Central Government Dominates Borrowing as USD Exposure Heightens Currency Risks

As of June 2025, Tanzania’s external debt stock stood at USD 32,955.5 million (approximately TZS 82.4 trillion, assuming an exchange rate of TZS 2,500/USD), reflecting a marginal increase of 0.1% from the previous month. This external debt comprises about 70.7% of the total national debt, highlighting the country's continued reliance on foreign financing. The central government remains the primary borrower, holding 85.4% of the external debt (USD 28.1 billion), followed by the private sector with 14.6% (USD 4.8 billion), while public corporations account for a negligible share. Most of the disbursed debt is allocated to priority sectors such as transport & telecommunications (25.4%), social welfare & education (21.3%), and energy & mining (16.4%). However, 67.6% of the debt is denominated in USD, exposing the country to significant exchange rate risks amid recent currency depreciation. Despite prudent debt servicing—interest arrears are relatively low—the narrow fiscal space underscores the need for careful management and stronger domestic revenue mobilization.

1. External Debt Stock by Borrower – June 2025

The external debt stock represents the total outstanding debt owed to foreign creditors, including principal and interest arrears. As of June 2025, Tanzania’s external debt stock stood at USD 32,955.5 million (approximately TZS 82.4 trillion, assuming an exchange rate of ~TZS 2,500/USD, consistent with recent BoT reports). This reflects a marginal monthly increase of 0.1% from May 2025 and accounts for approximately 70.7% of Tanzania’s total national debt (external and domestic combined).

Total External Debt

• Amount: USD 32,955.5 million
• Monthly Increase: +0.1% (approximately USD 32.9 million, assuming May 2025 debt was ~USD 32,922.6 million).
• Share of Total National Debt: ~70.7%, indicating a significant reliance on external financing compared to domestic debt (e.g., TZS 32,615.7 billion in September 2024, per TICGL).
• Context: The slight increase aligns with trends observed in earlier months, such as a 0.5% decline from December 2024 to January 2025 (USD 33,905.1 million to USD 33,137.7 million), followed by an increase to USD 35,039.8 million by February 2025, reflecting fluctuations due to new disbursements and debt servicing. The African Development Bank notes that Tanzania’s fiscal deficit, projected at 2.5% of GDP in FY 2024/25, is partly financed by external borrowing, supporting this trend.

Breakdown by Borrower

The following table summarizes the external debt stock by borrower category for June 2025:

• Central Government:
  • Amount: USD 28,133.7 million (85.4% of total external debt).
  • Disbursed Outstanding Debt (DOD): USD 28,055.0 million, indicating that nearly all central government debt is disbursed and actively financing projects.
  • Interest Arrears: USD 78.7 million, a minor portion (0.28% of central government debt), suggesting effective debt servicing for public debt.
  • Context: The central government’s dominance (85.4%) is consistent with historical trends, with shares of 76.8% in November 2024 and 78.1% in September 2024. This reflects the government’s role in funding major infrastructure projects (e.g., Standard Gauge Railway, Julius Nyerere Hydropower Project) and social services, as noted in the FY 2024/25 budget allocating TZS 14.08 trillion for development expenditure.
  • Implications: The high share underscores the public sector’s reliance on external financing for development goals, placing a significant repayment burden on public finances. The low interest arrears indicate prudent debt management, supported by multilateral concessional loans (54.5% of external debt in November 2024).
• Private Sector:
  • Amount: USD 4,820.6 million (14.6% of total external debt).
  • DOD: USD 4,630.7 million, with interest arrears of USD 189.9 million (3.9% of private sector debt).
  • Context: The private sector’s share has declined slightly from 23.6% in January 2025 (USD 8,004.7 million) and 21% in December 2019, reflecting reduced access to foreign credit, possibly due to tighter global lending conditions or currency risks. The World Bank notes that private sector borrowing constraints may hinder economic diversification.
  • Implications: The higher interest arrears (relative to the central government) suggest challenges in private sector debt servicing, potentially due to exchange rate fluctuations (67.6% USD-denominated debt) or weaker cash flows in sectors like agriculture and industry.
• Public Corporations:
  • Amount: USD 1.3 million (negligible share).
  • Context: Public corporations (e.g., TANESCO, Tanzania Ports Authority) have minimal external debt exposure, consistent with January 2025 (USD 3.8 million). This reduces government liability risks from state-owned enterprises.
  • Implications: The negligible share reflects a deliberate strategy to limit public corporation borrowing, aligning with fiscal reforms to improve state-owned enterprise performance, as evidenced by TZS 1.028 trillion in dividends collected in FY 2024/25.

