Banks Hold 36.4%, Bonds Dominate at 73% (Sept 2025)

Tanzania’s domestic debt stood at TZS 37,459.1 billion in September 2025, marking a modest 0.9% month-on-month increase and reflecting a stable, well-diversified financing structure. The debt composition is dominated by long-term government bonds (73%), supported by institutional investors such as pension funds and insurance companies, while Treasury bills (27%) continue to attract commercial banks for liquidity management. Creditor distribution shows other financial institutions holding the largest share at 39.7%, followed by commercial banks at 36.4% and pension funds at 23.9%, demonstrating healthy diversification and reducing concentration risk. This structure enhances fiscal stability, supports predictable borrowing costs, and aligns with long-term investment strategies, while commercial bank participation ensures liquidity depth in the T-bill market. Overall, the domestic debt profile contributes positively to financing government operations, supports monetary policy implementation, and anchors market confidence—though continued vigilance is required to prevent crowding-out pressures on private-sector credit as government borrowing expands.

1. Total Domestic Debt (September 2025)

2. Domestic Debt by Creditors Category

The domestic debt is held by three main creditor groups:

Breakdown of Creditors

• Commercial banks
• Pension funds
• Other financial institutions
  (insurance companies, BOT, and other non-bank entities)

Debt Distribution by Creditor

→ "Other financial institutions" hold the largest share at 39.7%, followed by commercial banks.

3. Additional Breakdown: Domestic Debt by Instrument

Although your question focuses on creditors, the internal structure helps interpret the creditor behaviour.

→ Pension funds favour longer-term bonds, aligning with their long-term liabilities.
→ Banks prefer T-bills due to short-term liquidity needs.

4. Summary Table — Government Domestic Debt by Creditor (September 2025)

Implications of Tanzania's Domestic Debt Composition in September 2025

The domestic debt data for September 2025, detailed in Section 2.7 (Debt Developments) of the Bank of Tanzania's (BOT) Monthly Economic Review (October 2025), reveals a stable and diversified funding base totaling TZS 37,459.1 billion (+0.9% MoM), comprising 29.4% of overall public debt (TZS 127,474.5 billion; external 70.6%). Instruments are bond-heavy (73%, long-term maturities) versus T-bills (27%, short-term), held diversely by commercial banks (36.4%), pension funds (23.9%), and other financial institutions (39.7%, including BOT, insurers, and non-banks). This structure—financed via oversubscribed securities auctions (T-bills 2.4x, bonds mixed; Section 2.5)—supports fiscal needs (TZS 618.5 billion deficit) amid 6.3% Q2 GDP growth, 3.4% inflation, and shilling strength (+9.4% y/y; Section 2.5). Below, TICGL outline implications, categorized by creditor and instrument, with broader economic ties.

1. Creditor Composition: Diversification Enhances Stability

• Other Financial Institutions (39.7%): Largest holders (e.g., BOT holdings for liquidity ops; insurers/non-banks for asset matching), indicating broad market absorption and reduced concentration risks. Their dominance in bonds (long-term) provides a stable base, aligning with pension funds' 23.9% preference for duration to match liabilities.
• Commercial Banks (36.4%): Key in T-bills (short-term liquidity management), reflecting banking sector liquidity (IBCM turnover +37.4% to TZS 3,261.6 billion). Their share supports active trading but ties debt to monetary policy (CBR 5.75%).
• Pension Funds (23.9%): Steady, long-term investors favoring bonds (73% of debt), bolstering demand and infrastructure financing (e.g., development spend TZS 1,272.9 billion).
• Broader Implications:
  • Positive: Diversified base (no single group >40%) lowers rollover risks and borrowing costs (T-bill yields down to 6.03%), complementing external concessional debt (57% multilateral). Enhances fiscal space for growth (projected 6%) without FX exposure, supporting private credit (16.1% y/y; Section 2.3).
  • Risks: Bank concentration (36.4%) could amplify liquidity squeezes (e.g., if reverse repos tighten), potentially crowding out private lending (lending rates 15.18%; prior analysis). Growing stock (+0.9% MoM) strains if revenues lag (87.2% target).

