Tanzania national budget was unveiled yesterday by the Finance Minister Mwigulu Nchemba. The budget has sparked a debate over its pros and cons. This discourse augment such positive efforts to review what is on the table. Here is my viewpoint and Professor Anna Tibaijuka’s viewpoint on parameters applied in the interpretation of sustainability of the national debt
📊 Tanzania’s 2025/26 National Budget: Key Advantages and Challenges.
The Sh56.49 trillion (≈$22 billion) budget for fiscal year 2025/26 focuses on domestic production, clean energy, healthcare financing, and infrastructure, while navigating global economic pressures and election-year priorities. Below is a balanced analysis of its strengths and weaknesses.
✅ Pros of the Budget.
1. Boosting Domestic Production & Agriculture.
– Tax Exemptions for Farmers:
VAT removed on agrochemicals, locally produced fertilizers (3-year zero-rating), and edible oil from domestic seeds. Tools like tractors, forks, and axes also exempted.
– Textile Incentives:
Zero VAT on garments made from Tanzanian cotton for one year, supporting local value addition.
– Livestock & Fisheries:
Reduced permit fees for cross-border livestock trade and lower import duties on fish to stabilize supply for processing factories.
2. Clean Energy Transition.
– VAT Exemptions:
Applied to CNG stations, cooking gas cylinders, and carbon capture equipment to promote clean cooking and reduce petroleum dependence.
– Infrastructure Push:
Ongoing LNG projects (e.g., Songo Songo West) and national grid expansion to all regions.
3. Support for Small-Scale Enterprises.
– Simplified Transport Taxes:
Motorcycles and *bajaji* (tricycles) now pay a flat annual tax of Sh120,000 (down from Sh290,000). Presumptive taxes abolished.
– Registration Fee Cuts:
Commercial motorcycle fees halved to Sh170,000 (paid once every 3 years).
4. Healthcare Financing Innovations.
– New Revenue Streams:
Excise duties on alcohol ($0.02–$0.05/liter), a Sh10/liter fuel levy, and a 0.1% mining levy fund universal health insurance and HIV/AIDS programs amid declining donor aid.
5. Infrastructure-Driven Growth.
– 12% Spending Increase:
Funds flagship projects like the 2,560-km railway network and Julius Nyerere Hydropower Dam, aiming for 6% GDP growth in 2025 (up from 5.5%).
– Deficit Reduction:
Budget deficit projected at 3.0% of GDP (down from 3.4%), aligning with East African Community targets.
⚠️ Cons and Risks.
1. New Tax Burdens on Citizens.
– Higher Living Costs:
Excise duties on alcohol, a Sh10/liter fuel levy, and new vehicle import levies (up to Sh200,000) may increase household expenses.
– Sector-Specific Taxes:
Airline tickets (Sh1,000) and train tickets (Sh500) face new levies, potentially dampening tourism and transport use.
2. Investment Climate Concerns.
– EPZ/SEZ Incentives Cut:
Removal of 10-year income tax exemptions for investors selling domestically could deter foreign direct investment.
– Mining Sector Pressure:
Loss carry-forward deductions reduced from 70% to 60%, accelerating tax collection but risking industry competitiveness.
3. Structural Economic Challenges Unaddressed.
– Persistent Poverty:
Despite growth, 25% live below the poverty line, and agriculture (60% of employment) remains low-productivity.
– Job Creation Gap:
Only a fraction of 700,000 annual youth job-seekers find formal employment, with urban unemployment at 32%.
4. Regional Disparities and Governance.
– Local Government Weakness:
LGAs remain dependent on central funding, with limited revenue mobilization capacity—hampering Vision 2050 implementation.
– Zanzibar Tensions:
Unresolved disputes over resource control (e.g., offshore gas) threaten political stability.
5. Tourism Sector Underfunding.
– Despite record arrivals (5 million in early 2025), tourism receives minimal budget allocation (down 46.7% in 2024/25). Outdated policies (e.g., 1999 Tourism Policy) hinder global competitiveness.