Key Takeaway

• The central government’s 85.4% share of external debt highlights its role in driving debt-financed development, particularly in infrastructure and social services. The private sector’s reduced share and higher arrears indicate challenges in accessing and servicing foreign credit. The negligible debt of public corporations minimizes fiscal risks but limits their role in external financing.

2. Disbursed Outstanding Debt (DOD) by Use of Funds – % Share

The DOD represents the portion of external debt that has been disbursed and is actively funding projects or sectors. The allocation of DOD reflects Tanzania’s development priorities under Vision 2050 and the Third Five-Year Development Plan (FYDP III).

Breakdown by Use of Funds

The following table summarizes the percentage share of DOD by sector for June 2025:

• Transport & Telecommunication (25.4%):
  • Context: This sector receives the largest share, consistent with historical trends (21.4% in November 2024, 21.5% in September 2024). Key projects include the Standard Gauge Railway (SGR), port expansions, and ICT infrastructure, aligning with Tanzania’s goal to enhance connectivity and trade under FYDP III.
  • Implications: Investments in transport (e.g., SGR, Dar es Salaam port) and telecommunications (e.g., 5G networks) support economic growth by improving logistics and digital access. However, the high allocation may crowd out funding for other sectors like agriculture.
• Social Welfare & Education (21.3%):
  • Context: This sector’s significant share (20.4% in November 2024, 20.8% in September 2024) reflects investments in human capital, such as free education programs and healthcare infrastructure. The World Bank’s USD 227 million financing for climate and marine conservation in June 2025 also supports social welfare.
  • Implications: Funding education and social welfare enhances workforce development and poverty reduction, critical for long-term growth. However, recurrent costs (e.g., teacher salaries) may compete with capital investments.
• Energy & Mining (16.4%):
  • Context: Investments in energy (e.g., Julius Nyerere Hydropower Plant) and mining (e.g., gold, critical minerals) align with Tanzania’s energy access goals and export growth (gold exports up 24.5% in April 2025). The sector’s share is slightly higher than November 2024 (15%).
  • Implications: Energy investments address power shortages, supporting industrial growth, while mining boosts export revenues. However, environmental and governance risks in mining require careful management.
• Budget Support (15.2%):
  • Context: This share (19.9% in January 2025) reflects external loans used to finance recurrent expenditures, such as salaries and debt servicing. The African Development Bank notes that reliance on budget support poses fiscal risks if external financing decreases.
  • Implications: High budget support allocation indicates fiscal pressures, as seen in the TZS 270.2 billion deficit in May 2025. Reducing reliance on external budget support through domestic revenue mobilization (e.g., TZS 2,880.2 billion in May 2025) is critical.
• Agriculture (6.5%):
  • Context: The low share (5.1% in September 2024) is surprising given agriculture’s role in Tanzania’s economy (25% of GDP, 65% of employment). Investments support irrigation and agribusiness but are limited compared to infrastructure.
  • Implications: Underfunding agriculture may constrain rural development and food security, despite export growth in cashew nuts (141% in April 2025).
• Finance & Insurance (5.1%) and Industry (4.0%):
  • Context: These sectors receive minimal allocations (4.0% for industry in January 2025), reflecting limited focus on manufacturing and financial sector development. The World Bank highlights declining industrial productivity as a constraint on economic diversification.
  • Implications: Low funding may hinder Tanzania’s industrialization goals under Vision 2050, limiting job creation and export diversification.
• Others (6.1%):
  • Context: Includes water, balance of payments support, and miscellaneous projects. The World Bank’s USD 300 million financing for disaster preparedness in June 2025 may contribute to this category.
  • Implications: Diverse allocations support resilience but dilute focus on priority sectors.

Key Takeaway

• The focus on Transport & Telecommunication (25.4%) and Social Welfare & Education (21.3%) reflects Tanzania’s commitment to infrastructure-driven growth and human capital development. However, the low shares for agriculture (6.5%) and industry (4.0%) may limit inclusive growth, given their economic significance.

