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.

Tanzania’s decision to make no repayments to the International Monetary Fund (IMF) during July 2025, while receiving TZS 0.58 trillion (USD 213.1 million) in disbursements, contributed to a 18.98% increase in its IMF credit outstanding, from TZS 3.07 trillion to TZS 3.65 trillion (based on an exchange rate of approximately TZS 2,735 per USD, sourced from recent web data). This strategy, part of Tanzania’s engagement with the Extended Credit Facility (ECF) and Resilience and Sustainability Facility (RSF), reflects a focus on maximizing liquidity to address immediate fiscal and developmental needs. However, the absence of repayments raises questions about the long-term sustainability of Tanzania’s debt, particularly given its public debt level of approximately 50% of GDP in 2024 and a moderate risk of debt distress, as assessed by the IMF and World Bank. This analysis explores the implications of Tanzania’s zero repayments for its long-term debt sustainability, drawing on IMF data and broader economic insights.

Key Figures

The table below summarizes Tanzania’s key IMF financing and debt metrics as of July 25, 2025, highlighting the context of its zero repayments:

Implications for Long-Term Debt Sustainability

Increased Debt Burden and Future Repayment Pressure

Tanzania’s zero repayments in July 2025, coupled with TZS 0.58 trillion in new IMF disbursements, increase its external debt stock, which stood at USD 33.91 billion (TZS 92.74 trillion) in January 2025. The IMF’s concessional financing, with low or zero interest rates and extended repayment periods (e.g., 5½-year grace period for ECF loans), mitigates immediate servicing costs. However, the absence of repayments during this period defers obligations, potentially creating a future repayment bulge. The IMF’s 2025 Article IV consultation projects that fiscal consolidation will resume in FY25/26 to maintain debt sustainability, but accumulating debt without repayments could strain Tanzania’s capacity if economic conditions deteriorate. With 68.1% of external debt denominated in USD, a weaker Tanzania Shilling (depreciated 8% in 2023) could further inflate repayment costs, threatening long-term sustainability.

Fiscal Space for Development vs. Sustainability Trade-Off

The zero-repayment strategy maximizes fiscal space, allowing Tanzania to allocate the TZS 0.58 trillion disbursement to priority sectors like transport (21% of external debt allocation), social welfare, and education (19.9% each). The ECF supports these investments, aligning with Vision 2025 goals for infrastructure and human capital development. For example, the World Bank’s Sustainable Rural Water Supply and Sanitation Program, concluding in 2025, has improved water access for 7.92 million people, demonstrating the developmental impact of such financing. However, this approach risks prioritizing short-term gains over long-term sustainability. The IMF warns that pausing fiscal consolidation in FY24/25, with a 0.4% GDP increase in public spending, could undermine debt sustainability if not paired with revenue reforms. Tanzania’s low tax-to-GDP ratio (13% in 2024) limits its ability to service future debts without continued external support, posing a sustainability challenge.

Dependence on Concessional Financing

Tanzania’s zero repayments reflect its reliance on concessional IMF financing, which constitutes a significant portion of its external debt (71.7% from multilateral and bilateral creditors in FY2021/22). The IMF’s Debt Sustainability Analysis (DSA) indicates that Tanzania’s public debt-to-GDP ratio (45.7% in FY2022/23) remains below the 55% benchmark for its debt-carrying capacity, suggesting moderate risk. However, the DSA emphasizes the importance of maintaining concessional terms to avoid unsustainable borrowing. Without repayments, Tanzania’s debt stock grows, and any shift to non-concessional borrowing (e.g., commercial loans at higher rates) could elevate debt distress risks, especially given rising domestic interest rates (T-Bill rates rose from 5.8% to 11.7% by March 2024). Sustained access to concessional financing is critical, but over-reliance without repayment progress could signal fiscal vulnerabilities to creditors.

