Banks Hold 36.4%, Bonds Dominate at 73% (Sept 2025)

Tanzania’s domestic debt stood at TZS 37,459.1 billion in September 2025, marking a modest 0.9% month-on-month increase and reflecting a stable, well-diversified financing structure. The debt composition is dominated by long-term government bonds (73%), supported by institutional investors such as pension funds and insurance companies, while Treasury bills (27%) continue to attract commercial banks for liquidity management. Creditor distribution shows other financial institutions holding the largest share at 39.7%, followed by commercial banks at 36.4% and pension funds at 23.9%, demonstrating healthy diversification and reducing concentration risk. This structure enhances fiscal stability, supports predictable borrowing costs, and aligns with long-term investment strategies, while commercial bank participation ensures liquidity depth in the T-bill market. Overall, the domestic debt profile contributes positively to financing government operations, supports monetary policy implementation, and anchors market confidence—though continued vigilance is required to prevent crowding-out pressures on private-sector credit as government borrowing expands.

1. Total Domestic Debt (September 2025)

2. Domestic Debt by Creditors Category

The domestic debt is held by three main creditor groups:

Breakdown of Creditors

• Commercial banks
• Pension funds
• Other financial institutions
  (insurance companies, BOT, and other non-bank entities)

Debt Distribution by Creditor

→ "Other financial institutions" hold the largest share at 39.7%, followed by commercial banks.

3. Additional Breakdown: Domestic Debt by Instrument

Although your question focuses on creditors, the internal structure helps interpret the creditor behaviour.

→ Pension funds favour longer-term bonds, aligning with their long-term liabilities.
→ Banks prefer T-bills due to short-term liquidity needs.

4. Summary Table — Government Domestic Debt by Creditor (September 2025)

Implications of Tanzania's Domestic Debt Composition in September 2025

The domestic debt data for September 2025, detailed in Section 2.7 (Debt Developments) of the Bank of Tanzania's (BOT) Monthly Economic Review (October 2025), reveals a stable and diversified funding base totaling TZS 37,459.1 billion (+0.9% MoM), comprising 29.4% of overall public debt (TZS 127,474.5 billion; external 70.6%). Instruments are bond-heavy (73%, long-term maturities) versus T-bills (27%, short-term), held diversely by commercial banks (36.4%), pension funds (23.9%), and other financial institutions (39.7%, including BOT, insurers, and non-banks). This structure—financed via oversubscribed securities auctions (T-bills 2.4x, bonds mixed; Section 2.5)—supports fiscal needs (TZS 618.5 billion deficit) amid 6.3% Q2 GDP growth, 3.4% inflation, and shilling strength (+9.4% y/y; Section 2.5). Below, TICGL outline implications, categorized by creditor and instrument, with broader economic ties.

1. Creditor Composition: Diversification Enhances Stability

• Other Financial Institutions (39.7%): Largest holders (e.g., BOT holdings for liquidity ops; insurers/non-banks for asset matching), indicating broad market absorption and reduced concentration risks. Their dominance in bonds (long-term) provides a stable base, aligning with pension funds' 23.9% preference for duration to match liabilities.
• Commercial Banks (36.4%): Key in T-bills (short-term liquidity management), reflecting banking sector liquidity (IBCM turnover +37.4% to TZS 3,261.6 billion). Their share supports active trading but ties debt to monetary policy (CBR 5.75%).
• Pension Funds (23.9%): Steady, long-term investors favoring bonds (73% of debt), bolstering demand and infrastructure financing (e.g., development spend TZS 1,272.9 billion).
• Broader Implications:
  • Positive: Diversified base (no single group >40%) lowers rollover risks and borrowing costs (T-bill yields down to 6.03%), complementing external concessional debt (57% multilateral). Enhances fiscal space for growth (projected 6%) without FX exposure, supporting private credit (16.1% y/y; Section 2.3).
  • Risks: Bank concentration (36.4%) could amplify liquidity squeezes (e.g., if reverse repos tighten), potentially crowding out private lending (lending rates 15.18%; prior analysis). Growing stock (+0.9% MoM) strains if revenues lag (87.2% target).

2. Instrument Breakdown: Bond Dominance for Long-Term Funding

• Government Bonds (73%): Long maturities (average ~10–15 years) held by pensions/insurers, reducing refinancing frequency and aligning with sustainable debt/GDP (40.1%, below EAC 50% threshold). Oversubscription in 20/25-year bonds signals confidence.
• Treasury Bills (27%): Short-term (up to 1 year), bank-preferred for liquidity, with yields easing (6.03% from 6.83%) amid surplus funds (M3 +20.8% y/y).
• Broader Implications:
  • Positive: Bond tilt promotes duration matching, stabilizing yields (12–13% for bonds) and fiscal predictability. Supports development priorities (e.g., infra/social sectors, 48.4% external use) without short-term volatility.
  • Risks: T-bill reliance (27%) heightens rollover needs in tight liquidity (e.g., from global tightening; Section 1.0), potentially raising costs if investor appetite wanes.

3. Fiscal and Macroeconomic Linkages

• Synergies with Policy: Domestic debt finances ~29.4% total (vs. external 70.6%), with creditor diversity aiding BOT's liquidity ops (reverse repos) and external resilience (CA surplus USD 1.0 billion Q2; Section 2.8). Ties to Zanzibar's domestic-heavy financing (78.4%).
• Debt Sustainability: Servicing (~TZS 2–3 trillion annually, est.) remains manageable (4.2% exports), with low real rates (vs. 3.4% inflation) preserving affordability.
• Broader Implications:
  • Positive: Institutional depth (pensions/insurers) fosters market development, boosting financial inclusion and EAC/SADC convergence. Complements shilling stability (lowers overall service burdens).
  • Risks: Expansion (+8.5% y/y est.) may crowd out credit if banks prioritize govt securities, dampening private investment (16.1% growth at risk). Global uncertainties (trade index up) could indirectly pressure via revenue (mining taxes down).

4. Policy Context from the Review

• Alignment: Mirrors prudent mix (monetary easing, fiscal discipline), with projections: Debt/GDP <45% by 2026, stable yields via auctions. In Zanzibar, similar domestic focus aids tourism surplus.
• Outlook: Monitor bank liquidity (IBCM 6.45%) and diversify non-bank holders to counter crowding out.

In conclusion, September 2025's domestic debt composition implies a resilient, institutionally backed financing framework that underpins fiscal sustainability and growth, with diversification mitigating risks. Bond dominance and broad holders promote stability, but coordination to avoid private credit displacement is essential amid global headwinds—aligning with the Review's emphasis on prudent policies for 2026.