💎 Key Trade-Offs in the Budget.
| No. | Policy Goal. | Economic Benefit. | Social Cost. |
| 1.0 | Domestic production. | Boosts agriculture/textiles; cuts import dependency. | Higher consumer prices for taxed goods (e.g., fuel). |
| 2.0 | Healthcare funding. | Fills donor aid gap ($1.91B revenue loss offset). | Alcohol/fuel levies disproportionately affect low-income groups. |
| 3.0 | Infrastructure spend. | Projects like railways may elevate long-term growth. | Borrowing (Sh15T domestic/external) risks debt sustainability (public debt: 48% of GDP. |
Conclusion.
The 2025/26 budget advances industrial self-reliance and clean energy but risks inflationary pressure and investment deterrence. Success hinges on:
1. Efficient implementation of production incentives to counter new taxes’ impact on households.
2. Resolving structural gaps in agriculture/job creation to ensure growth reduces poverty.
3. Balancing election-driven infrastructure spending with fiscal prudence to avoid debt distress.
> “The budget is about removing barriers and creating real opportunities,” – Finance Minister Mwigulu Nchemba.
Yet, its legacy will depend on translating hardware (infrastructure) into software (human capital) for Vision 2050.
How does Tanzania budget fare within the EAC?
Based on the 2025/26 budgets presented by East African Community (EAC) member states on June 12, 2025, Tanzania’s fiscal plan demonstrates both alignments and divergences with regional peers. Here’s a structured comparison:
📊 1. Budget Size and Growth.
– Tanzania:
Tsh 57.3 trillion ($22 billion), a 16% increase from 2024/25. Aims for 6% GDP growth and a reduced deficit of 3.0% of GDP.
– Kenya:
Ksh 4.29 trillion ($33 billion), prioritizing infrastructure and education but facing military spending hikes (+$100M) and cuts to public services.
– Uganda:
Ush 72.3 trillion ($20 billion), targeting **6.4-7% growth** driven by oil/gas projects.
– Rwanda:
Rwf 7 trillion ($4.9 billion), a 21% surge—the largest regional increase—funding a new airport and social sectors.
💰 2. Fiscal Policies and Revenue.
– Tanzania:
Focuses on domestic revenue mobilization (target: 16.7% of GDP) and external borrowing ($3.4 billion). Avoided new taxes.
– Kenya/Uganda:
Similarly, they avoided new taxes amid public discontent, emphasising expenditure efficiency.
– Rwanda:
Introduced new tax measures to fund its expanded budget.
– Debt Burden**:
Uganda allocates 37% of its budget to debt servicing—the highest in EAC.
🏗️ 3. Sectoral Priorities.
| No. | Country. | Key Investments. | Notable Projects. |
| 1.0 | Tanzania. | Infrastructure (33.5% of budget), elections, AFCON 2027 stadia. | 2,560-km railway, Julius Nyerere Dam. |
| 2.0 | Kenya. | Education (Shs 19T), energy/ICT (Shs 14T), flood recovery. | Military expansion (+$100M). |
| 3.0 | Uganda. | Oil/gas, transport (Shs 6.3T), human capital (Shs 11.4T). | Standard gauge railway, oil pipelines. |
| 4.0 | Rwanda. | Agriculture, electricity, housing, Bugesera Airport. | Climate resilience programs. |
🌍 4. Regional Integration Gaps.
– Minimal Cross-Border Focus:
All budgets prioritize domestic agendas over EAC integration. Tanzania’s plan mentions regional goals but lacks joint projects.
– Shared Exceptions:
Kenya, Tanzania, Uganda collaborate on AFCON 2027 infrastructure.
– Economic Fragmentation:
Experts note budgets reflect “each country rowing its own boat” amid unresolved trade barriers.
⚖️ 5. Macroeconomic Targets.
– Growth:
Uganda (6.4-7%) > Tanzania (6%) > Kenya (~5%) .
– Inflation Control:
Tanzania targets 3-5%, aligning with Kenya/Uganda’s stability goals.
– Debt Sustainability:
Tanzania’s public debt is 48% of GDP; Uganda’s debt servicing consumes 37% of revenue.
💎 Conclusion: Alignment vs. Isolation.
Tanzania mirrors EAC trends in infrastructure investment and tax restraint but stands out with its high development allocation (33.5%). However, like peers, it sidelines regional integration—a critical gap for EAC’s collective resilience. Success hinges on balancing domestic goals with collaborative growth to harness the region’s 5.7% average growth potential.
A Renowned Professor Anna Tibaijuka weighed in on national debt.
