, including digital tax collection systems and broader tax base initiatives, have boosted revenue. The World Bank highlights Tanzania’s progress in rationalizing tax expenditures and leveraging digital technologies to reduce compliance gaps, contributing to progressive tax collection.
  • Context: The strong tax performance aligns with Tanzania’s FY 2024/25 budget strategy, which aims to raise TZS 34.61 trillion in domestic revenues (70.1% of the TZS 49.35 trillion budget). Key sectors driving tax revenue include manufacturing, agriculture, and tourism, supported by export growth in gold and cash crops.
• Non-Tax Revenue:
  • Amount: TZS 428.8 billion, representing 14.9% of total revenue.
  • Performance: Slightly underperformed, missing the target of TZS 437.8 billion by TZS 9 billion (approximately 2.1% below target).
  • Context: Non-tax revenue includes dividends from state-owned enterprises, fees, and other government income. The underperformance may reflect lower-than-expected dividends or fees, possibly due to seasonal variations or operational challenges in public entities. For instance, in FY 2024/25, Tanzania collected a record TZS 1.028 trillion in dividends from state-owned enterprises, indicating strong potential but possible fluctuations in monthly collections.
  • Implications: While non-tax revenue missed the target, its contribution remains significant, and efforts to improve collections (e.g., through public enterprise reforms) could address future shortfalls.

Key Takeaway

• Tax Revenue as the Main Driver: The 4.1% overperformance in tax revenue reflects Tanzania’s success in strengthening tax administration, including digitalization and compliance enforcement. This aligns with the government’s goal of increasing domestic revenue to 15.7% of GDP in FY 2024/25.
• Non-Tax Revenue Shortfall: The slight underperformance in non-tax revenue suggests room for improvement in diversifying revenue sources, such as enhancing dividend collections from state-owned enterprises or streamlining fee structures.
• Economic Implications: The strong revenue performance supports fiscal sustainability, reducing reliance on borrowing and enabling investments in priority areas like infrastructure and social services.

2. Central Government Expenditure – May 2025

Central government expenditure reflects Tanzania’s fiscal priorities, balancing recurrent obligations (e.g., salaries, debt servicing) with development spending (e.g., infrastructure, social projects). In May 2025, the government aligned expenditures with available resources, maintaining fiscal prudence.

Total Expenditure

• Total Spending: TZS 3,150.4 billion
• Context: This expenditure level is consistent with Tanzania’s FY 2024/25 budget, which allocates TZS 49.35 trillion, with 68% (TZS 30.31 trillion) for recurrent expenditure and 32% (TZS 14.08 trillion) for development expenditure. The May 2025 spending aligns with the government’s strategy to match expenditures with revenue and borrowing capacity, as noted in the BoT’s emphasis on fiscal prudence.

Expenditure Breakdown

The following table summarizes the expenditure components for May 2025:

• Recurrent Expenditure:
  • Amount: TZS 2,213.1 billion, accounting for 70.3% of total expenditure.
  • Components: Includes salaries, interest payments on public debt, and essential services (e.g., healthcare, education operations). The high share reflects the government’s priority to maintain operational stability and meet obligatory payments.
  • Context: Recurrent expenditure aligns with the FY 2024/25 budget, which allocates TZS 30.31 trillion for recurrent costs, including wages, debt servicing, and election-related expenses (e.g., 2024 local elections, 2025 general election preparations). For instance, in January 2025, recurrent expenditure was TZS 2,358.0 billion, indicating consistent spending patterns.
  • Debt Servicing: The BoT notes that domestic debt servicing in February 2025 amounted to TZS 890.9 billion (TZS 609.9 billion for principal repayment, TZS 281 billion for interest). A portion of May’s recurrent expenditure likely includes similar debt servicing costs, given Tanzania’s external debt of $7.9 billion, which absorbs about 40% of government expenditures annually.
• Development Expenditure:
  • Amount: TZS 937.3 billion, representing 29.7% of total expenditure.
  • Components: Includes investments in infrastructure (e.g., Standard Gauge Railway, Julius Nyerere Hydropower Project), social services (e.g., education, health), and other development projects. The FY 2024/25 budget prioritizes flagship projects like the SGR, hydropower plants, and roads.
  • Context: Development spending in May 2025 is slightly lower than January 2025 (TZS 1,218.1 billion), reflecting seasonal variations or project-specific disbursements. The focus on development aligns with Tanzania’s Vision 2050 and Third Five-Year Development Plan (FYDP III), which emphasize infrastructure and industrial growth.
  • Implications: While development spending is significant, its share (29.7%) remains below the 32% target for FY 2024/25, indicating potential constraints in scaling up capital investments due to revenue limitations or prioritization of recurrent costs.

