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.

1. Current Account Balance

• Overview: The current account balance, a key indicator of Tanzania’s external sector, measures the net flow of goods, services, primary income (e.g., investment income), and secondary income (e.g., remittances). A narrowing deficit reflects improved export performance relative to imports, bolstered by tourism, minerals, and agricultural exports, as per the Third Five-Year National Development Plan (2021/22–2025/26).
• May 2025 Performance:
  • Current Account Deficit: USD 2,117.5 million (year ending May 2025), compared to USD 2,862.6 million (year ending May 2024), a 26% improvement (reduction of USD 745.1 million).
  • Context: The deficit further narrowed from USD 2,499.8 million in May 2024 (a 52% reduction from USD 5,221.8 million in May 2023) and USD 2,025.8 million in November 2024, reflecting a consistent trend of improvement. The deficit was 3.8% of GDP in 2023, projected at 4.2% in 2025, indicating manageable external imbalances.
• Economic Drivers:
  • Export Growth: Exports of goods and services rose 19.2% to USD 16,994.7 million (year ending May 2025) from USD 14,258.2 million in May 2024, driven by gold (USD 3,835.5 million, +23.1%), cashew nuts (+141%), coffee (+66.3%), tobacco (+32%), and tourism receipts (+7.0%). Gold accounted for 36.8% of goods exports, bolstered by favorable global prices.
  • Tourism Surge: Tourism receipts, a key service export, reached USD 3,910 million (estimated, 55.1% of service receipts), driven by a 10.6% increase in tourist arrivals to 2,170,360 from 1,961,870. Strategic marketing and infrastructure investments (e.g., Serengeti, Zanzibar) supported this growth.
  • Import Moderation: Imports of goods and services grew moderately by 9.6% to USD 17,686 million from USD 16,141.9 million, driven by industrial equipment and raw materials but tempered by lower petroleum imports (-7% to USD 2,578.5 million) due to price effects.
  • Income and Transfers: The primary income account deficit widened to USD 1,816.2 million (year ending January 2025) from USD 1,603.3 million, due to higher equity and interest payments abroad. The secondary income surplus declined to USD 589.1 million from USD 687.3 million, reflecting lower personal transfers.
• Implications:
  • Positive Shift: The 26% deficit reduction (USD 2,117.5 million) strengthens Tanzania’s external position, supported by foreign exchange reserves of USD 5,136.6 million (4.2 months of import cover). This exceeds the national benchmark of 4 months, ensuring resilience against external shocks.
  • Risks: The Tanzanian shilling’s 2.6% depreciation in 2025 and projected further weakening increase import costs, potentially widening the deficit if global commodity prices rise. Geopolitical tensions and climate shocks (e.g., La Niña) pose risks to export growth.
  • Outlook: The deficit is projected to stabilize at 4.2% of GDP in 2025, supported by continued export growth (6% GDP growth forecast,). Enhanced trade agreements (e.g., AfCFTA,) and infrastructure investments (e.g., SGR,) will sustain export competitiveness.