Risks from External and Domestic Vulnerabilities

The absence of repayments amplifies Tanzania’s exposure to external and domestic risks. Externally, the IMF highlights risks from global economic slowdown, geoeconomic fragmentation, and reduced donor support, which could limit future financing. Domestically, the 2025 national elections may delay reforms, increasing fiscal pressures. A 2019 study notes that external debt significantly impacts private investment in Tanzania, and failure to monitor debt closely could crowd out private sector growth, undermining economic resilience. The high USD exposure (68.1% of external debt) exacerbates risks from exchange rate fluctuations, potentially increasing future repayment costs. Without repayments, Tanzania’s ability to build fiscal buffers is limited, reducing its capacity to absorb shocks and threatening long-term debt sustainability.

Opportunities for Strategic Debt Management

Tanzania’s zero repayments provide an opportunity to strategically manage its debt portfolio. The IMF and World Bank recommend prioritizing projects with high socioeconomic returns, such as infrastructure and human capital investments, to maximize the benefits of borrowed funds. The ECF’s focus on revenue mobilization, including a medium-term revenue strategy, aims to increase the tax-to-GDP ratio, reducing reliance on external debt. Additionally, diversifying debt currencies (e.g., 16.1% Euro, 6.3% Chinese Yuan) helps mitigate USD exposure risks. By implementing governance reforms, such as transparent debt management and anti-corruption measures, Tanzania can enhance creditor confidence and ensure sustainable debt levels, as emphasized in the IMF’s 2025 consultation.

Key Considerations for Tanzania

• Revenue Mobilization: Increasing the tax-to-GDP ratio from 13% to closer to the Sub-Saharan African average (16%) through digital tax systems and broader tax bases is essential to reduce debt dependency.
• Project Selection: Prioritizing high-return investments in transport, energy, and education, as seen in current debt allocations, can drive sustainable growth.
• Debt Monitoring: Close monitoring of external debt, particularly USD-denominated loans, is critical to manage exchange rate risks.
• Fiscal Consolidation: Resuming fiscal consolidation in FY25/26, as planned, will help rebuild fiscal buffers and ensure debt sustainability.
• Climate Resilience: RSF-supported climate adaptation measures can protect key sectors like agriculture, reducing debt distress risks from climate shocks.

Conclusion

Tanzania’s zero repayments to the IMF in July 2025, alongside TZS 0.58 trillion in disbursements, enhance short-term fiscal space for critical investments in infrastructure and social services, aligning with Vision 2025. However, this strategy increases the debt burden, with external debt at USD 33.91 billion (TZS 92.74 trillion) and public debt at 50% of GDP, raising concerns about long-term sustainability. While concessional IMF financing mitigates immediate risks, deferred repayments could create future repayment pressures, particularly with high USD exposure and low domestic revenue (13% of GDP). External risks, such as global economic slowdown, and domestic challenges, like election-related reform delays, further complicate sustainability. By prioritizing revenue mobilization, high-return projects, and governance reforms, Tanzania can leverage IMF financing to support development while safeguarding long-term debt sustainability.

The 8% depreciation of the Tanzanian shilling (TZS) in 2023 significantly impacts Tanzania’s external debt servicing, particularly since 68.9% of its external debt is denominated in USD. With Tanzania’s external debt reaching 34,056 USD Million (approximately TZS 91.29 trillion at an exchange rate of TZS 2,677/USD in March 2025), the depreciation increases the local currency cost of servicing USD-denominated debt, straining fiscal resources and limiting budgetary space for development priorities. Below, I explore the potential risks of this depreciation, supported by figures and calculations, focusing on debt servicing costs, fiscal space, and broader economic implications.

1. Increased Debt Servicing Costs in Local Currency

The 8% shilling depreciation in 2023 (from approximately TZS 2,315/USD at the end of 2022 to TZS 2,500/USD by the end of 2023) directly raises the cost of servicing USD-denominated debt in local currency terms. Since 68.9% of Tanzania’s external debt is USD-denominated, this affects a significant portion of the debt stock.

