Focus shifts to upgrade path after Moody’s affirmed Tanzania rating

The decision signals continued confidence in Tanzania’s macroeconomic framework despite political tensions surrounding the 2025 General Election. However, analysts caution that the B1 rating — still within speculative grade — underscores that stability alone will not significantly reduce borrowing costs or unlock access to cheaper long-term capital.

“The decision signals stability rather than celebration,” said independent financial analyst Christopher Makombe.

“It reassures investors that Tanzania’s debt trajectory remains manageable, but it does not yet unlock the cheaper capital associated with investment-grade economies,” he added.

For Tanzania to move from B1 towards the Ba category, rating agencies are likely to look for sustained structural reforms rather than short-term resilience.

Revenue mobilisation remains central to that equation.

Non-grant revenue has increased from 13.7 percent of GDP in the 2020/21 financial year to 15.9 percent in 2025/26 and is projected to exceed 17 percent this fiscal year. The improvement, driven by tax administration reforms, digitisation and stronger non-tax collections, is regarded as one of the country’s key credit strengths.

Nonetheless, analysts note that stronger fiscal buffers will be required to meaningfully reduce debt vulnerability.

Public debt has risen to just under 50 percent of GDP, while interest payments now absorb about 16 percent of government revenue — a critical metric reflecting the fiscal space remaining after servicing obligations.

“Over the next year, markets will closely monitor fiscal discipline, revenue mobilisation, debt service ratios and political stability,” Mr Makombe said. “Sustained improvement in these areas is essential if Tanzania is to position itself for a future upgrade.”

Dr Tobias Swai, a finance and investment expert at the University of Dar es Salaam, said the reaffirmation reflects continuity in policy direction and debt management.

“We have witnessed growth in foreign direct investment and increased lending to the private sector,” he said. “Despite substantial infrastructure spending, the government has continued to honour its debt obligations, which builds investor confidence.”

What rating means

Stanbic Bank Tanzania chief executive officer, Mr Manzi Rwegasira said the current rating means international creditors have assessed that Tanzania’s fiscal credibility and situation remains stable and broadly positive.

“This speaks to the country’s finances and economic outlook. The cost of borrowing from abroad (internationally) should remain constant (it is not rising), he said, reacting to the report.

“This is particularly positive given public concerns about investor sentiment on Tanzania following domestic challenges we faced last year,” he added. A debt management expert who preferred anonymity said any downgrade by Moody’s post October 29, 2025 would have created even more pressure from development partners some of whom were expecting this to go on the negative way.

“But this endorsement is very strong to investors who are planning to invest in Tanzania or lenders,” he said.

Reduced access to concessional financing following election-related tensions has increased reliance on more expensive funding sources, pushing up interest costs. Stabilising — and eventually reducing — the proportion of revenue allocated to debt servicing will be critical.

Moody’s noted that unrest during the 2025 elections elevated Tanzania’s risk profile but said stability was restored relatively quickly with limited economic disruption.

However, it cautioned that underlying social pressures linked to low income levels and rapid population growth could heighten medium-term vulnerabilities.

With GDP per capita estimated at $4,146 on a purchasing power parity basis, raising household incomes and diversifying the export base will be key to strengthening economic resilience. Higher incomes would expand the tax base and ease social pressures that can translate into fiscal and political risks.

The agency also observed that exchange-rate flexibility reforms and improved foreign-exchange market functioning have enhanced Tanzania’s capacity to absorb external shocks. Inflation has remained below five per cent since 2018, reinforcing monetary policy credibility.

Still, rating upgrades typically require stronger fiscal metrics, predictable institutions and durable political stability. Agencies will assess whether revenue gains are sustained, debt stabilises relative to GDP and interest costs decline as a share of government income.

Moody’s said a credible and lasting easing of domestic political risks following the 2025 election — including reconciliation efforts and greater civic space that supports access to concessional financing — would be credit positive.