Debt sustainability is about capacity, not size
DAR ES SALAAM: TANZANIA’S rising public debt has become the subject of renewed debate following concerns raised by veteran politician and economist Anna Tibaijuka, who recently questioned whether the country’s debt remains sustainable in light of emerging fiscal indicators.
Prof Tibaijuka, a former cabinet minister, prominent politician and ex-UN staff member, shared on social media her concern that Tanzania’s national debt might be unsustainable. She pointed out that the debt currently represents 31 per cent of the country’s GDP, significantly exceeding the IMF’s minimum threshold of 18 per cent.
A number of economists and policy analysts also maintain that Tanzania remains within internationally accepted sustainability thresholds and continues to possess the capacity to borrow for development purposes.
Their position is supported by assessments from international financial institutions, which continue to classify Tanzania as facing a low risk of debt distress despite the steady increase in the country’s debt stock.
The debate comes as Tanzania pursues an ambitious infrastructure-led development strategy, financed in part through external borrowing.
Among the indicators’ attracting attention is the Present Value (PV) of External Debt-to-Exports ratio, which analysts note stands at around 31 per cent. While this exceeds certain warning thresholds used in some debt sustainability assessments, proponents of the government’s borrowing strategy argue that a single indicator cannot be used in isolation to determine the overall health of a country’s debt position.
Instead, they point to a broader range of factors considered by institutions such as the IMF and the World Bank when assessing debt sustainability, including economic growth, revenue generation, debt composition and repayment capacity.
One of the central arguments advanced by economists defending Tanzania’s debt position is that the country’s economy continues to expand at a pace that exceeds the growth of its debt burden.
Tanzania has recorded annual economic growth averaging above 5 per cent in recent years, supported by investments in transport infrastructure, energy projects, mining, manufacturing and natural gas development.
According to analysts, sustained economic growth strengthens the government’s capacity to collect taxes, generate revenue and meet future debt obligations.
“The critical issue is not whether debt is increasing, but whether the economy’s ability to service that debt is growing at the same pace or faster,” said one economic analyst familiar with debt sustainability assessments.
Analysts also argue that a substantial share of public debt has been directed toward productive infrastructure projects rather than recurrent government expenditure.
Major investments include the Standard Gauge Railway (SGR), the Julius Nyerere Hydropower Project (JNHPP), port expansion initiatives, road networks, airports and water infrastructure.
Presenting estimates of government revenue and expenditure for 2026/27 recently, Finance Minister Ambassador Khamis Mussa Omar said strong economic fundamentals, ongoing reforms and improved debt management practices continue to underpin macroeconomic stability.
Amb Omar told the National Assembly in Dodoma that Tanzania’s public debt remains sustainable and within internationally accepted limits.
He said as of March this year, total public debt stood at 114.34tri/- and this amount, domestic debt accounted for 38.45tri/- (33.6 per cent), while external debt stood at 75.89tri/- (66.4 per cent).
Key debt indicators were reported to be well within policy thresholds. The present value of public debt to GDP stands at 39.6 per cent, below the 55 per cent ceiling, while external debt to GDP is 24.4 per cent, below the 40 per cent limit.
The external debt to exports stands at 123.1 per cent, compared to a threshold of 180 per cent, indicating continued fiscal space and the country’s capacity to meet its obligations without undermining macroeconomic stability.
“These results demonstrate the country’s strong ability to sustain its debt position while maintaining overall economic stability, supported by prudent fiscal management,” he noted.
“The borrowed funds were largely directed toward strategic sectors, including transport, energy and communications infrastructure, with the aim of supporting long-term economic growth,” Amb Omar said.
He noted that a Debt Sustainability Analysis (DSA) conducted in November last year confirmed that the country’s debt remains sustainable in both the medium and long term.
Economists note that such projects are expected to enhance productivity, facilitate trade, improve energy access and stimulate economic activity over the long term.
Under this view, borrowing for strategic development projects differs significantly from borrowing to finance routine government operations, as the investments are expected to generate future economic returns capable of supporting debt repayment.
Another factor cited by analysts is Tanzania’s debt-to-GDP ratio, which remains below the high-risk thresholds commonly applied to countries with similar economic characteristics.
Debt-to-GDP is widely regarded as one of the key indicators used in assessing whether a country’s debt burden is manageable relative to the size of its economy.
Although Tanzania’s total debt has risen in nominal terms, economists argue that the country’s economic expansion has helped maintain debt levels within ranges considered manageable by international lenders.
This assessment is reflected in recent debt sustainability analyses that continue to place Tanzania in the low-risk category.
Analysts also point to government efforts aimed at increasing domestic revenue collection as an important factor supporting debt sustainability.
The 2026/27 budget outlines measures designed to expand the tax base, increase the use of digital technologies in tax administration, deploy artificial intelligence tools for revenue collection, combat tax evasion and formalise economic activities.
Such initiatives are intended to increase government revenues while reducing reliance on borrowing as a source of financing.
Improved revenue performance, economists argue, strengthens the state’s capacity to meet both current and future debt obligations.
The composition of Tanzania’s debt portfolio has also been cited as a significant factor in maintaining sustainability.
A large proportion of external borrowing comes from multilateral institutions, including the World Bank, the African Development Bank and the International Monetary Fund, as well as other development partners.
These loans generally carry lower interest rates, longer repayment periods and grace periods before repayment begins, making them less burdensome than commercial borrowing from international capital markets.
Economists argue that such financing arrangements reduce short-term repayment pressures and provide governments with greater flexibility in managing debt obligations.
Despite defending Tanzania’s current debt position, many analysts emphasise that continued sustainability will depend on how future borrowing is utilised.
They argue that additional loans should remain focused on productive investments capable of generating economic growth, employment opportunities and future government revenues.
The broader consensus among economists is that debt remains sustainable when borrowed funds contribute to economic expansion at a rate that exceeds the growth of the debt itself.
While concerns over rising debt levels continue to generate debate, Tanzania’s current standing with international financial institutions suggests that the country’s borrowing strategy remains broadly consistent with debt sustainability principles.
The long-term test, however, will depend on whether today’s investments generate the economic returns needed to support tomorrow’s repayment obligations.
In addition, internationally recognised credit rating agencies, Moody’s Investors Service and Fitch Ratings Ltd, conducted a first-phase assessment of Tanzania’s debt servicing capacity for 2026.
The assessment concluded that Tanzania remains creditworthy and has a strong capacity to meet its debt obligations.
The positive assessment was attributed to sustained economic growth, structural reforms aimed at improving the business and investment environment, disciplined public expenditure management and increased domestic revenue collection.
Despite the positive outlook, the government reaffirmed its commitment to maintaining debt sustainability going forward.