• USD-Denominated Debt:
  • Total external debt (Mar 2025): 34,056 USD Million.
  • USD-denominated portion: 68.9% = 34,056 × 0.689 = 23,465 USD Million (approximately TZS 62.83 trillion at TZS 2,677/USD in Mar 2025).
  • In 2022 (pre-depreciation, TZS 2,315/USD): 23,465 USD Million = TZS 54.32 trillion.
  • Post-8% depreciation (TZS 2,500/USD in 2023): 23,465 USD Million = TZS 58.66 trillion.
  • Increase in servicing cost: TZS 58.66 trillion - TZS 54.32 trillion = TZS 4.34 trillion (approximately USD 1,736 Million at TZS 2,500/USD) due to depreciation alone for 2023.
• Annual Debt Servicing:
  • External debt service is estimated at USD 1–2 billion annually (based on 2024/25 projections), with USD-denominated debt servicing at USD 689–1,378 Million (68.9% of USD 1–2 billion).
  • Pre-depreciation (2022): USD 1 billion = TZS 2.315 trillion; USD 1.378 billion = TZS 3.19 trillion.
  • Post-depreciation (2023): USD 1 billion = TZS 2.5 trillion; USD 1.378 billion = TZS 3.45 trillion.
  • Additional cost: TZS 185–260 billion (USD 74–104 Million) annually for USD-denominated debt servicing due to the 8% depreciation.

This increased cost directly reduces fiscal space, as debt servicing already absorbs ~40% of government expenditures (approximately TZS 19.74 trillion of the TZS 49.35 trillion FY 2024/25 budget).

2. Strain on Fiscal Space

The higher local currency cost of debt servicing due to depreciation limits Tanzania’s ability to fund critical sectors like health, education, and infrastructure, exacerbating fiscal pressures.

• Budget Context:
  • FY 2024/25 budget: TZS 49.35 trillion (USD 18.4 billion at TZS 2,677/USD).
  • Tax revenue: TZS 29.41 trillion (59.6%), with the deficit (TZS 19.94 trillion) financed by borrowing, including external loans.
  • Debt servicing (external + domestic): TZS 5.31 trillion for domestic debt and USD 1–2 billion (TZS 2.68–5.35 trillion) for external debt in 2024/25.
  • The additional TZS 185–260 billion from depreciation increases the external debt service burden by 3.5–4.9%, further crowding out development spending.
• Impact on Social Spending:
  • Health and education budgets in 2024/25 were TZS 1.4 trillion (health) and TZS 4.2 trillion (education), or 2.8% and 8.5% of the budget, respectively.
  • The additional TZS 185–260 billion in debt servicing costs is equivalent to 13–19% of the health budget or 4–6% of the education budget, potentially forcing cuts or reallocations.
• Fiscal Deficit: The fiscal deficit is projected to rise to 4% of GDP in FY 2025/26 (from 3.8% in 2022/23), partly due to increased servicing costs. This may necessitate further borrowing, creating a potential debt spiral.

3. Pressure on Foreign Exchange Reserves

The shilling’s depreciation exacerbates Tanzania’s foreign exchange constraints, as servicing USD-denominated debt requires more USD, straining reserves.

• Foreign Exchange Reserves:
  • Reserves in 2025: USD 5.7 billion, covering 3.8 months of imports (below the recommended 4 months for low-income countries).
  • Annual external debt service (USD 1–2 billion) consumes 17.5–35% of reserves, and the 8% depreciation increases USD demand by USD 74–104 Million annually.
  • Declining export revenues (e.g., -2% for coffee, -1.5% for sugar in 2023) and tourism receipts (USD 2.6 billion in 2023, down from pre-COVID peaks) limit reserve replenishment.
• Exchange Rate Risk:
  • With 67.7% of external debt in USD (slightly adjusted from 68.9% for 2025 data), a further 2.6% depreciation in 2024/25 adds TZS 1.62 trillion (USD 605 Million) to the USD-denominated debt’s local currency value.
  • If depreciation persists (e.g., another 5% in 2025 to TZS 2,813/USD), the USD-denominated debt (23,465 USD Million) would cost TZS 66.02 trillion, a further increase of TZS 3.19 trillion from 2023 levels.