2. Exports – Services Receipts by Category

• Overview: Service receipts, a critical component of Tanzania’s export earnings, include travel (tourism), transport, and other services (e.g., construction, insurance, ICT). Tourism remains the largest contributor, driven by Tanzania’s natural attractions (e.g., Serengeti, Kilimanjaro) and policy reforms to boost arrivals.
• May 2025 Performance:
  • Total Services Receipts: USD 7,099.8 million (year ending May 2025), up 9.2% from USD 6,499.4 million in May 2024.
  • Category Breakdown:
    • Travel (Tourism): 55.1% (~USD 3,910 million, estimated), driven by a 10.6% surge in tourist arrivals to 2,170,360 from 1,961,870.
    • Transport Services: ~20% (~USD 1,420 million, estimated), fueled by higher cross-border freight and port-related activity.
    • Other Services: ~25% (~USD 1,769.8 million, estimated), including construction, insurance, finance, ICT, royalties, etc.
• Context and Analysis:
  • Tourism Dominance: Tourism receipts (~USD 3,910 million) accounted for 55.1% of service exports and 24.1% of total goods and services exports (). The 10.6% growth in arrivals (2,170,360) reflects investments in infrastructure (e.g., SGR access to Mikumi National Park,) and marketing (e.g., World Travel Awards 2025,). In 2024, arrivals reached 2,662,219 (+20%), with Europe (71.6% of Zanzibar arrivals) and Kenya leading (). The sector’s GDP contribution is projected to hit 19.5% in 2025/26.
  • Transport Services: The ~20% share (~USD 1,420 million) reflects increased freight and port activity, driven by regional trade (e.g., 24% rise in intra-African trade to USD 5.18 billion,). Investments in Dar es Salaam port and SGR enhance logistics.
  • Other Services: The ~25% share (~USD 1,769.8 million) includes growing ICT and financial services, supported by the Tanzania Instant Payment System (TIPS, 453.7 million transactions in 2024,). Construction services benefit from infrastructure projects (e.g., Julius Nyerere Hydropower Plant).
  • Economic Drivers: The 9.2% growth in service receipts aligns with a 15.1% overall export increase in 2024 (USD 16,093.1 million,). Policy reforms, such as 80% cuts in tourism license fees () and AfCFTA participation (), boost competitiveness. The 2025/26 tourism budget (TZS 359.9 billion) supports promotion and conservation.
• Implications:
  • Strengths: Tourism’s 55.1% share drives foreign exchange earnings, supporting reserves (USD 5,136.6 million, Document, Page 12). Transport services (20%) benefit from regional trade integration (e.g., EAC, SADC).
  • Challenges: Tourism’s reliance on European markets (71.6% of Zanzibar arrivals) risks exposure to global economic slowdowns (). Transport services face rising freight costs, potentially offsetting gains.
  • Outlook: Continued investment in tourism (e.g., Marriott’s Mapito Safari Camp,) and logistics (e.g., SGR,) will sustain growth. Diversifying markets (e.g., Asia, Americas) and enhancing ICT services can further boost receipts.

3. Imports – Services Payments

• Overview: Service payments cover Tanzania’s expenditures on foreign services, including freight, construction, insurance, and financial services. Rising payments reflect increased economic activity, particularly in infrastructure and manufacturing, but elevate import costs.
• May 2025 Performance:
  • Total Services Payments: USD 2,841.7 million (year ending May 2025), up 27.0% from USD 2,324.9 million in May 2024.
  • Key Components:
    • Freight (Transport): 47.7% (~USD 1,356.5 million, estimated), driven by higher import volumes of industrial equipment and raw materials.
    • Other Services: ~52.3% (~USD 1,485.2 million, estimated), including construction, insurance, financial services, telecommunications, etc.
• Context and Analysis:
  • Freight Dominance: Freight payments (~USD 1,356.5 million, 47.7%) reflect increased imports of industrial transport equipment, raw materials, and accessories. Imports of goods rose to USD 9,894.8 million (+27.5% from USD 7,758.7 million), driven by manufacturing and construction needs (Document, Page 14). The Tanzania Shipping Agency Corporation’s (TASAC) monopoly on freight services () may elevate costs, despite a 7% decline in petroleum imports.
  • Other Services: The ~52.3% share (~USD 1,485.2 million) includes payments for construction (e.g., SGR, hydropower projects), insurance, and ICT services. The rise aligns with a 10.2% increase in service payments (USD 2,533.8 million in January 2025,), driven by infrastructure investments.
  • Economic Drivers: The 27.0% increase in service payments reflects robust economic activity, with imports of goods and services up 9.6% to USD 17,686 million (). Industrial supplies and transport equipment imports support manufacturing (9% of GDP) and construction (16% of GDP). Global shipping cost pressures and shilling depreciation (2.6%, Document, Page 12) amplify freight costs.
• Implications:
  • Cost Pressures: The 47.7% freight share increases import costs, straining the trade balance (USD 1,009.09 million deficit in Q3 2024,). Shilling depreciation exacerbates this, as noted in October 2024.
  • Economic Activity: Rising payments reflect infrastructure and manufacturing growth, aligned with the 2025/26 budget’s TZS 7.72 trillion capital spending. However, reliance on imported inputs risks external vulnerabilities.
  • Outlook: Moderating freight costs through regional logistics improvements (e.g., Dar es Salaam port upgrades,) and reducing petroleum imports (down 7%,) can ease pressures. Enhanced domestic production (e.g., manufacturing,) will reduce import dependence.