Based on Professor Anna Tibaijuka’s critical perspective on Tanzania’s national debt, here’s a balanced analysis of her viewpoints and the parameters determining debt sustainability:
🎯 Prof. Tibaijuka’s Key Criticisms of Debt Assessment Parameters.
1. Flawed Reliance on Debt-to-GDP Ratio:
– She argues that Tanzania’s 46.7% debt-to-GDP ratio (2022/23) masks risks because ~47% of GDP comes from the informal sector, which contributes minimally to tax revenue. This limits the government’s capacity to service debt, despite “favorable” ratios.
– Her Viewpoint:
GDP-based metrics are misleading for economies with large informal sectors. Debt sustainability should prioritize **revenue-generating capacity** over aggregate economic output.
2. Recurrent Budget Burden Overlooked:
– **28.9% of Tanzania’s recurrent budget** (2022/23) was allocated to debt servicing , crowding out social spending. Tibaijuka contends this is a more critical metric than debt-to-GDP, as it directly impacts fiscal flexibility.
– Her Recommendation:
Cap debt service at ≤30% of recurrent expenditure to avoid austerity in health/education.
3. Currency and Refinancing Risks:
– 67.4% of external debt is USD-denominated, exposing Tanzania to exchange rate volatility (TZS depreciated 3.9% in 2025). This increases repayment costs, yet mainstream debt metrics underweight this risk.
– Short-term debt (12.65% of external debt) also raises refinancing risks during shocks.
4. Unproductive Borrowing:
– She criticizes loans funding non-revenue-generating sectors (e.g., social welfare = 19.9% of external debt) , arguing debt should prioritize infrastructure/productive sectors with direct ROI.
⚖️ Counterarguments from Mainstream Economics.
1. Debt-to-GDP Remains a Global Standard:
– Tanzania’s 46.7% debt-to-GDP is below the 55% EAC benchmark and compares favorably to peers (e.g., Uganda’s debt service = 37% of revenue). The IMF classifies Tanzania’s risk as “moderate“.
2. Reserves and Growth Mitigate Risks:
– $5.3 billion reserves (4.3 months of import cover) and 6% projected growth (2025) provide buffers . Multilateral loans (51.6% of external debt) also offer concessional terms.
3. Sectoral Investments Drive Future Revenue:
– Debt-funded projects (e.g., railways, energy) aim to **boost formal GDP** and tax bases long-term. For example, infrastructure receives 21.5% of external debt .
📊 Synthesis: Validity of Tibaijuka’s Critique.
| No. | Parameter. | Tibaijuka’s Stance. | Mainstream View. | Assessment. |
| 1.0 | Debt-to-GDP. | Misleading due to informal sector. | Key solvency indicator. | Her critique is valid. Informal sector weakens revenue linkage. |
| 2.0 | Recurrent Budget. | Critical metric (28.9% overspent). | Secondary to growth/debt ratios. | Strong evidence, High servicing crowds out development. |
| 3.0 | Currency Risk. | Underaddressed (USD dominance + TZS fall). | Managed via reserves/hedging. | “Valid concern**: Depreciation raised 2025 costs by ~TZS 2.47T. |
| 4.0 | Debt Allocation. | Focus on productive sectors only. | Social investments support human capital. | **Partially valid**: Balance needed; social spending has indirect ROI. |
💎 Conclusion: A Call for Hybrid Metrics.
Prof. Tibaijuka’s critique highlights structural gaps in conventional debt assessment:
– Tanzania should adopt **supplementary metrics** like:
– Debt service-to-recurrent budget (target ≤30%) .
– Informal sector formalization rate to strengthen revenue links.
– Currency risk exposure index for USD/Euro-denominated debt.
– While mainstream ratios (debt-to-GDP, reserves) remain useful, contextualizing them within Tanzania’s informal economy is essential for realistic sustainability analysis.
> “The application of debt-to-GDP ratio to determine solvency is flawed in economies like Tanzania, where half of GDP is shadow economy.” — “Implied from Tibaijuka’s stance”.
Her emphasis on fiscal realism over optimism aligns with data showing debt service diverting funds from poverty reduction (25% live below poverty line) . Addressing this requires both metric reform and strategic borrowing.
Read more analysis by Rutashubanyuma Nestory