4. Broader Economic Risks

The shilling’s depreciation amplifies economic vulnerabilities, particularly in the context of global and domestic pressures.

• Inflationary Pressure:
  • Depreciation fuels import-driven inflation, with Tanzania’s inflation rate rising to 4.1% in 2023 from 3.8% in 2022. This increases the cost of imported goods (e.g., fuel, machinery), indirectly raising project costs for debt-financed infrastructure like the SGR (USD 7.6 billion).
  • Higher inflation erodes purchasing power, potentially increasing domestic borrowing to fund social programs, further straining the budget.
• Global Economic Slowdown:
  • The IMF’s 2025 global growth forecast of 2.8% and rising global interest rates increase borrowing costs for non-concessional loans (36.3% of debt, USD 12.4 billion). This compounds the impact of depreciation on debt servicing.
• Election-Related Spending:
  • The 2025 general elections may drive populist spending, increasing the fiscal deficit and reliance on external borrowing. The FY 2025/26 budget projects a 13.4% spending increase to TZS 57.04 trillion, potentially exacerbating debt servicing pressures.

5. Mitigating Factors

Despite these risks, Tanzania’s debt profile remains sustainable, mitigating some impacts of depreciation:

• Concessional Loans: 53.9% of external debt (USD 18.3 billion) is from multilateral institutions with low interest rates (e.g., 0.75–2% for World Bank loans), reducing servicing costs compared to commercial loans (5–7% interest).
• Low Debt Distress Risk: The IMF’s 2024 Debt Sustainability Analysis classifies Tanzania’s external debt distress risk as low, with a debt-to-GDP ratio of ~32–35% (2025), below the 55% threshold for low-income countries.
• Economic Growth: Projected GDP growth of 6% in 2025 (vs. 5.6% in 2024) and a GDP of ~USD 100 billion help absorb debt servicing costs, maintaining sustainability.

Quantitative Summary

• USD-Denominated Debt (2025): 23,465 USD Million (68.9% of 34,056 USD Million).
• Servicing Cost Increase (2023): TZS 4.34 trillion (USD 1,736 Million) due to 8% depreciation (TZS 2,315 to TZS 2,500/USD).
• Annual Servicing Impact: Additional TZS 185–260 billion (USD 74–104 Million) for USD-denominated debt.
• Fiscal Space Impact: Equivalent to 13–19% of health budget or 4–6% of education budget in FY 2024/25.
• Reserve Pressure: Debt service consumes 17.5–35% of USD 5.7 billion reserves, worsened by depreciation-driven USD demand.

Conclusion

The 8% shilling depreciation in 2023 increases Tanzania’s USD-denominated debt servicing costs by TZS 4.34 trillion for the 23,465 USD Million debt stock, adding TZS 185–260 billion annually to servicing costs. This strains fiscal space, consuming ~40% of government expenditures and limiting social and development spending. Foreign exchange reserve pressures and inflationary risks further complicate the economic outlook, though concessional loans and strong GDP growth (6% in 2025) mitigate distress risks. Continued depreciation or global economic challenges could exacerbate these risks, necessitating prudent fiscal and monetary policies.

This table quantifies the impact of the 8% shilling depreciation in 2023 on Tanzania’s external debt servicing, highlighting increased costs (TZS 4.34 trillion for USD-denominated debt), fiscal strain (crowding out 13–19% of health spending), and reserve pressures (17.5–35% of reserves).