3. DOD by Currency Composition – % Share

The currency composition of DOD indicates the foreign currencies in which Tanzania’s external debt is denominated, exposing the country to exchange rate risks.

Breakdown by Currency

The following table summarizes the percentage share of DOD by currency for June 2025:

• US Dollar (USD) (67.6%):
  • Context: The USD’s dominance is consistent with historical trends (67.4% in September 2024, 68.1% in January 2025). This reflects borrowing from multilateral institutions (e.g., World Bank, IMF) and commercial creditors, often denominated in USD.
  • Implications: High USD exposure makes Tanzania vulnerable to exchange rate fluctuations. The Tanzanian Shilling depreciated by 8% in 2023, increasing debt servicing costs. A stronger USD in 2025 could further strain public finances, as noted by The Citizen.
• Euro (EUR) (17.2%):
  • Context: Euro-denominated debt (16.1% in January 2025) reflects loans from European institutions (e.g., European Investment Bank). The slight increase may indicate new Euro-based financing.
  • Implications: Diversification into Euros reduces USD reliance but exposes Tanzania to Eurozone economic conditions.
• Japanese Yen (JPY) (4.9%) and Chinese Yuan (CNY) (3.4%):
  • Context: JPY and CNY shares align with bilateral loans from Japan and China, supporting infrastructure projects like the SGR. The CNY share is lower than in January 2025 (6.3%), possibly due to reduced Chinese lending.
  • Implications: These currencies provide some diversification, but their small shares limit risk mitigation.
• Special Drawing Rights (SDR) (3.0%) and Others (3.9%):
  • Context: SDRs are used by multilateral institutions like the IMF, while “Others” include British Pound and minor currencies. The low SDR share reflects limited IMF financing in June 2025.
  • Implications: Diversified borrowing in SDRs and other currencies offers some stability but is insufficient to offset USD risks.

Key Takeaway

• The 67.6% USD share exposes Tanzania to significant exchange rate risks, particularly with Shilling depreciation. Diversification into Euros, JPY, and CNY helps but is limited by their smaller shares. Prudent debt management and revenue mobilization are critical to mitigate currency risks.

The following table consolidates the key figures for June 2025:

Policy Implications and Insights

1. Central Government Borrowing:
   • The central government’s 85.4% share of external debt aligns with its role in funding infrastructure and social services, as seen in the TZS 937.3 billion development expenditure in May 2025. However, this concentrates repayment risks on public finances, requiring robust revenue mobilization (e.g., TZS 2,880.2 billion in May 2025).
   • The low interest arrears (USD 78.7 million) indicate effective debt management, supported by concessional loans from multilateral creditors (54.5% of debt).
2. Private Sector Constraints:
   • The private sector’s 14.6% share and higher arrears (USD 189.9 million) suggest challenges in accessing and servicing foreign credit, potentially due to USD appreciation or global tightening. This aligns with TICGL’s observation of declining private sector borrowing slowing economic diversification.
3. Sectoral Allocation:
   • The focus on Transport & Telecommunication (25.4%) and Social Welfare & Education (21.3%) supports Tanzania’s Vision 2050 goals of connectivity and human capital development. However, the low shares for agriculture (6.5%) and industry (4.0%) may hinder inclusive growth, given agriculture’s role in employment and GDP.
4. Currency Risks:
   • The 67.6% USD share exposes Tanzania to exchange rate risks, as noted by The Citizen, with Shilling depreciation increasing debt servicing costs. The African Development Bank emphasizes the need for domestic revenue mobilization to mitigate these risks.
   • Diversification into Euros (17.2%) and other currencies is positive but insufficient to offset USD dominance.
5. Debt Sustainability:
   • The IMF’s 2024 Debt Sustainability Analysis (DSA) indicates a moderate risk of external debt distress, with public debt at 45.5% of GDP in 2022/23, well below the 55% benchmark. The slight debt increase in June 2025 suggests controlled borrowing, but monitoring debt servicing capacity is critical, given annual costs absorb ~40% of expenditures.

