Tanzania’s debt-to-GDP ratio may still appear moderate by international standards, yet the more important concern is that debt servicing now consumes an increasingly large share of government revenue.
I also examined the quieter rise of domestic borrowing and its implications for private investment, pension funds and long-term economic dynamism.
The challenge facing Tanzania today is therefore not whether borrowing should continue, but how borrowing can be transformed into a more disciplined and sustainable national development strategy.
The first principle of such a strategy is that borrowing must remain closely tied to productive transformation.
Debt should finance investments capable of expanding the economy’s future capacity to generate income, exports, employment and tax revenues.
Roads, ports, railways, energy systems, irrigation infrastructure, industrial parks and technological development can strengthen long-term national productivity if efficiently implemented and connected to broader economic growth.
Borrowing becomes dangerous when it increasingly finances recurrent expenditure, administrative expansion, political patronage, profligacy and public ostentatious consumption such as luxurious vehicles and projects that generate limited economic returns ending up as wasteful white elephants.
A country cannot sustainably accumulate debt without simultaneously expanding the productive sectors needed to support future repayment obligations.
This is why the quality of borrowing matters as much as the quantity.
Countries such as Japan, Germany and even the United States maintain high levels of public debt because their economies remain highly productive, diversified and technologically advanced.
Investors continue lending to them because they possess strong institutions, deep financial markets and reliable revenue systems. Japan’s debt exceeds 230 percent of GDP, yet its debt servicing burden remains manageable because most borrowing is domestic and interest costs are relatively low.
Developing economies operate under very different conditions.
Tanzania’s debt ratio may be far lower than Japan’s, but debt servicing already consumes approximately 44 to 45 percent of government revenue — far above the IMF’s general warning benchmark of about 18 percent for low-income countries.
This means that the country has much less fiscal room to absorb economic shocks, expand social services or finance future development priorities without additional borrowing.
Another important consideration for developing countries is the nature and cost of borrowing itself.
Historically, many low-income countries benefited from concessional financing provided by bilateral partners and international financial institutions at low interest rates and with long repayment periods.
Such financing reduced fiscal pressure and allowed governments more time to generate economic returns from development investments.
However, as relations between some African governments and sections of the donor community become more strained, access to concessional finance has become increasingly constrained, forcing many countries to rely more heavily on commercial borrowing at significantly higher interest rates and shorter repayment periods.
This shift carries serious risks for poorer economies because commercial debt accumulates more rapidly and is less flexible during periods of economic stress.
Commercial borrowing generally offers limited scope for debt restructuring or forgiveness, making future repayment burdens potentially much heavier in an already narrow fiscal space.
This is where governance becomes critically important. Borrowing decisions must be guided by transparency, accountability and rigorous economic evaluation.
Every major publicly financed project should undergo careful cost-benefit analysis to determine whether expected economic returns justify long-term repayment obligations.
Citizens have a legitimate right to know how much government is borrowing, under what terms, for which projects and with what anticipated developmental outcomes.
Parliamentary oversight is equally essential. Sovereign borrowing decisions shape the country’s future fiscal trajectory for decades and should therefore receive serious public scrutiny rather than remaining confined largely to technical financial processes.
Debt management is not merely an accounting issue. It is a national strategic question affecting future taxation, public services, industrialisation and intergenerational welfare.
Corruption also remains central to the debt debate. Even moderate corruption can significantly weaken the developmental value of borrowed resources. Tanzania must also strengthen domestic revenue mobilisation.
No country can rely indefinitely on borrowing as a substitute for productive economic expansion. Sustainable repayment capacity ultimately depends on the strength of the real economy itself.
Expanding manufacturing, improving agricultural productivity, promoting value addition, formalising economic activity and strengthening export competitiveness are therefore essential components of long-term debt sustainability.
Industrialisation deserves particular emphasis. Countries dependent primarily on raw commodity exports often remain vulnerable to external price fluctuations and foreign exchange shortages.
Stronger industrial capacity generates employment, technological upgrading, exports and a broader tax base capable of supporting national development with reduced dependence on debt.
Tanzania still possesses important advantages. The country has strategic geographic location, natural resources, political stability and significant long-term economic potential.
Borrowing can still contribute positively to national transformation if disciplined carefully and aligned with productive priorities.
The debate should therefore move beyond simplistic arguments either defending all borrowing or condemning it entirely. Poor countries often require external financing to accelerate development.
The more important issue is whether borrowing strengthens national productive capacity sufficiently to justify future repayment obligations.
Ultimately, debt is a test of national discipline, institutional integrity and developmental vision.
Countries do not prosper merely because they borrow, but because they convert borrowed resources into productive capacity, human development and long-term economic strength.
Borrowing should never mortgage the future. Its purpose should be to expand the productive strength, dignity and cc generations so that they inherit not merely repayment obligations, but a stronger and more prosperous Tanzania.
Prof Anna Kajumulo Tibaijuka is a former Tanzanian Cabinet minister and former United Nations Under-Secretary-General and Executive Director of UN-HABITAT