2. Instrument Breakdown: Bond Dominance for Long-Term Funding

• Government Bonds (73%): Long maturities (average ~10–15 years) held by pensions/insurers, reducing refinancing frequency and aligning with sustainable debt/GDP (40.1%, below EAC 50% threshold). Oversubscription in 20/25-year bonds signals confidence.
• Treasury Bills (27%): Short-term (up to 1 year), bank-preferred for liquidity, with yields easing (6.03% from 6.83%) amid surplus funds (M3 +20.8% y/y).
• Broader Implications:
  • Positive: Bond tilt promotes duration matching, stabilizing yields (12–13% for bonds) and fiscal predictability. Supports development priorities (e.g., infra/social sectors, 48.4% external use) without short-term volatility.
  • Risks: T-bill reliance (27%) heightens rollover needs in tight liquidity (e.g., from global tightening; Section 1.0), potentially raising costs if investor appetite wanes.

3. Fiscal and Macroeconomic Linkages

• Synergies with Policy: Domestic debt finances ~29.4% total (vs. external 70.6%), with creditor diversity aiding BOT's liquidity ops (reverse repos) and external resilience (CA surplus USD 1.0 billion Q2; Section 2.8). Ties to Zanzibar's domestic-heavy financing (78.4%).
• Debt Sustainability: Servicing (~TZS 2–3 trillion annually, est.) remains manageable (4.2% exports), with low real rates (vs. 3.4% inflation) preserving affordability.
• Broader Implications:
  • Positive: Institutional depth (pensions/insurers) fosters market development, boosting financial inclusion and EAC/SADC convergence. Complements shilling stability (lowers overall service burdens).
  • Risks: Expansion (+8.5% y/y est.) may crowd out credit if banks prioritize govt securities, dampening private investment (16.1% growth at risk). Global uncertainties (trade index up) could indirectly pressure via revenue (mining taxes down).

4. Policy Context from the Review

• Alignment: Mirrors prudent mix (monetary easing, fiscal discipline), with projections: Debt/GDP <45% by 2026, stable yields via auctions. In Zanzibar, similar domestic focus aids tourism surplus.
• Outlook: Monitor bank liquidity (IBCM 6.45%) and diversify non-bank holders to counter crowding out.

In conclusion, September 2025's domestic debt composition implies a resilient, institutionally backed financing framework that underpins fiscal sustainability and growth, with diversification mitigating risks. Bond dominance and broad holders promote stability, but coordination to avoid private credit displacement is essential amid global headwinds—aligning with the Review's emphasis on prudent policies for 2026.

Tanzania’s government domestic debt grew by 4.6%, reaching TZS 34,154.9 billion in January 2025, up from TZS 32,649.3 billion in December 2024. Commercial banks remained the largest creditors, holding TZS 9,816.6 billion (28.7%), followed by pension funds at TZS 9,094.6 billion (26.6%). The Bank of Tanzania’s share increased to 20.8% (TZS 7,112.3 billion), reflecting its role in liquidity management. However, insurance companies reduced their holdings to 5.5% (TZS 1,872.6 billion), down by 1.3%, indicating a shift in investment strategies.

1. Tanzania’s Total Government Domestic Debt Increased

• Total domestic debt stock reached TZS 34,154.9 billion in January 2025, up from TZS 32,649.3 billion in December 2024.
• This reflects an increase of TZS 1,505.6 billion (4.6%) in just one month.

What It Means:

✅ The government is increasing domestic borrowing, possibly to finance budget deficits or infrastructure projects.
✅ Higher domestic debt means banks and financial institutions are lending more to the government, which can impact private sector credit availability.

2. Government Domestic Debt by Creditor Category

The main creditors holding Tanzania’s domestic debt are commercial banks, pension funds, the Bank of Tanzania, and insurance companies.

Breakdown of Government Domestic Debt by Creditor (January 2025, TZS Billion)

3. Key Observations on Creditors

Commercial Banks Hold the Largest Share (28.7%)

• Banks remain the biggest lenders to the government, holding TZS 9,816.6 billion (28.7% of total domestic debt).
• This suggests that banks are prioritizing government securities over private sector loans, which could limit access to credit for businesses and households.

