As of September 2024, Tanzania's total external debt reached USD 32.89 billion, accounting for 73% of the country’s total national debt. The central government held the largest share of external debt at USD 25.43 billion (78.1%), with funds directed toward critical sectors like transport (21.5%) and social welfare (20.8%). Domestically, the government owed TZS 32.62 trillion, with Treasury bonds dominating at 78.9%. Despite strategic investments, reliance on the USD (67.4% of external debt) and limited funding for agriculture (5.1%) and tourism (1.6%) pose challenges to debt sustainability and inclusive economic growth.
1. External Debt
Key Figures
- Total External Debt Stock (Sept 2024): USD 32,890.0 million.
- Proportion of National Debt: 73%.
- Main Components:
- Disbursed Outstanding Debt: USD 31,425.6 million.
- Undisbursed Debt: USD 5,042.7 million.
Debt Stock by Borrowers
- Central Government: USD 25,428.6 million (78.1% of external debt).
- Private Sector: USD 5,993.2 million (21.9% of external debt).
- Public Corporations: USD 3.8 million (negligible share).
Use of Funds (Disbursed Outstanding Debt)
- Transport and Telecommunications: 21.5% – Largest allocation, highlighting the government's priority on improving connectivity and mobility.
- Social Welfare and Education: 20.8% – Significant focus on human capital development.
- Balance of Payments Support: 17.9% – Indicates reliance on external financing for stabilizing the country's foreign exchange reserves.
- Energy and Mining: 14.8% – Focus on infrastructure for energy and resource exploitation.
- Agriculture: 5.1% – Low share considering Tanzania's agriculture-driven economy.
- Industries: 3.7%.
- Finance and Insurance: 4.0%.
- Tourism: 1.6% – Surprisingly low given its economic importance.
- Real Estate and Construction: 4.8%.
- Other Uses: 5.8%.
Currency Composition
- US Dollar: 67.4% – Reflects high exposure to exchange rate fluctuations against the USD.
- Euro: 16.6%.
- Chinese Yuan: 6.3%.
- Other Currencies: 9.7%.
2. Internal (Domestic) Debt
Key Figures
- Total Domestic Debt Stock (Sept 2024): TZS 32,615.7 billion.
- Month-on-Month Change: Decreased by TZS 144.5 billion.
- Main Instruments:
- Treasury Bonds: 78.9% – Dominates domestic debt instruments, preferred for their longer maturity periods.
Domestic Debt by Creditor
- Commercial Banks: 29.7% (TZS 9,678.8 billion) – Largest creditors, showing banking sector's key role in funding government activities.
- Bank of Tanzania: 20.5% (TZS 6,696.3 billion) – Central bank’s significant share indicates monetary policy alignment.
- Pension Funds: 27.6% (TZS 8,991.4 billion) – Reflects government reliance on long-term funds.
- Insurance Companies: 5.8% (TZS 1,904.2 billion).
- BOT’s Special Funds: 1.2% (TZS 389.0 billion).
- Others: 15.2% (TZS 4,956.0 billion) – Includes various smaller creditors.
Insights
- Debt Composition: External debt forms a significant majority (73%), exposing the economy to foreign exchange risks, especially given the dominance of USD (67.4%).
- Focus Areas of Debt Use: Prioritization of transport, telecommunications, social services, and energy aligns with Tanzania's development goals, though agriculture and tourism receive relatively smaller allocations.
- Domestic Financing: Treasury bonds dominate, with commercial banks and pension funds as major participants, reflecting a stable domestic borrowing market.
The key insights into Tanzania's fiscal and economic dynamics:
1. Heavy Reliance on External Debt
- External Borrowing: Makes up 73% of total debt, indicating significant dependency on international sources for financing development projects and budgetary needs.
- Risks: High exposure to currency exchange rate fluctuations, especially with 67.4% of external debt denominated in USD. Any depreciation of the Tanzanian shilling could increase the cost of servicing the debt.
2. Focused Use of Funds
- Priority Sectors:
- Transport, telecommunications, and social welfare (education and health) receive a combined 42.3% of external debt funding. This reflects strategic efforts to improve infrastructure and human capital.
- Energy and mining account for 14.8%, essential for supporting industrialization and reducing power shortages.
- Underfunded Areas:
- Agriculture (5.1%) and tourism (1.6%) receive smaller shares, despite their significance in Tanzania's GDP and employment. This could suggest underprioritization of these critical sectors or reliance on other forms of financing for them.
3. Dominance of Treasury Bonds in Domestic Debt
- Treasury bonds constitute 78.9% of domestic debt, reflecting:
- A preference for long-term instruments that reduce refinancing risks.
- A relatively well-developed domestic bond market to absorb government debt.
- Impact: Stable borrowing through domestic sources reduces reliance on volatile external sources but concentrates risk within the local financial system.
4. Key Domestic Creditors
- Commercial Banks and Pension Funds: Together hold over 57% of domestic debt, showing reliance on institutional investors for funding.
- Central Bank Role: The Bank of Tanzania (20.5%) plays a critical role in supporting government borrowing, reflecting alignment with monetary policy goals.
5. Debt Sustainability and Macro Risks
- Short-Term Indicators: While the focus on productive sectors like transport and energy could boost long-term growth, the high proportion of debt (external and domestic) demands careful management to avoid repayment challenges.
- Diversification Needs: The small allocation to tourism and agriculture may limit potential contributions from these sectors, which are key to inclusive growth and export earnings.
- Debt Service Pressures: Heavy USD dependency can amplify costs if global financial conditions tighten (e.g., rising interest rates or strengthening dollar).
Key Messages
- Opportunities: Investment in infrastructure, energy, and education positions Tanzania for future economic growth.
- Challenges: Managing debt sustainability, diversifying financing sources, and balancing sectoral priorities remain crucial to minimize risks and maximize development impact.
