Is Tanzania’s debt still sustainable? Beyond the official numbers

By Anna Tibaijuka

In last week’s first article of this series, I argued that national debt is neither inherently good nor inherently bad. Countries borrow for development and borrowing can help finance infrastructure, industrialisation and economic transformation when managed prudently.

The real question is whether debt remains productive and sustainable over time. Tanzania’s current debate on debt must therefore move beyond slogans toward a closer examination of what the numbers actually reveal about the country’s fiscal reality.

Officially, Tanzania’s debt remains sustainable. According to government authorities and International Monetary Fund (IMF) assessments, the country is still classified as facing a “moderate risk” of debt distress.

Tanzania’s public debt is estimated at roughly 50 percent of GDP, a level still below the IMF’s general warning threshold of about 55 percent for low-income countries.

At first sight, these figures may appear reassuring.

Indeed, when compared internationally, Tanzania’s debt-to-GDP ratio does not seem unusually high. Japan’s public debt exceeds 230 percent of GDP.

The United States carries debt above 120 percent of GDP. China’s debt is approaching 90 percent of GDP, while India, Brazil and South Africa also maintain significantly higher debt ratios than Tanzania.

Yet this comparison can easily become misleading.

The critical issue is that GDP itself does not repay debt. Government revenue does.

This is where Tanzania’s situation becomes more delicate than headline debt figures suggest.

Recent budget estimates indicate that debt servicing — including interest payments and principal repayments — is consuming approximately 44 to 45 percent of government revenue.

In simple terms, nearly half of all revenue collected by government is now allocated to servicing debt obligations before funding education, health services, water supply, agricultural support, roads, public administration or social welfare.

This figure deserves careful attention because the IMF generally considers debt-service obligations above approximately 18 percent of government revenue to be an early warning indicator of fiscal vulnerability for low-income countries.

Tanzania is therefore operating at more than double that benchmark.

This does not mean the country is facing immediate collapse or insolvency. It does, however, suggest that fiscal pressure is intensifying and that future borrowing decisions require increasing caution and discipline.

The difference between Tanzania and advanced economies is not simply the size of debt, but the economic conditions under which debt is serviced.

Countries such as Japan, Germany and the United States possess deep financial markets, highly diversified economies, strong institutions and relatively cheap borrowing costs.

Japan, despite enormous debt, borrows largely from its own citizens at very low interest rates. Germany spends only a small portion of government revenue on debt servicing because its economy remains highly productive and fiscally disciplined.

Developing countries face a much narrower margin for error.

Their tax bases are smaller, borrowing costs are higher, export earnings are less diversified and currencies are more vulnerable to depreciation. A decline in commodity prices, a weaker currency or slower economic growth can rapidly increase debt-servicing pressures.

This explains why some countries experience fiscal stress at debt levels that would appear manageable in richer economies.

Kenya provides an important regional example. Although Kenya’s debt-to-GDP ratio remains far below Japan’s, rising debt obligations have contributed to mounting fiscal pressure, aggressive taxation measures and growing public frustration over the cost of living.

Recent protests there were driven by multiple factors, but debt-servicing pressure formed an important part of the broader economic context.

As governments allocate larger portions of revenue toward repayment obligations, tensions inevitably emerge over taxation, public spending and social welfare.

Tanzania has not reached that stage, but the Kenyan experience offers an important lesson about how debt pressures can gradually translate into wider economic and political tensions if not carefully managed.

Part of Tanzania’s borrowing has financed important infrastructure projects, including roads, railways, airports, power generation and strategic investments intended to strengthen long-term growth.

Supporters of government borrowing therefore argue, correctly, that economic transformation requires substantial investment capital. Poor countries cannot industrialise without infrastructure.

The more difficult question is whether the economic returns from these investments will materialise quickly and broadly enough to support future repayment obligations without placing excessive strain on public finances.

This is especially important because debt servicing itself is growing rapidly. Increasingly, governments may find themselves borrowing not only for development, but also to refinance existing obligations.

Economists refer to this as rollover financing — using new borrowing to service older debt. While not unusual internationally, excessive dependence on rollover financing can gradually weaken fiscal flexibility and increase vulnerability to future shocks.

None of this suggests that Tanzania should stop borrowing altogether.

Development still requires investment and carefully managed borrowing remains a legitimate economic tool.

But debt sustainability must be understood not only in technical accounting terms, but also in terms of how much fiscal space remains available for development, social services and future economic resilience.

The real challenge is therefore not simply whether Tanzania’s debt remains technically sustainable under international formulas.

The more important question is whether the structure and pace of borrowing are strengthening the country’s long-term productive capacity sufficiently to justify the growing repayment burden now falling on public revenues.

Beyond external borrowing, however, another quieter transformation is occurring inside the Tanzanian economy itself.

Domestic borrowing through Treasury bonds and government securities is expanding rapidly, drawing increasing amounts of capital from banks, pension funds and financial institutions.

This internal dimension of debt may ultimately reshape the economy in ways that are less visible, but potentially just as significant.

Next week I will analyse how rising domestic debt may be affecting private investment, pension funds, industrial growth and the future structure of Tanzania’s economy itself