Pension Funds Are the Second Largest Holders (26.6%)

• Pension funds hold TZS 9,094.6 billion (26.6%), a 1.2% increase from December 2024.
• This reflects a stable investment strategy, as pension funds prefer long-term government securities for steady returns.

The Bank of Tanzania’s Holdings Increased (20.8%)

• The Bank of Tanzania (BOT) now holds TZS 7,112.3 billion (20.8%), marking a 2.6% rise from December 2024.
• This increase suggests the BOT is helping manage liquidity by holding more government securities.

Insurance Companies and Other Creditors Play a Smaller Role

• Insurance companies’ share declined slightly to 5.5% (TZS 1,872.6 billion), possibly shifting investments to other financial instruments.
• Other creditors, including public institutions, private companies, and individuals, increased their holdings by 3.4%, reaching 16.9% of total debt (TZS 5,782.6 billion).

Summary of Key Trends

Economic Implications of Domestic Debt Trends

🔹 Positive Signs:
✅ Banks, pension funds, and BOT remain reliable sources of government financing, ensuring economic stability.
✅ Higher BOT holdings suggest improved liquidity management, preventing excessive inflation risks.
✅ Pension funds benefit from stable government bond returns, supporting retirees' long-term savings.

🔸 Challenges:
⚠ Banks are prioritizing lending to the government, which could reduce loan availability for businesses.
⚠ Rising domestic debt may lead to higher interest payments, increasing the government’s fiscal burden.
⚠ Lower insurance sector participation suggests shifting investment strategies, which could affect financial market stability.

Key Insights from Tanzania’s Domestic Debt Trends (January 2025)

1. Government is Increasing Domestic Borrowing (+4.6%)

• Total domestic debt increased to TZS 34,154.9 billion, a 4.6% rise from December 2024.
• This means the government is relying more on domestic borrowing, possibly to cover budget deficits and finance public projects.

What It Means:

✅ Government securities remain attractive to investors, ensuring steady domestic financing.
⚠ Higher domestic borrowing could crowd out private sector credit, making loans expensive for businesses.

2. Banks and Pension Funds Are the Biggest Lenders

• Commercial banks hold 28.7% (TZS 9,816.6 billion) of domestic debt, making them the largest government creditors.
• Pension funds hold 26.6% (TZS 9,094.6 billion), a 1.2% increase from December 2024.

What It Means:

✅ Banks prefer lending to the government rather than businesses, as government bonds are safer investments.
✅ Pension funds are increasing investment in government securities, ensuring long-term financial security for retirees.
⚠ Less bank lending to the private sector could slow business expansion and economic diversification.

3. The Bank of Tanzania’s Debt Holdings Have Increased

• The BOT’s holdings increased by 2.6%, reaching 20.8% (TZS 7,112.3 billion).
• This suggests the BOT is helping stabilize the financial system by holding more government securities.

What It Means:

✅ Government borrowing is well-managed with central bank support, avoiding excessive market disruptions.
⚠ Higher BOT debt holdings could mean tighter monetary policy, which may impact interest rates and inflation control.

4. Insurance Companies Reduced Their Holdings

• Insurance companies' share of domestic debt dropped by 1.3% to 5.5% (TZS 1,872.6 billion).
• This could mean they are shifting to other investment opportunities like corporate bonds or equities.

What It Means:

⚠ A decline in insurance sector investment in government debt may indicate concerns over returns or market conditions.
✅ Diversification into other financial assets can help develop broader financial markets.

Overall Economic Implications

🔹 Positive Signs:
✅ Government has access to stable domestic financing, reducing reliance on external debt.
✅ Pension funds and banks continue to invest in government bonds, ensuring financial stability.
✅ BOT intervention helps regulate liquidity, preventing excessive inflation or credit shortages.

🔸 Challenges:
⚠ Heavy government borrowing from banks could reduce private sector lending, slowing economic growth.
⚠ Rising domestic debt means higher future interest payments, increasing fiscal pressure.
⚠ Reduced insurance sector participation suggests changing investment dynamics, which could impact financial market liquidity.