Notes:

• Depreciation Impact: The 8% shilling depreciation (TZS 2,315 to TZS 2,500/USD in 2023) increases the local currency value of 23,465 USD Million USD-denominated debt by TZS 4.34 trillion (USD 1,736 Million), raising annual servicing costs by TZS 185–260 billion (USD 74–104 Million).
• Fiscal Space: Additional servicing costs represent 13–19% of the TZS 1.4 trillion health budget and 4–6% of the TZS 4.2 trillion education budget, limiting social spending.
• Reserves Pressure: Debt service (USD 1–2 billion) consumes 17.5–35% of USD 5.7 billion reserves, with depreciation adding USD 74–104 Million in USD demand.
• Exchange Rates: 2022: TZS 2,315/USD; 2023: TZS 2,500/USD (post-8% depreciation); Mar 2025: TZS 2,677/USD (includes 2.6% depreciation in 2024/25).
• Mitigating Factors: Concessional loans (53.9%, USD 18.3 billion) and a low debt distress risk (per IMF 2024 DSA) offset some risks, with a ~32–35% debt-to-GDP ratio.

As of February 2025, Tanzania’s total public debt reached TZS 109.92 trillion (approximately USD 42.68 billion), with external debt accounting for 73.4% (TZS 80.73 trillion) and domestic debt 26.6% (TZS 29.19 trillion). Given a population of around 69–70 million, this translates to an average debt burden of TZS 1.57–1.59 million per citizen. The high proportion of external debt—largely denominated in USD—underscores the importance of prudent fiscal management to ensure long-term sustainability amid exchange rate and global interest rate fluctuations.

Tanzania's total debt (external + domestic) as of February 2025, including figures in Tanzania shillings (TZS), along with an estimate of debt per citizen based on a population of 69–70 million:

Tanzania’s Total Public Debt Profile – February 2025

🔸 1. Total Public Debt

• Total Public Debt Stock:
  • USD: $42.68 billion
  • TZS: Approx. TZS 109.98 trillion
    (Using an exchange rate of TZS 2,577.35/USD, as reported in Feb 2025)

🔹 2. Breakdown of Public Debt

Debt per Citizen Estimate

Assuming a population between 69 million and 70 million, here’s how much debt is effectively held per Tanzanian:

What This Tells Us

• Tanzania’s public debt is growing, driven mainly by external borrowing (over 73% of total).
• The average debt burden per Tanzanian citizen is around TZS 1.57–1.59 million, showing the scale of fiscal responsibility required over time.
• While this debt has supported key infrastructure and development projects, it also raises questions about long-term repayment capacity and debt sustainability, especially with most external debt denominated in USD (over 65%).

The total public debt figures and debt per citizen tell us about Tanzania’s current financial situation:

What It Tells Us

1. High Debt Burden
   With total public debt reaching TZS 109.92 trillion (≈USD 42.68 billion), Tanzania has a substantial financial obligation—mostly owed to external creditors (73.4% of the total). This shows that the country relies heavily on foreign borrowing, which exposes it to currency risks, especially if the shilling weakens further.
2. Heavy Debt per Capita
   At an average of TZS 1.57–1.59 million per citizen, the debt burden per person is significant, especially considering that Tanzania’s GDP per capita is under TZS 4 million. This implies that each citizen would owe nearly 40% of their annual income if the national debt were to be evenly distributed—a high ratio for a developing economy.
3. Growing Domestic Financing
   While still smaller than external debt, domestic debt (26.6%) is increasing steadily. This shows that the government is also tapping into local capital markets and institutional investors, such as commercial banks and pension funds, which can strengthen domestic financial systems but also crowd out private sector lending.
4. Debt Sustainability Is Crucial
   The current debt size is manageable if the borrowed funds are used for productive investments—like infrastructure, health, and education—that generate future returns. However, the growing reliance on debt financing calls for tight fiscal discipline and improved revenue collection to maintain debt sustainability and avoid excessive repayment pressures.