Strong tax revenue performance (TZS 2,339.7 billion in May 2025, 4.1% above target) supports debt servicing but requires sustained efforts to reduce reliance on budget support loans (15.2%)

Strong Growth, Low Inflation, but Trade and Budget Deficits Persist

Zanzibar’s economy showed resilience in 2024, with real GDP growth rising to 6.8%, up from 5.1% in 2023, driven primarily by tourism and infrastructure investments like the SGR and port upgrades. Tourist arrivals surged to 2.2 million in 2025, supporting the services sector, while FDI jumped by 28.3% to USD 1.72 billion, fueling construction. Inflation remained stable at 3.4% in June 2025, down from 6.1% a year earlier, well within the BoT's 3–5% target. On the fiscal front, domestic revenue reached TZS 874.9 billion, covering 95.6% of public income, though a TZS 248.5 billion budget deficit persists. In trade, Zanzibar posted a goods trade deficit of USD 309.2 million, as exports fell 11.9% (led by a 27.2% decline in cloves) while imports rose 8.4%. Meanwhile, the financial sector expanded with credit to the private sector growing by 23.5% and bank deposits increasing by 12.1%, signaling deepening financial inclusion despite high lending rates (15.12%).

1. Real Sector Performance (GDP Growth)

The real sector encompasses economic activities producing goods and services, with GDP growth reflecting Zanzibar’s economic vitality.

• Real GDP Growth (2024):
  • Value: 6.8%, up from 5.1% in 2023.
  • Context: This aligns with earlier reports, such as a 7% growth in January–September 2024 and 7.2% in Q4 2024, driven by tourism and trade. The African Development Bank projects Zanzibar’s growth to exceed 6% in 2025, supported by tourism, construction, and real estate.
  • Drivers:
    • Industry Sector: Construction and manufacturing led growth, fueled by infrastructure projects like the Standard Gauge Railway (SGR) and port expansions. Construction benefits from public-private partnerships (PPPs) and foreign direct investment (FDI), with Tanzania’s FDI rising 28.3% to USD 1.72 billion in 2024.
    • Services Sector: Accommodation and food services, tied to tourism, were major contributors. Tourist arrivals reached 2,193,322 in 2025, up 10% from 1,994,242 in 2024, boosting hospitality. The Tanzania National Business Council projects tourism’s GDP contribution to reach 19.5% by 2025/26.
  • Implications: The 6.8% growth reflects Zanzibar’s economic resilience, driven by tourism and infrastructure. However, reliance on tourism (10% of GDP) and construction makes the economy vulnerable to external shocks, such as global tourism fluctuations or commodity price volatility. Diversification into manufacturing and agriculture, as outlined in Zanzibar’s USD 2 billion plan, is critical.
• Comparison with Mainland Tanzania:
  • Mainland Tanzania grew at 5.6% in 2024, projected at 6% in 2025, driven by agriculture, finance, and construction. Zanzibar’s higher growth (6.8%) reflects its tourism-led economy, but its smaller economic base (contributing ~3% to Tanzania’s GDP) limits its overall impact.

2. Inflation Trends

Inflation measures the rate of price increases, affecting purchasing power and economic stability.

• Headline Inflation:
  • 12-Month Average (June 2025): 3.5%.
  • June 2025 (Monthly): 3.4%, down from 6.1% in June 2024.
  • Context: Inflation eased from 5.1% in 2024 and 6.9% in 2023, with February 2025 at 4.8%. The National Bureau of Statistics reported 3.3% inflation in June 2025, driven by food price increases (e.g., finger millet at 7.0%). Zanzibar’s inflation remains below the 5% medium-term target set by the Bank of Tanzania (BoT) and aligns with East African Community (EAC) criteria.
  • Drivers:
    • Stabilized Food Prices: Declining food inflation (5.3% in April 2025) reflects improved agricultural output and stable global commodity prices.
    • Controlled Non-Food Prices: Transport costs moderated due to stable fuel prices, with energy inflation at 7.3% in April 2025, down from 9.3% in 2024.
  • Implications: Low inflation (3.4%) supports consumer purchasing power and aligns with the BoT’s 3%–5% target under its 2025–2030 Strategic Plan. However, food price volatility (e.g., finger millet) poses risks, particularly for low-income households, given Zanzibar’s 26.4% poverty rate. Continued monetary policy prudence (6% Central Bank Rate) is essential.
• Comparison with Mainland Tanzania:
  • Mainland Tanzania’s inflation was 3.2% in May 2025 and 3.1% in January 2025, slightly lower than Zanzibar’s 3.4%. Zanzibar’s higher inflation reflects its reliance on imported goods and tourism-driven demand.