Additional Insights and Outlook

• External Position Strength: The 26% deficit reduction (USD 2,117.5 million) reflects robust export growth (19.2%, USD 16,994.7 million), particularly in tourism (55.1% of service receipts) and gold (36.8% of goods exports). Reserves (USD 5,136.6 million, 4.2 months of import cover) ensure stability.
• Tourism and Transport: Tourism’s USD 3,910 million contribution and transport’s ~USD 1,420 million highlight sectoral strength. The 2025/26 tourism budget (TZS 359.9 billion) and SGR investments will sustain growth.
• Import Challenges: The 27.0% rise in service payments (USD 2,841.7 million), driven by freight (47.7%), reflects infrastructure demand but strains the trade balance. Shilling depreciation (2.6%) and global shipping costs exacerbate this.
• Policy Support: The 2025/26 budget’s TZS 56.49 trillion plan and IMF support (USD 441 million in April 2025) bolster export competitiveness (). AfCFTA participation and trade agreements (e.g., Tanzania-Mozambique,) enhance regional trade.
• Risks: Shilling depreciation, geopolitical tensions, and climate shocks (e.g., La Niña) risk widening the deficit (,). Overreliance on tourism and gold exposes the economy to global demand fluctuations.
• Outlook: Sustained export growth (projected 6% GDP growth in 2025,) and infrastructure investments (e.g., Dar es Salaam port,) will maintain the positive trend. Diversifying exports (e.g., horticulture, ICT) and reducing import reliance (e.g., domestic manufacturing) are critical for long-term stability

Tanzania External Sector Performance - May 2025: Key Figures

Note: USD estimates based on provided percentage shares. Exchange rate: ~TZS 2,698/USD.

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.

In October 2024, Tanzania’s economy showcased resilience and stability, with a GDP growth rate of 5.3% for Q2, fueled by trade (19.8%), financial services (11.4%), and transport (8.6%). Inflation on the Mainland remained low at 3.1%, while Zanzibar's inflation, at 5.1%, also declined, indicating effective price control across regions. Government revenue collection was robust, reaching TZS 2,539.3 billion in August, nearly 99% of the target, though expenditure exceeded revenue, adding to a national debt of USD 45.05 billion. Exports rose by 13.4%, driven by tourism and gold, contributing to a narrower current account deficit of USD 2.36 billion and foreign reserves sufficient for 4.4 months of imports, signaling economic resilience despite external pressures.

