Tanzania Investment and Consultant Group Ltd

| Economic Research Centre

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:

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)

YearDebt Service Costs (TZS)Total Budget (TZS)Public Debt (% of GDP)External Debt (USD)Domestic Debt (TZS)Notes
2021/229–10 trillion (estimated)34.85–41.82 trillion (est.)43.6%28.5122.17 trillion (est.)Estimated based on 25–30% of expenditure (GDP: TZS 139.4 trillion); limited data on exact budget and external debt.
2022/239.1 trillion44.4 trillion45.7%~30.533 billion25.47 trillion (est.)TZS 7.4 trillion paid by April 2023; domestic debt estimated as 36.7% of total debt (~TZS 69.44 trillion).
2023/2410.48 trillion44.39 trillion47.36%30.533 billion32.62 trillion15% increase in debt service costs; total budget reflects national budget, not just Ministry of Finance (TZS 15.94 trillion).
2024/2511–12 trillion (estimated)49.35 trillion~46% (projected)32.89–33.905 billion32.62–34.26 trillionEstimated based on 25–30% of revenue/expenditure, 10–15% increase from 2023/24; budget confirmed.
2025/2614.22 trillion56.49 trillion~46% (projected)33.905 billion34.26 trillionDebt service confirmed by Ministry of Finance (includes TZS 6.49 trillion interest); GDP estimated at TZS 165.9 trillion.

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.

The Finance Act, 2025, underpins Tanzania’s ambitious TZS 56 trillion budget, aiming to drive economic development through enhanced revenue collection, investment incentives, and sectoral support. With GDP growth projected at 5.5% for 2025 (Bank of Tanzania estimate), the Act introduces measures like a three-year VAT exemption on fertilizers, saving TZS 1.8 billion annually for a TZS 10 billion firm, and a 75% customs duty relief on capital goods, reducing costs by TZS 187.5 million per TZS 1 billion import. However, challenges arise from increased costs, such as a TZS 22,000 per tonne carbon emission tax adding TZS 2.2 billion yearly for a 100,000-tonne emitter, and a 0.5% excise duty hike on telecom services costing TZS 500 million for a TZS 100 billion operator. This analysis evaluates how these provisions shape Tanzania’s economic trajectory, leveraging the TZS 56 trillion budget to foster growth while addressing potential hurdles.

Opportunities for Economic Development

  1. Boosting Agricultural Productivity and Exports
    • VAT Exemptions for Agricultural Inputs: The Act exempts locally produced fertilizers from VAT for three years (2025–2027) and refined edible oils from local seeds (Page 105, Section 56). With agriculture contributing 26% to GDP (TZS 47 trillion in 2024, World Bank), these exemptions lower input costs, enhancing productivity.
      • Figure: A fertilizer producer with TZS 10 billion revenue saves TZS 1.8 billion annually (18% VAT), potentially increasing output by 10–15%, boosting agricultural GDP by TZS 4.7–7 trillion over three years.
    • Cashew Export Levy Allocation: All raw cashew export levies fund the Cashewnut Board for four years (Section 25). Cashew exports, valued at TZS 570 billion in 2023/24, could rise by 20% with improved processing, adding TZS 114 billion annually to export revenues.
    • Budget Alignment: The TZS 56 trillion budget allocates TZS 2.5 trillion to agriculture (4.5%, typical share). These incentives amplify budget impacts, supporting food security and export-led growth.
  2. Stimulating Industrial Growth
    • VAT and Customs Duty Relief: VAT exemptions for textiles from local cotton (2025) and a 75% customs duty exemption on capital goods (Section 57; Section 19) reduce costs for manufacturers.
      • Figure: A textile firm with TZS 10 billion revenue saves TZS 1.8 billion in VAT, while an investor importing TZS 1 billion in machinery saves TZS 187.5 million. This could increase manufacturing GDP (8% of GDP, TZS 14.5 trillion) by 5%, or TZS 725 billion, in 2025.
    • Excise Duty Protection: Higher duties on imported goods (e.g., TZS 100/kg vs. TZS 50/kg for preserved vegetables) protect local producers.
      • Figure: A local processor producing 1 million kg saves TZS 50 million annually, enhancing competitiveness.
    • Budget Alignment: Industrial development receives TZS 3 trillion (5.4% of budget). Tax relief aligns with this, attracting foreign direct investment (FDI), which was USD 1.34 billion (TZS 3.4 trillion) in 2023.
  3. Enhancing Revenue Mobilization
    • Electronic Tax Systems and Compliance: Mandatory electronic tax systems and simplified presumptive taxes for small businesses (Sections 23, 42) formalize the informal sector, which accounts for 30% of GDP (TZS 54 trillion).
      • Figure: Formalizing 10% of informal businesses (TZS 5.4 trillion) at a 3% tax rate could generate TZS 162 billion annually, supporting the TZS 56 trillion budget’s revenue target (TZS 44 trillion domestic revenue, 78%).
    • AIDS and Fuel Levies: New levies, like 0.1% on mineral value (TZS 50 million for TZS 50 billion sales, Section 113A) and TZS 10/liter on fuel (TZS 1 million/month for 100,000 liters, Section 4), bolster public finances.
      • Figure: With 10 billion liters of fuel consumed annually, the fuel levy could raise TZS 100 billion yearly.
    • Budget Alignment: Increased revenues fund infrastructure (TZS 10 trillion, 18% of budget), improving connectivity and economic efficiency.
  4. Financial Sector Stability
    • Banking Amendments: The Deposit Insurance Board’s liquidity support (Section 39A) and Bank of Tanzania’s enhanced independence (Sections 5, 9, 12) stabilize the financial sector.
      • Figure: A stable banking sector could boost FDI by 10%, adding TZS 340 billion annually, supporting private sector credit growth (TZS 38 trillion in 2024, 20% increase).
    • Budget Alignment: Financial sector reforms complement TZS 1 trillion allocated to economic services, fostering investor confidence.

