Borrowing Patterns, Debt Service, and Sustainability Risks

As of December 2024, Tanzania’s total public debt stood at USD 46.6 billion, with external debt accounting for 70.7% (USD 32.9 billion). The government relied heavily on multilateral lenders (55.4%) and commercial loans (35.6%), increasing exposure to market-driven interest rates. While 21.2% of borrowed funds supported transport and telecommunications infrastructure, 19.4% was used for budget support, highlighting fiscal dependence on borrowing. With debt service payments reaching USD 185.4 million in December, managing repayment risks and prioritizing productive investments is crucial for long-term sustainability​

Debt Developments in Tanzania – December 2024

Tanzania’s total public debt stock reached USD 46,562.1 million at the end of December 2024, reflecting a 0.5% monthly increase. Of this, external debt accounted for 70.7% (USD 32,928.4 million), while domestic debt stood at TZS 32,649.3 billion. The rise in external debt was attributed to new disbursements amounting to USD 376.8 million, mainly to finance government projects and budgetary support​.

1. External Debt Stock and Composition

• Total external debt stock at the end of December 2024 was USD 32,928.4 million, reflecting a 1.8% decrease from USD 33,528.6 million in November 2024.
• The Central Government held 77.4% of the external debt (USD 25,488.3 million), while the private sector accounted for 22.6% (USD 7,436.4 million).
• The decrease in external debt was due to higher debt service payments (USD 185.4 million in December 2024), including USD 111.2 million in principal repayments​.

2. External Debt Stock by Creditor

Tanzania’s external debt is held by multilateral, bilateral, commercial, and export credit lenders. The composition as of December 2024 was as follows:

• Multilateral institutions (55.4%) remain the largest creditors, providing concessional loans with lower interest rates.
• Commercial loans (35.6%) have grown, increasing exposure to market-driven interest rates, which could raise debt service costs in the future.
• Bilateral and export credit debt (9.1%) mainly finances infrastructure projects​.

3. Disbursed Outstanding Debt by Use of Funds (Percentage Shares)

Tanzania’s external debt is allocated across various sectors, primarily transport, energy, social services, and budget support.

• The transport sector (21.2%) and energy (14.6%) received the largest funding, supporting infrastructure expansion projects.
• Social services (20.3%) include education and healthcare investments, improving human capital development.
• Budget support (19.4%) shows the government's reliance on external borrowing to cover fiscal gaps​.

Key Takeaways:

1. External debt dominates Tanzania’s public debt (70.7% of total debt).
2. Multilateral institutions are the main creditors (55.4%), but commercial loans (35.6%) are rising, increasing debt servicing risks.
3. Most funds go to transport (21.2%), social services (20.3%), and budget support (19.4%), reflecting a focus on infrastructure and fiscal stability.
4. The government must manage rising debt service payments (USD 185.4 million in December 2024) to ensure long-term sustainability.

With total public debt at USD 46.6 billion, debt sustainability remains a critical concern, requiring effective fiscal management and prioritization of productive investments​

The debt developments in Tanzania for December 2024 reveal key trends in borrowing patterns, creditor composition, and the sustainability of external debt.

These figures indicate both opportunities and risks for fiscal management and economic stability

1. External Debt Remains the Largest Share of Public Debt

• External debt accounts for 70.7% (USD 32.9 billion) of total public debt (USD 46.6 billion).
• The government is highly reliant on external borrowing, particularly from multilateral lenders (55.4%) and commercial lenders (35.6%).
• While multilateral loans are concessional (low interest, long-term), the growing share of commercial loans (USD 11.7 billion) exposes Tanzania to higher borrowing costs and foreign exchange risks.

Implication:
✅ Multilateral financing provides stable, low-cost funding.
⚠️ High commercial debt increases vulnerability to global interest rate changes, raising repayment costs.

2. Debt Service Obligations Are Increasing

• In December 2024, the government made debt service payments of USD 185.4 million, including USD 111.2 million in principal repayment.
• The growing debt requires more foreign exchange reserves for repayment, increasing exposure to shilling depreciation risks.

Implication:
⚠️ Future fiscal space may shrink as more funds are allocated for debt repayment instead of public services or development.
✅ If borrowed funds are well-invested, economic growth could offset repayment pressures.

3. Most Borrowed Funds Are Used for Infrastructure and Budget Support

• 21.2% of external debt funds are directed to transport and telecommunications, supporting infrastructure expansion (roads, railways, ports).
• 20.3% is allocated to social services (health & education), improving human capital.
• 19.4% goes to budget support, indicating the government’s reliance on borrowing to fund recurrent expenditures.

Implication:
✅ Investing in infrastructure can boost economic growth, improving debt repayment capacity.
⚠️ Using loans for budget support suggests fiscal weaknesses, as the government borrows to cover recurrent expenses instead of productive investments.

4. Debt Sustainability Risks and Management Needs

• Public debt reached USD 46.6 billion, requiring careful management to avoid over-indebtedness.
• The growing commercial loan share increases interest rate risks, requiring improved revenue mobilization to cover repayments.
• Tanzania’s debt remains below the IMF/World Bank risk threshold (55% of GDP), but a rising trend requires close monitoring.

What Needs to be Done?
🔹 Shift borrowing towards productive sectors (e.g., manufacturing, agriculture) to generate returns.
🔹 Reduce reliance on commercial loans and prioritize concessional financing.
🔹 Enhance revenue collection to reduce reliance on budget support loans.
🔹 Strengthen fiscal discipline to ensure borrowed funds are effectively utilized.

Overall Takeaway

📌 Tanzania’s external debt remains dominant (70.7%), with a shift toward commercial borrowing (35.6%).
📌 Debt service payments (USD 185.4 million) are rising, limiting future fiscal flexibility.
📌 Infrastructure investment (21.2%) supports economic growth, but reliance on budget support loans (19.4%) is a concern.
📌 Debt sustainability requires a shift to revenue-driven fiscal policies, careful borrowing, and economic diversification.

While Tanzania’s debt is still within manageable limits, a proactive approach is needed to prevent future fiscal risks​

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

1. Debt Composition: External debt forms a significant majority (73%), exposing the economy to foreign exchange risks, especially given the dominance of USD (67.4%).
2. 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.
3. 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.