1. Inflation:
   • Mainland Tanzania: The 12-month headline inflation rate was 3.1% in September 2024, slightly lower than previous months, influenced by food and non-core factors.
   • Zanzibar: Headline inflation in September 2024 was 5.1%, down from 5.6% in August. Food and non-food inflation were primary contributors, with core inflation at 3.8%​.
2. Interest Rates:
   • The overall lending rate in Tanzania increased to 15.53% in September 2024, with a negotiated lending rate at 12.92%.
   • Deposit Rates saw a rise, with the average overall deposit rate at 8.20%. Short-term lending rates narrowed to 6.49% due to banking competition​.
3. Monetary Policy:
   • The Bank of Tanzania kept the Central Bank Rate (CBR) at 6% for Q3 2024. However, the 7-day interbank cash market rate reached 8.58%, reflecting higher seasonal cash demands​.
4. Financial Markets:
   • Treasury Securities: The weighted average yield for Treasury bills rose to 10.85%, with government bond yields on the rise as well.
   • Foreign Exchange: The Tanzanian Shilling depreciated by 10.1% year-on-year, trading at approximately TZS 2,727 per USD​.
5. Government Budgetary Operations:
   • Revenue: In August 2024, total government revenue reached TZS 2,539.3 billion, representing 98.8% of the target. Tax revenue amounted to TZS 2,064.8 billion.
   • Expenditure: Total spending in August was TZS 3,219.8 billion, with TZS 1,945.6 billion in recurrent expenditure​.
6. Debt Developments:
   • Total National Debt: Stood at USD 45.05 billion in September 2024, with external debt making up 73%. The domestic debt decreased to TZS 32.6 trillion, dominated by Treasury bonds (78.9%)​.
7. External Sector Performance:
   • The current account deficit was USD 2.36 billion in the year ending September 2024, down from USD 3.39 billion in 2023.
   • Exports: Goods and services exports totaled USD 15.35 billion, up by 13.4%, driven by increased tourism and commodity exports, notably gold​.
8. Economic Performance of Zanzibar:
   • GDP Growth: Zanzibar’s GDP grew by 4.6% in Q2 2024, with notable growth in the trade, financial services, and construction sectors.
   • Budgetary Operations: Zanzibar’s government revenue collections reached TZS 56.2 billion in August, meeting 88.6% of its target. Tax revenues were the largest contributor at TZS 48.7 billion​.

The economic data reflects a generally stable and resilient economy but highlights areas of both strength and concern

1. Inflation Control:
   • The controlled inflation rates in both Mainland Tanzania and Zanzibar, particularly Mainland’s low 3.1%, indicate effective management of price stability amid global inflationary pressures. Zanzibar’s slightly higher rate of 5.1% reflects regional differences but still aligns with manageable levels. This stability in prices suggests consumers are less impacted by volatile prices, particularly for essential goods.
2. Interest Rates and Monetary Policy:
   • The increase in lending rates to 15.53% and the slight narrowing of the deposit-lending spread indicates tighter credit conditions, likely aimed at controlling inflation. The Bank of Tanzania’s cautious monetary policy with the 6% Central Bank Rate (CBR) signals an intent to stabilize liquidity in the economy, especially considering seasonal demands. Higher lending rates, however, may slightly discourage borrowing and investment, especially in small enterprises.
3. Government Revenue and Spending:
   • The government nearly met its revenue target in August (98.8%), showing strong tax compliance and collection efficiency. However, with total spending surpassing revenue, there is a budget deficit, indicating reliance on borrowing. Prioritizing essential expenditure and fiscal consolidation efforts reflects a balanced approach to managing resources.
4. Debt Management:
   • The national debt reaching USD 45.05 billion (with 73% as external debt) is a point of concern. While manageable in the short term, it emphasizes Tanzania’s reliance on foreign funding, which could be risky if global financing conditions worsen. However, the controlled growth in domestic debt reflects prudent management of internal resources and risk.
5. External Sector Performance and Trade:
   • Tanzania’s current account deficit narrowed significantly, supported by a strong export performance, particularly in tourism and commodity exports (e.g., gold). The tourism sector's robust recovery and increased exports contribute positively to foreign exchange reserves, which remain above the 4-month import benchmark. This performance strengthens Tanzania’s economic resilience and external stability, though the shilling’s depreciation signals pressures on the currency.
6. Zanzibar's Economic Health:
   • Zanzibar’s growth in sectors like trade, financial services, and construction suggests diversification and steady economic development. The revenue collection in Zanzibar reaching 88.6% of its target also reflects improved fiscal management, though budget deficits still exist. This performance points to Zanzibar’s gradual but steady economic progression in line with Mainland Tanzania, driven by tourism and trade.