Challenges for Economic Development

  1. Increased Operational Costs
    • Carbon Emission Tax: A TZS 22,000 per tonne tax on coal/natural gas emissions (Section 126) raises costs for energy-intensive industries like cement.
      • Figure: A factory emitting 100,000 tonnes pays TZS 2.2 billion annually, potentially increasing cement prices by 5–10%, reducing construction sector growth (10% of GDP, TZS 18 trillion) by TZS 900 billion.
    • Excise Duty Hikes: Telecom services (17% to 17.5%) and pay TV (5% to 10%) duties (Section 126) increase costs.
      • Figure: A telecom operator with TZS 100 billion revenue faces TZS 500 million extra, potentially raising consumer prices and slowing ICT growth (5% of GDP, TZS 9 trillion) by TZS 450 billion.
    • Budget Impact: Higher costs strain private sector contributions to the TZS 56 trillion budget, potentially reducing domestic investment.
  2. Compliance Burdens
    • Electronic Tax Systems: Mandatory systems (Page 103, Section 42) challenge small businesses with limited technological capacity.
      • Figure: A small retailer with TZS 50 million revenue may spend TZS 1–2 million on systems, reducing profits by 2–4%, impacting 1 million SMEs (30% of GDP).
    • Mandatory Approvals: Fees require ministerial approval (Section 60A), delaying operations.
      • Figure: A logistics firm facing a one-month delay could lose TZS 100 million in revenue, slowing trade (15% of GDP, TZS 27 trillion).
    • Budget Impact: Compliance costs may divert funds from productive investments, challenging the budget’s TZS 14 trillion development expenditure goal.
  3. Reduced Consumer Demand
    • Higher Taxes and Levies: Increased excise duties (e.g., alcohol, telecom) and levies (e.g., TZS 500/railway ticket, Section 73A) raise consumer prices.
      • Figure: A 10% price hike on telecom services could reduce subscriptions by 5%, costing TZS 500 billion in sector revenue, lowering consumption (60% of GDP, TZS 108 trillion).
    • Budget Impact: Lower demand could reduce VAT collections (TZS 10 trillion, 18% of budget), straining fiscal targets.
  4. Foreign Investment Constraints
    • Non-Citizen Restrictions: The Business Licensing Act limits non-citizens in certain activities (Page 14, Section 14A), potentially deterring FDI.
      • Figure: A 10% FDI drop (TZS 340 billion) could reduce capital inflows, impacting manufacturing and mining (20% of GDP, TZS 36 trillion).
    • Budget Impact: Lower FDI may limit private sector financing for the TZS 56 trillion budget’s infrastructure projects.

Quantitative Impact Summary (2025)

SectorOpportunity (TZS)Challenge (TZS)Net Impact (TZS)
Agriculture+7 trillion (3 years)-900 billion (costs)+6.1 trillion
Manufacturing+725 billion-450 billion (taxes)+275 billion
ICT+162 billion (revenue)-500 billion (demand)-338 billion
Mining+340 billion (FDI)-340 billion (FDI drop)0

Conclusion

The Finance Act, 2025, aligns with the TZS 56 trillion budget to drive Tanzania’s economic development by incentivizing agriculture (TZS 7 trillion GDP boost over three years), industry (TZS 725 billion in 2025), and revenue collection (TZS 162 billion from informal sector). However, challenges like increased costs (TZS 2.2 billion for cement firms), compliance burdens (TZS 1–2 million per SME), and potential FDI declines (TZS 340 billion) could hinder growth, particularly in ICT and construction. To maximize economic benefits, policymakers should streamline compliance, subsidize SMEs for digital adoption, and balance tax hikes with consumer relief. With strategic implementation, the Act can propel Tanzania toward its 5.5% GDP growth target, leveraging the TZS 56 trillion budget for sustainable development through 2028.

