When borrowing builds nations — and when it burdens them

By Anna Tibaijuka

Few economic issues provoke stronger political emotions than national debt. Around the world, governments defend borrowing as necessary for development while critics warn about future burdens on taxpayers and loss of economic sovereignty. Tanzania is no exception.

As public debate over the country’s growing debt intensifies, it is important to begin not with slogans or partisan positions, but with a clear understanding of what national debt actually is, why countries borrow, what distinguishes productive borrowing from dangerous indebtedness, and why the debt question ultimately concerns not only economics, but also the welfare of future generations.

This four-part series examines the broader meaning of public debt, analyses Tanzania’s current debt trajectory, explores the growing implications of domestic borrowing, and finally considers how the country can build a more sustainable and responsible borrowing framework for the future.

At its simplest, national debt refers to money borrowed by government to finance expenditures that exceed current revenues. Governments borrow either domestically through Treasury bills and bonds purchased by banks, pension funds and citizens, or externally from bilateral partners, international financial institutions and commercial lenders.

Borrowing itself is not abnormal. In fact, virtually all countries borrow, including the world’s wealthiest economies.

The United States carries public debt exceeding 120 percent of GDP. Japan’s debt exceeds 230 percent of GDP, the highest in the world.

China’s debt is approaching 90 percent of GDP, while countries such as India, Brazil and South Africa all maintain significant public debt burdens. Yet these countries continue functioning because debt, when properly managed, can finance economic growth, infrastructure, industrialisation and technological development.

This is why economists often distinguish between “good debt” and “bad debt”.

Good debt finances productive investments that strengthen the economy’s future capacity to generate income and repay what was borrowed.

Railways, ports, energy systems, irrigation schemes, industrial parks, universities and strategic infrastructure can help transform economies if they are well planned and efficiently implemented. Such investments may generate jobs, exports, productivity and tax revenues for decades.

Bad debt, by contrast, finances consumption, waste, corruption or projects with little economic return.

A country that borrows heavily for political prestige projects, administrative expansion or recurrent expenditure may accumulate repayment obligations without creating sufficient productive assets to support future repayment.

In such cases, future generations inherit debt without inheriting development.

This is what makes public debt not only an economic issue, but also a moral and political one.

Debt contracted today may continue to shape government budgets for thirty or forty years.

Citizens who were not even born when loans were signed may eventually bear the burden through higher taxes, reduced social spending or slower economic growth.

For this reason, institutions such as the International Monetary Fund and the World Bank established debt sustainability frameworks intended to help countries avoid excessive debt burdens. These frameworks use indicators such as debt-to-GDP ratios, debt-service-to-revenue ratios and external debt obligations to assess whether borrowing remains manageable.

For low-income countries, the IMF generally considers debt-service obligations above approximately 18 percent of government revenue to be a warning sign of rising fiscal vulnerability. This ratio matters because governments repay debt not from GDP itself, but from actual revenue collected through taxation and other sources.

This distinction is extremely important.

A country may have a high debt-to-GDP ratio but relatively manageable debt servicing because it possesses a strong economy, stable institutions and deep financial markets. Japan, for example, carries debt exceeding 230 percent of GDP, yet its debt servicing burden remains manageable because most of the debt is domestically financed at low interest rates. Germany’s debt is around 60 percent of GDP, but it spends a relatively small share of revenue servicing debt because of strong economic productivity and fiscal discipline.

Developing countries face a different reality. Their revenue bases are often smaller, borrowing costs higher, export earnings weaker and currencies more vulnerable to depreciation. As a result, even moderate debt levels can generate severe fiscal pressure.

This helps explain why debt has become politically controversial across Africa. Kenya, for example, has experienced growing social tensions partly linked to rising debt obligations and aggressive taxation measures introduced to strengthen government revenues. Public protests there reflected broader frustrations about the cost of living, unemployment and the perception that ordinary citizens were carrying the burden of mounting debt repayment obligations.

The Tanzanian debate must therefore move beyond the simplistic question of whether borrowing is good or bad. Development requires investment, and poor countries often cannot finance transformation using domestic savings alone. The more important question is whether borrowing is productive, transparent and sustainable.

Ultimately, debt is a tool. In capable hands it can help build roads, industries, energy systems and productive capacity that transform nations. In irresponsible hands it can fuel waste, corruption and fiscal dependence whose costs are transferred to future generations.

Debt, therefore, is neither inherently virtuous nor inherently destructive. The crucial question is whether borrowing strengthens a country’s productive capacity sufficiently to justify the obligations created.

It is this distinction between technical borrowing and genuine sustainability that now lies at the centre of Tanzania’s growing debt debate — a debate that requires moving beyond headline statistics toward a closer examination of the country’s current fiscal reality.

Prof Anna Kajumulo Tibaijuka is a retired Tanzanian Minister and former United Nations Under-Secretary-General and Executive Director of UN-HABITAT in Nairobi