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.

The Tanzania Shilling has faced a steady depreciation, recording a 10.1% decline year-on-year as of September 2024, with the average exchange rate reaching TZS 2,727 per USD. This shift reflects both local and global financial pressures, including heightened demand for foreign currency and increasing import costs. Although the Bank of Tanzania has minimized its market interventions, foreign reserves remain robust, covering 4.4 months of imports. These reserves offer a financial cushion, helping Tanzania navigate currency volatility and maintain economic stability amid external shocks and inflation risks.

1. Depreciation Rate: As of September 2024, the Tanzania Shilling depreciated by 10.1% year-on-year, with the average exchange rate reaching TZS 2,727 per USD compared to TZS 2,694 per USD in the previous month. This steady depreciation marks a continued downward trend in the currency's valuereign Exchange Market (IFEM) Transactions**:
   • In September 2024, transactions in the Interbank Foreign Exchange Market (IFEM) increased to USD 8.35 million, up from USD 4.61 million in August. The Bank of Tanzania reduced its net sales in the IFEM to USD 0.75 million, down from USD 1 million in August. This reduced intervention suggests a cautious approach to managing currency supply in the market amid ongoing depreciation.
2. Import Coverage: Despite the depreciation, Tanzania’s foreign exchange reserves remain sufficient, amounting to USD 5,413.6 million by the end of September 2024, enough to cover approximately 4.4 months of imports. This buffer provides a level of economic stability and acts as a safeguard against further currency volatility.

This depreciation external pressures on the Tanzania Shilling, likely stemming from high demand for USD, global economic conditions, and local market dynamics. Despite the decline, Tanzania’s substantial foreign reserves offer a degree of resilience to absorb future external shocks.

The depreciation of the Tanzania Shilling indicates key economic signals:

1. External Pressure on Imports and Costs:
   • The Shilling’s 10.1% depreciation year-on-year implies that imports have become more expensive in Tanzania, which could drive up costs for goods reliant on foreign inputs, such as fuel, machinery, and consumer products. This can potentially increase inflationary pressures on the domestic market, as businesses may pass on higher import costs to consumers.
2. Increased Demand for Foreign Currency:
   • The rise in foreign exchange transactions in the Interbank Foreign Exchange Market (IFEM) to USD 8.35 million from USD 4.61 million in August indicates heightened demand for foreign currency. This demand likely stems from increased imports and dollar-denominated debt payments, placing pressure on the Shilling as more businesses and government entities seek to secure USD.
3. Cautious Central Bank Intervention:
   • The Bank of Tanzania's reduced participation in the foreign exchange market—down to USD 0.75 million in net sales—suggests a careful approach to currency stabilization. By not heavily intervening, the central bank may be preserving its foreign reserves to avoid rapid depletion, especially given the uncertainty in global markets. This cautious intervention reflects a balance between managing the currency’s value and maintaining adequate reserve levels.
4. Resilience through Foreign Reserves:
   • Tanzania’s foreign reserves, covering 4.4 months of imports, offer a level of financial stability. This reserve cushion can protect the economy from sudden shocks, such as volatility in global commodity prices or external funding pressures, though sustained currency depreciation could gradually erode this buffer if not managed carefully.
5. Investment and Inflation Impact:
   • Depreciation can have a mixed effect on foreign investment. While a weaker currency may make Tanzania assets cheaper for foreign investors, it also signals currency risk, which could deter long-term investments. Additionally, if depreciation persists, inflation could rise, leading to tighter monetary policies that further impact borrowing costs.

In summary, the Tanzania Shilling’s depreciation reflects structural challenges in balancing foreign currency supply and demand, managing inflation risks, and maintaining investor confidence. The central bank’s cautious stance underscores the need for a sustainable approach to currency management, aiming to support economic stability amidst external and internal pressures.