3. Government Budgetary Operations (July 2024 – May 2025)

The government budget reflects fiscal policy, balancing revenues, grants, and expenditures to fund public services and development.

• Revenues and Grants:
  • Total: TZS 914.7 billion.
    • Domestic Revenue: TZS 874.9 billion (95.6% of total).
      • Tax Revenue: TZS 796.6 billion (86.9% of total).
      • Non-Tax Revenue: TZS 78.3 billion (8.6% of total).
    • Grants: TZS 39.8 billion (4.4% of total).
  • Context: Strong revenue performance aligns with Mainland Tanzania’s TZS 2,339.7 billion tax collection in May 2025, 4.1% above target. Zanzibar’s tax revenue reflects improved administration and compliance, supported by digital systems like the Tanzania Instant Payment System (TIPS). Grants, including TZS 185 billion from China for health and economic cooperation, bolster fiscal space.
  • Implications: High domestic revenue (95.6%) reduces grant dependency, but low grant inflows (4.4%) limit funding for development projects. Enhanced tax mobilization, as per MKUMBI II reforms, is critical.
• Expenditures:
  • Total: TZS 1,123.4 billion.
    • Recurrent Expenditure: TZS 744.7 billion (66.3% of total).
    • Development Expenditure: TZS 378.7 billion (33.7% of total).
  • Context: Expenditure aligns with revenue, reflecting fiscal prudence, as noted in the BoT’s mid-year review. Development spending supports tourism (TZS 359.9 billion budget for 2025/26) and infrastructure (e.g., Dodoma Transport Project). Recurrent spending covers wages and public services, critical for Zanzibar’s 9.3% unemployment rate.
  • Implications: The high recurrent share (66.3%) limits development funding, necessitating expenditure rationalization to meet Vision 2050 goals (e.g., 90% electricity access).
• Budget Deficit:
  • Deficit (Before Grants): TZS 248.5 billion.
  • Financing: Covered by domestic borrowing (e.g., TZS 625.5 billion mobilized in April 2025, including TZS 421.7 billion in Treasury bonds) and grants.
  • Context: Public debt remains sustainable with a moderate risk of distress, per the IMF’s 2024 Debt Sustainability Analysis. Zanzibar’s deficit aligns with Mainland Tanzania’s TZS 270.2 billion deficit in May 2025.
  • Implications: Domestic borrowing supports fiscal needs but increases debt servicing costs (TZS 640 billion in April 2025). Grants and FDI (USD 1.72 billion in 2024) are vital to reduce borrowing reliance.

4. Trade Performance (Goods Only)

Trade performance reflects Zanzibar’s external sector, focusing on goods exports and imports, with services (e.g., tourism) covered separately.

• Total Exports (Goods):
  • Value: USD 150.3 million, down from USD 170.6 million in 2024 (-11.9%).
  • Composition:
    • Cloves: USD 66.4 million (44.2% of exports), down from USD 91.2 million (-27.2%).
    • Seafood & Other Goods: USD 60.4 million (40.2% of exports).
    • Manufactured Goods: USD 23.5 million (15.6% of exports).
  • Context: The decline in clove exports reflects global market downturns, as noted in earlier reports. Seafood and manufactured goods growth aligns with diversification efforts under Zanzibar’s USD 2 billion plan. Total Tanzania exports (including Mainland) reached USD 16.1 billion in 2024, led by gold and tourism.
  • Implications: The 11.9% export drop, particularly in cloves, strains foreign exchange earnings, given cloves’ 90% production on Pemba. Diversification into seafood and manufacturing is promising but requires market expansion.
• Total Imports (Goods):
  • Value: USD 459.5 million, up from USD 423.7 million in 2024 (+8.4%).
  • Composition:
    • Capital Goods: USD 222.5 million (48.4% of imports).
    • Intermediate Goods: USD 141.4 million (30.8% of imports).
    • Consumer Goods: USD 95.6 million (20.8% of imports).
  • Context: Import growth reflects infrastructure projects (e.g., SGR, port expansions) and consumer demand, consistent with Mainland Tanzania’s capital goods imports. Zanzibar’s reliance on imported staples and petroleum products persists.
  • Implications: Rising imports, driven by capital goods, support industrialization but widen the trade deficit, straining reserves (USD 5,307.7 million, 4.3 months of import cover).
• Trade Deficit:
  • Value: USD 309.2 million, widened from USD 253.1 million in 2024 (imports USD 423.7 million – exports USD 170.6 million).
  • Context: The deficit reflects falling clove exports and rising capital goods imports, consistent with Tanzania’s overall current account deficit of USD 2,117.6 million.
  • Implications: The widened deficit pressures the Tanzanian Shilling (8% depreciation in 2023) and reserves. Export promotion (e.g., seafood, manufactured goods) and tourism (USD 3,934.5 million in receipts) are critical to offset deficits.