Key Figures: Finance Act, 2025, and Tanzania’s TZS 56 Trillion Budget (2025–2028)

ProvisionDetailsFinancial Impact (2025, Hypothetical Example)Projected Impact (2025–2028)
VAT ExemptionFertilizers exempt for 3 years (2025–2027)Saves TZS 1.8 billion/year for TZS 10 billion revenue firm+TZS 7 trillion to agricultural GDP (26% of TZS 180 trillion GDP)
VAT ExemptionTextiles from local cotton exempt for 1 year (2025)Saves TZS 1.8 billion for TZS 10 billion revenue firm+TZS 725 billion to manufacturing GDP (8% of TZS 180 trillion GDP)
Customs Duty Exemption75% relief on capital goods (2025–2028)Saves TZS 187.5 million on TZS 1 billion import+TZS 340 billion FDI annually (10% increase)
Cashew Export LevyAll levies to Cashewnut Board (2025–2028)Adds TZS 114 billion/year to cashew exports (TZS 570 billion base)+TZS 456 billion to export revenues
Electronic Tax SystemsMandatory for small businesses (2025–2028)Generates TZS 162 billion/year from 10% of informal sector (TZS 5.4 trillion)+TZS 648 billion to tax revenue
Carbon Emission TaxTZS 22,000/tonne on coal/natural gas (2025–2028)Adds TZS 2.2 billion/year for 100,000 tonnes emitted-TZS 900 billion to construction GDP (10% of TZS 180 trillion GDP)
Excise Duty IncreaseTelecom services: 17% to 17.5% (2025–2028)Adds TZS 500 million/year for TZS 100 billion revenue firm-TZS 450 billion to ICT GDP (5% of TZS 180 trillion GDP)
AIDS Levy0.1% on mineral value (2025–2028)Adds TZS 50 million/year for TZS 50 billion sales-TZS 200 million/year for mining sector costs
Fuel LevyTZS 10/liter on petrol, diesel, kerosene (2025–2028)Adds TZS 1 million/month for 100,000 liters used-TZS 100 billion/year to transport costs
Non-Citizen RestrictionsLimits on certain business activities (2025–2028)Potential TZS 340 billion FDI loss (10% drop)-TZS 1.36 trillion FDI over 4 years

Notes

In March 2025, Tanzania’s central government collected a total of TZS 2,465.8 billion in revenue, which was 98.9% of the monthly target. Of this, TZS 2,387.5 billion came from the central government, including TZS 2,055.2 billion in tax revenue—driven by income taxes (TZS 676.1 billion), taxes on imports (TZS 755.3 billion), and local goods and services (TZS 490.6 billion). Non-tax revenue reached TZS 332.3 billion, meeting 99.4% of its target. On the expenditure side, the government spent TZS 3,658.3 billion, with TZS 2,372.0 billion allocated to recurrent expenses—including TZS 937.6 billion for wages and salaries—and TZS 1,286.3 billion for development projects. This spending reflects the government's commitment to public service delivery and infrastructure investment, despite operating a short-term fiscal gap of over TZS 1.19 trillion.

1. Central Government Revenue (March 2025)

Revenue performance remains strong, supported by tax administration improvements and steady economic activity.

2. Central Government Expenditure (March 2025)

The government maintained a fiscal discipline approach, focusing on key social services and infrastructure despite a slight revenue shortfall.

Summary Table: Government Budget Operations (March 2025)

CategoryAmount (TZS Billion)Performance
Total Revenue2,465.898.9% of target
└ Central Government Revenue2,387.596.8% of total revenue
└ Tax Revenue2,055.2Met target
└ Non-Tax Revenue332.399.4% of target
Total Expenditure3,658.3
└ Recurrent Expenditure2,372.064.8% of total expenditure
└ Wages and Salaries937.6
└ Interest Payments (Total)366.4
└ Development Expenditure1,286.335.2% of total expenditure

In March 2025, Tanzania’s central government demonstrated strong revenue performance, collecting over TZS 2.4 trillion, primarily through taxes. Despite revenue being slightly below target, government expenditure reached TZS 3.7 trillion, focusing on development and essential services, supported by prudent fiscal management.

Key Takeaways

1. trong Revenue Performance

What it tells: The revenue system is functioning effectively, even under economic pressure.

2. High Government Spending

What it tells: The government is committed to balancing service delivery and long-term development, even if it means running a short-term fiscal deficit.

3. Fiscal Gap Suggests Borrowing

What it tells: The fiscal policy is slightly expansionary, prioritizing development, but managed under a disciplined framework.

Conclusion

The March 2025 budget performance shows a resilient fiscal system, with strong revenue collection and strategic spending priorities. Although the government is spending more than it earns in the short term, this is controlled and focused on growth-oriented sectors, supported by good tax performance and financial management.

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