Key Takeaway

• Recurrent Spending Dominance: The 70.3% share of recurrent expenditure underscores the government’s focus on operational stability, including salaries and debt servicing. However, this limits the fiscal space for development projects critical for long-term growth.
• Development Investment: The 29.7% share for development expenditure supports key infrastructure projects, but its lower proportion suggests challenges in balancing short-term obligations with long-term investments.
• Fiscal Prudence: The alignment of expenditures with available resources reflects Tanzania’s commitment to sustainable fiscal management, as noted by the BoT’s Monetary Policy Committee.

Summary Table: Central Government Budget (May 2025)

The following table consolidates the revenue and expenditure data for May 2025:

Insights and Broader Implications

1. Budget Deficit:
   • Revenue–Expenditure Gap: The deficit of TZS 270.2 billion in May 2025 (expenditure of TZS 3,150.4 billion vs. revenue of TZS 2,880.2 billion) indicates that the government relied on borrowing or reserves to finance the shortfall. This aligns with the African Development Bank’s projection of a fiscal deficit of 2.5% of GDP in FY 2024/25, financed by domestic and external borrowing.
   • Financing Strategy: The deficit was likely covered through domestic borrowing, such as Treasury bonds (e.g., TZS 394.1 billion raised in February 2025) or external loans. The BoT notes that domestic debt decreased by TZS 140.8 billion in February 2025 due to reduced use of overdraft facilities, suggesting a cautious approach to borrowing.
   • Implications: While the deficit is manageable, sustained deficits could increase public debt (45.5% of GDP in 2022/23), requiring careful debt management to maintain sustainability.
2. Strong Tax Revenue Performance:
   • The 4.1% overperformance in tax revenue reflects Tanzania’s success in broadening the tax base and improving compliance, as highlighted by the World Bank. Initiatives like digital tax collection and rationalizing tax expenditures have boosted collections, supporting the FY 2024/25 target of TZS 34.61 trillion in domestic revenue.
   • Sectoral Contributions: Key sectors driving tax revenue include manufacturing, agriculture, and tourism, with export growth in gold (24.5%), cashew nuts (141%), and tourism receipts (7.0%) in the year ending April 2025.
   • Implications: Strong tax performance reduces reliance on external financing, enhancing fiscal autonomy and supporting investments in social services and infrastructure.
3. Expenditure Priorities:
   • Recurrent Spending: The dominance of recurrent expenditure (70.3%) reflects the government’s focus on operational stability, including salaries, debt servicing, and election-related costs. However, this limits fiscal space for development projects, as noted by the World Bank’s observation that Tanzania’s public spending (18.2% of GDP in 2020/21) is below the average for lower-middle-income countries.
   • Development Spending: The 29.7% share for development expenditure supports flagship projects like the Julius Nyerere Hydropower Project and Standard Gauge Railway, aligning with Vision 2050’s focus on industrial and infrastructure growth.
   • Implications: Balancing recurrent and development spending is critical to achieving Tanzania’s long-term development goals, including a USD 1 trillion GDP by 2050.
4. Economic Context:
   • GDP Growth: Tanzania’s economy grew by 5.6% in January–September 2024, with projections of 6.0% in 2025, driven by agriculture, manufacturing, and tourism. Strong revenue performance supports this growth by funding public investments.
   • Inflation: Inflation remained stable at 3.2% in May 2025, within the BoT’s 3%–5% target, supporting fiscal stability and purchasing power.
   • Monetary Policy: The BoT maintained the Central Bank Rate at 6% for Q2 2025, ensuring liquidity and supporting economic growth while controlling inflation.
5. Fiscal Sustainability:
   • The BoT’s Monetary Policy Committee notes that public debt remains sustainable with a moderate risk of debt distress, reflecting fiscal prudence. The strong revenue performance and controlled expenditure in May 2025 reinforce this sustainability.
   • Challenges: The World Bank highlights the need to further broaden the tax base and improve spending efficiency, particularly in social sectors like education (3.3% of GDP) and healthcare (1.2% of GDP), to close service delivery gaps.