5. Financial Sector Performance

The financial sector supports economic activity through credit provision and deposit mobilization, critical for private sector growth.

• Credit to Private Sector (June 2025):
  • Value: TZS 747.7 billion, up 23.5% from June 2024.
  • Sectors:
    • Trade: 27.8% (TZS 207.9 billion).
    • Building & Construction: 20.2% (TZS 151.0 billion).
    • Personal Loans: 13.8% (TZS 103.2 billion).
    • Transport & Communication: 10.7% (TZS 80.0 billion).
  • Context: The 23.5% growth exceeds Mainland Tanzania’s 12.8% private sector credit growth in January 2025, driven by agriculture and SMEs. Zanzibar’s credit growth reflects tourism and construction demand, supported by the BoT’s 6% Central Bank Rate and TIPS (453.7 million transactions in 2024).
  • Implications: Robust credit growth (23.5%) supports SMEs and infrastructure, aligning with financial inclusion goals (87% adult target by 2030). However, the high trade and construction share risks overexposure if tourism slows.
• Deposit Mobilization:
  • Value: TZS 1,185.4 billion, up 12.1% from TZS 1,057.6 billion in June 2024.
  • Context: Growth aligns with Tanzania’s banking sector stability, with a 3.6% non-performing loan ratio in Q1 2025, below the 5% threshold. Mobile money transactions (TZS 198,859 billion in 2024) boost deposits.
  • Implications: Strong deposit growth (12.1%) reflects financial deepening, but high lending rates (15.12% in January 2025) may constrain borrowing. Digital platforms like TIPS enhance inclusion, supporting Vision 2050.

Summary Table: Key Economic Indicators for Zanzibar (Year Ending June 2025)

Key Takeaways and Policy Implications

1. Robust GDP Growth:
   • Zanzibar’s 6.8% growth in 2024, driven by tourism and construction, outpaces Mainland Tanzania (5.6%). Tourism (2.2 million arrivals) and infrastructure (e.g., SGR) are key drivers, but diversification into manufacturing and agriculture is needed to reduce tourism dependency (10% of GDP).
   • Policy: Implement Zanzibar’s USD 2 billion diversification plan to boost seafood and manufactured exports, aligning with Vision 2050.
2. Stable Inflation:
   • Inflation at 3.4% (June 2025) supports purchasing power, driven by stable food and fuel prices. However, food price volatility (e.g., 7.0% for finger millet) risks impacting the 26.4% poverty rate.
   • Policy: Enhance agricultural productivity and supply chain resilience to mitigate food price shocks, as per the Second Agriculture Sector Development Program.
3. Fiscal Prudence:
   • Strong domestic revenue (TZS 874.9 billion) reduces grant reliance, but the TZS 248.5 billion deficit requires sustained borrowing and grants. Development spending (33.7%) supports growth but is constrained by recurrent costs (66.3%).
   • Policy: Rationalize recurrent expenditure and leverage FDI (USD 1.72 billion in 2024) to fund infrastructure and tourism.
4. Trade Challenges:
   • The USD 309.2 million trade deficit, driven by a 27.2% drop in clove exports and 8.4% import rise, pressures reserves. Tourism receipts (USD 3,934.5 million) offset some losses, but goods exports need boosting.
   • Policy: Promote clove market recovery and expand seafood and manufacturing exports through trade agreements (e.g., AfCFTA).
5. Financial Sector Strength:
   • Credit growth (23.5%) and deposit mobilization (12.1%) reflect financial deepening, supported by digital payments (TIPS) and a stable banking sector (3.6% NPL ratio). High lending rates (15.12%) and trade/construction exposure pose risks.
   • Policy: Reduce lending rates and enhance SME financing, as per the BoT’s 2025–2030 plan, to sustain inclusion and growth.
6. Economic Context:
   • Regional Role: Zanzibar’s tourism and trade hub status supports growth, but its small GDP share (~3% of Tanzania’s USD 105.1 billion in 2022) limits impact.
   • Risks: Global commodity price volatility, tourism seasonality, and shilling depreciation (8% in 2023) pose challenges.
   • Opportunities: Vision 2050, MKUMBI II reforms, and digital financial inclusion (87% target) offer pathways to a USD 1 trillion economy.