In October 2024, Tanzania’s financial markets exhibited mixed dynamics across Treasury securities and the foreign exchange landscape, reflecting broader economic pressures and investor caution. Treasury bill yields rose to 10.85% in September, signaling attractive short-term returns amid heightened government demand, while long-term bond yields also climbed as investors sought higher returns to offset inflationary pressures. Concurrently, the Tanzanian Shilling experienced a 10.1% year-on-year depreciation, with modest stabilization efforts by the Bank of Tanzania. This backdrop of rising borrowing costs, currency pressures, and active foreign exchange trading highlights the delicate balance between government financing needs, currency stability, and investor expectations.

1. Treasury Securities:
   • Treasury Bills: The weighted average yield (WAY) for Treasury bills increased to 10.85% in September 2024, up from 10.61% in the previous month. This rise indicates stronger returns for investors, potentially reflecting higher government demand for short-term funds.
   • Government Bonds: The Bank of Tanzania conducted auctions for long-term government bonds (15-, 20-, and 25-year bonds) with a tender size of TZS 574.9 billion. Bids reached TZS 674.8 billion, of which TZS 520.3 billion were successful. The yields to maturity for these bonds also rose, reaching 15.35%, 15.45%, and 15.42%, respectively. This increase suggests that investors demand higher returns, possibly in response to inflationary pressures and interest rate adjustments.
2. Foreign Exchange:
   • Exchange Rate: The Tanzanian Shilling showed a year-on-year depreciation of 10.1%, trading at an average of TZS 2,727 per USD in September 2024, compared to approximately TZS 2,694 per USD the previous month. This depreciation reflects continued foreign currency demand pressures, though the rate of devaluation stabilized slightly compared to the previous year.
   • Interbank Foreign Exchange Market (IFEM): Transactions in the IFEM totaled USD 8.35 million in September 2024, an increase from USD 4.61 million in August. The Bank of Tanzania reduced its net market participation to a net sale of USD 0.75 million, down from USD 1 million in August, suggesting a cautious approach to stabilizing the Shilling amidst currency pressures.

The recent trends in Tanzania's financial markets indicate a few key economic conditions:

1. Increased Borrowing Costs and Investor Caution:
   • The rising yields on Treasury securities, particularly the increase in the Treasury bill yield to 10.85% and higher yields on long-term bonds (up to 15.45%), suggest that investors are demanding more return on government debt. This is likely due to rising inflationary expectations and perceived risks, as well as the government’s increased reliance on domestic borrowing.
   • Higher yields mean the government is paying more to finance its debt, which could strain fiscal resources if borrowing costs continue to rise. For investors, however, this environment offers more attractive returns, especially in a low-risk investment.
2. Currency Pressure and Import Costs:
   • The 10.1% depreciation of the Tanzanian Shilling year-on-year underscores ongoing pressure on the foreign exchange market. A weaker Shilling makes imports more expensive, which can increase costs for businesses reliant on imported goods or raw materials and may eventually feed into consumer prices.
   • Despite Bank of Tanzania interventions in the foreign exchange market, the Shilling has continued to weaken, reflecting structural imbalances in the demand and supply of foreign currency. Increased IFEM transactions indicate active currency trading, yet the reduction in central bank participation suggests a cautious approach to direct intervention.
3. Investment Appeal in Government Securities:
   • The attractive yields on Treasury bills and bonds may draw in more domestic and international investors, helping the government finance projects and obligations. However, if yields remain high, the government may face higher long-term debt servicing costs.
4. Economic Signals for the Broader Market:
   • These financial market dynamics signal caution within the Tanzanian economy, balancing the need to attract investment and manage currency stability while addressing inflationary risks. If borrowing costs and currency pressures remain high, this could impact Tanzania’s fiscal space, import costs, and overall growth prospects, particularly if global financial conditions tighten further.

In summary, Tanzania’s financial markets reflect a cautious economic climate where the government must balance financing needs, currency stability, and investor expectations amidst external pressures.