Tanzania government defends borrowing, hints at tax reforms as budget approved

Dodoma. The government moved to defend its borrowing and assured its commitment to tackle tax reforms on Tuesday, June 24, 2025 as the Parliament unanimously approved the Sh56.49 trillion national budget for the 2025/26 financial year.

Winding up the budget discussions, the minister for Finance, Dr Mwigulu Nchemba, reassured the august House that Tanzania’s public debt remained sustainable, despite rising borrowing levels. He reiterated the government’s commitment to responsible fiscal management and productive use of loans.

“The debt is sustainable, and borrowing is necessary for development,” Dr Nchemba stated emphatically, adding that the conversation should shift from the volume of debt to how borrowed resources are utilised. As of April 2025, the Public Debt Stock reached Sh107.70 trillion. Out of that, external debt was Sh72.94 trillion, and domestic debt was Sh34.76 trillion.

According to Dr Nchemba, the October 2024 Debt Sustainability Analysis (DSA) found that the present value of the public debt to GDP was 40.3 percent, well below the 55 percent international risk threshold.

The present value of external debt to GDP was 23.6 percent compared to the threshold of 40 percent, with a debt-to-export ratio of 123.8 percent—again, comfortably under the 180 percent threshold that signals distress. 

“The government will continue to strengthen domestic revenue mobilisation and ensure that commercial loans are directed only toward productive, export-generating projects,” Dr Nchemba said.

In his final remarks, Dr Nchemba dismissed what he termed “emotional arguments” against borrowing, saying some individuals had gone so far as to warn children that they would bear the burden of debt repayment.

“That’s a misleading narrative. The focus should be on the productivity of the loan, not fear-mongering,” he said.

He noted that countries that fell into debt traps often did so due to lack of financial discipline and oversight, stressing that Tanzania’s case is different. The country, he insisted, has maintained strict fiscal discipline and ensured borrowed funds are used transparently.

Dr Nchemba also clarified that not all debt is public and not all borrowed funds are serviced by the government. The private sector, he said, is also a major borrower and shoulders its repayment obligations.

“The private sector borrows without government guarantees. Let’s not confuse total national borrowing with public debt,” he explained.

Major projects financed responsibly

To further defend the government’s borrowing strategy, Dr Nchemba listed key development projects—some completed, others ongoing—that have transformed Tanzania’s infrastructure and service delivery.  He emphasized that while some of these projects were financed through loans, many others relied on domestic resources. “Not every development initiative depends on external loans. We are using a blended approach to financing development,” he said.

Dr Nchemba also delivered good news on the global financial compliance front. He announced that Tanzania had officially been removed from the Financial Action Task Force’s grey list of countries under scrutiny for money laundering risks.

“This is a major achievement. It reflects the good governance and commitment to financial reforms under our current leadership,” he said.

Additionally, he shared that Fitch Ratings had reaffirmed Tanzania’s B+ credit rating and forecast a steadily strengthening economy. “This assessment shows the global confidence in our economic trajectory. We must protect and build on this momentum,” he noted.

Despite the budget’s approval, several tax proposals—particularly the 10 percent withholding tax (WHT) on retained earnings—sparked strong reactions from stakeholders.

While the government argues the tax will create equity between companies distributing dividends and those reinvesting profits, critics say the move amounts to double taxation.

Analysts warn that since companies already pay a 30 percent corporate tax on profits, an additional levy on retained earnings could stifle reinvestment, slow business growth, and even affect capital formation in key sectors.

The Tanzania Private Sector Foundation (TPSF) voiced its disapproval, saying the tax could discourage businesses from retaining earnings to finance expansion.

The Tanzania Bankers Association also raised red flags, warning that the tax could impact the banking sector’s ability to meet capital adequacy requirements, as retained earnings are a primary capital source.

Another proposal drawing criticism is the introduction of a mandatory $44 travel insurance fee for all incoming tourists. The government views the fee as a way to ensure safety and access to emergency services for visitors.

However, stakeholders argue it could duplicate existing travel insurance plans, increase costs for budget travellers, and deter regional or multi-destination tourism. “The tourism sector is price-sensitive. This additional fee could backfire by making Tanzania less competitive,” said a tour operator based in Arusha.

Dr Nchemba acknowledged that some tax proposals were contentious and revealed that ongoing discussions with the Parliamentary Budget Committee might result in adjustments. “We’ve listened to the concerns raised. These will be addressed in detail when we present the Finance Bill,” he said.

Resilience amid global challenges

Minister of State in the President’s Office [Investment and Planning], Prof Kitila Mkumbo, also weighed in during the budget wrap-up, emphasizing the economy’s resilience in the face of global headwinds.

“Despite global economic downturns, Tanzania’s economy has remained strong. For over a decade, inflation has stayed around 3.5 percent,” he said.

Prof Mkumbo noted that Tanzania’s economy had grown at an average annual rate of 6.2 percent over the past 20 years. However, he said the country’s ambition is to push growth to 8–10 percent in order to accelerate poverty reduction and job creation.

He underscored the country’s diversified economic structure, which helps absorb external shocks. “Unlike some economies dependent on a single commodity or sector, Tanzania’s growth is supported by agriculture, services, industry, and mining,” he said.

The 2025/26 budget sets the tone for a year of consolidation, reform, and caution. It reflects the government’s balancing act—ensuring fiscal responsibility while stimulating growth and managing rising debt.

While Parliament’s approval gives the government a green light to implement its priorities, some key tax measures remain hotly contested and are likely to feature prominently during the upcoming Finance Bill deliberations.

In the end, the coming months will reveal how the government fine-tunes its fiscal tools to sustain economic momentum, manage public sentiment, and build investor confidence—while making development felt across all corners of Tanzania.