Tanzania is experiencing an unprecedented surge in Foreign Direct Investment (FDI), positioning itself as East Africa’s premier investment hub. With a strong policy and infrastructure reform agenda, Tanzania is not only attracting capital but also creating jobs, transferring technology, and reducing poverty in line with its Vision 2050 of achieving a USD 1 trillion economy.

Key Trends and Performance (2023–Q3 2024/25)

• FDI Growth: FDI increased from USD 1.3–1.6 billion in 2023 to USD 6.56 billion in 2024, representing a more than 400% jump. In Q3 of 2024/25 alone, Tanzania attracted USD 1.36 billion.
• Projects & Jobs: In 2024, 901 projects were registered with a total capital of USD 9.31 billion, creating 212,293 jobs, the highest since 1991. In Q3 2024/25 alone, 24,444 jobs were created.
• GDP Growth: FDI-driven growth led to a GDP increase from 5.3% in 2023 to 5.5% in 2024, with a projection of 8% by 2030.

Main FDI Sectors

1. Manufacturing – Led all sectors with 377 projects valued at USD 3.1 billion in 2023 alone.
2. Transport & Infrastructure – Contributed over USD 1.2 billion.
3. Agriculture – Projected to attract USD 2 billion in agro-processing FDI by 2030.
4. Renewable Energy – With USD 3 billion projected by 2030, including strategic projects like the Julius Nyerere Hydropower Plant.
5. Real Estate – Driven by policy changes allowing 99-year leases, it attracted USD 185.54 million in Q3 2024/25 from UAE investors.

Policy and Institutional Reforms

• TISEZA Act 2025: Merged TIC and EPZA, introduced a USD 50 million threshold for strategic projects, expedited permits, and established a national land bank.
• National Land Policy 2023: Enabled long-term lease access to land for foreign investors.
• Tanzania Electronic Investment Window (TeIW): Reduced investment registration times from 60 to 30 days.
• One Stop Facilitation Centre (PISC): Supports 80% of investors, easing FDI logistics.

Challenges Still to Address

• Infrastructure Gaps: Only 45% of Tanzanians had electricity access in 2023, hindering scalability of SEZs.
• Land Disputes: Affect around 20% of investment projects, especially in rural zones.
• Bureaucratic Inefficiencies: 15% of FDI projects experienced delays due to poor inter-ministerial coordination.
• Foreign Exchange Shortages and regional disparities persist, particularly in Nyasa Zone.

2025–2030 Strategic Goals

• USD 15 billion in annual FDI by 2030.
• 1 million jobs created by 2030.
• USD 5 billion in infrastructure investment: 20,000 km of roads and 10,000 MW energy capacity.
• 50% of FDI projects to be joint ventures.
• 95% of all FDI applications processed digitally via TeIW.
• USD 1 billion directed to underserved regions like Nyasa Zone.

Inclusive and Sustainable Growth

Programs like Vikapu Bomba (training 5,000 women in 2024 and targeting 50,000 by 2030) and SEZs like Kibaha Textile Park (projected 38,400 jobs) emphasize inclusive development. FDI also aligns with SDG 8 (Decent Work) and SDG 13 (Climate Action) by promoting green energy and equitable employment.

Conclusion

Tanzania’s FDI trajectory showcases how robust policy, sectoral strategy, and institutional reform can unlock transformative economic growth. By addressing remaining gaps and promoting equity, Tanzania is on course to become a regional economic powerhouse by 2030.

As Tanzania advances toward its Vision 2050 goals, a robust and inclusive tax system is becoming increasingly central to the country’s development strategy. The Tanzania Investment and Consultant Group Ltd. (TICGL), through its recent report “Tanzania’s Tax System and Economic Development (2025–2030)”, sheds light on how the government’s tax reforms are driving economic growth, while also revealing critical systemic challenges that must be addressed.

Economic Progress Anchored in Tax Reform

Tanzania’s economy has shown resilience and promise, with GDP growth projected at 6.0% in 2025 and 7.0% by 2028. Key growth sectors include:

• Manufacturing: 156 projects registered in 2025 worth $3.7 billion, creating 41,117 jobs.
• Agriculture: Boosted by a ¥22.7 billion Japanese loan, the sector employs 65% of the workforce and contributes 26% of GDP.
• Clean energy: Investment commitments of $40 billion (Mission 300 Summit) raised electricity production from 1,602 MW to 3,077 MW by 2025.

Much of this development has been supported by rising tax revenues. In 2024/25, the Tanzania Revenue Authority (TRA) collected TZS 29.41 trillion, including a record TZS 3.587 trillion in December 2024 alone. This revenue funded critical initiatives such as:

• $650 million Sustainable Rural Water Supply Program
• ICT infrastructure in Dodoma and Kigoma
• Education and health investment, currently at 3.3% and 1.2% of GDP, respectively

Key Issues Hindering Fiscal and Inclusive Growth

Despite these gains, the study outlines ten pressing issues that must be tackled to ensure sustainable development:

1. Narrow Tax Base

Only 7% of Tanzania’s population is registered as taxpayers. With the informal sector employing 72% of the workforce, vast economic activity remains untaxed. This limited base restricts the country’s fiscal space and puts pressure on the formal sector.

2. High VAT Refund Arrears

Businesses faced TZS 1.2 trillion in unpaid VAT refunds in 2024. These delays affect cash flows, particularly for exporters and SMEs, and hinder business expansion.

3. Excessive Compliance Costs

Complex procedures and audit burdens increase operating costs by 10–20% for private enterprises. This discourages SMEs from entering or staying in the formal economy.

4. Business-Discouraging Tax Rates

The 30% corporate income tax and 10% withholding tax on retained earnings introduced in 2025 significantly burden SMEs. For example, SMEs (95% of all businesses) reported a 15% drop in reinvestment capacity due to this withholding tax.

5. Rural-Urban Disparities

Access to financial services is 85% in urban areas but just 55% in rural regions. This gap affects tax registration, compliance, and equitable access to public services.

6. Public Debt Pressure

Public debt stood at 45.5% of GDP in 2022/23. The fiscal deficit reached 2.5% of GDP in 2024/25, with borrowing of TZS 6.62 trillion domestically and TZS 2.99 trillion externally, highlighting the need for increased domestic revenue.

7. Inequitable Tax Benefit Distribution

Only 30% of eligible smallholder farmers accessed the tax exemptions meant for agricultural productivity. This shows a gap between policy design and grassroots impact.

8. Digital Divide

Although digital tax platforms improved compliance by 12% (2023–2024), poor digital literacy and infrastructure outside urban areas limit effectiveness.

9. Climate Vulnerability

Tanzania risks losing up to 0.5% of GDP by 2050 due to climate-related disruptions. While green taxes were proposed (e.g., TZS 500 billion carbon tax), implementation is still nascent.

10. Tensions with Private Sector

The private sector perceives some reforms—such as the 10% withholding tax—as hostile to reinvestment. This could dampen momentum in sectors like manufacturing, where private investment is essential.

The Way Forward

The report outlines several reforms to address these issues:

• Expand the tax base: Lowering the VAT registration threshold to TZS 50 million could increase registered taxpayers by 15%, raising TZS 2 trillion more annually.
• Introduce simplified presumptive taxes: This would formalize 10% of the informal sector, adding TZS 1.5 trillion in new revenue per year.
• Automate VAT refunds: Clearing 80% of refund arrears by 2027 could boost business confidence and increase investment by 5%.
• Invest in digital infrastructure: Increasing rural access to tax platforms could reduce evasion by 15%, generating an additional TZS 3 trillion by 2030.
• Sustain green growth: Implementing green taxes to support $227 million in climate adaptation will ensure resilience and help meet Tanzania’s net-zero targets.

Conclusion

Tanzania’s tax system is a cornerstone of its economic transformation agenda. While the country has made impressive strides in revenue mobilization and sectoral development, major structural and operational issues remain. Addressing these through inclusive, technology-driven, and equity-focused reforms is not only vital for achieving Vision 2050 but also for securing a prosperous and resilient future for all Tanzanians.