We do live in times of financial irresponsibility. Thanks to the credit-based system, governments can print as much money as they want, run the economy on budget deficits, and accumulate more debts that will potentially result in default.
In April 2023, Tanzania allocated $41 billion to service its national debt. This was an increase of $4 billion from the previous year. The government said that the increase was necessary to cover the cost of interest payments and principal repayments on its debt. Tanzania's national debt has been growing steadily in recent years as the government has borrowed money to fund infrastructure projects and other development initiatives. The government has said that it is committed to reducing its debt burden, but it has acknowledged that it will take some time to do so.
The Tanzanian national debt stock stood at $42.26 billion. The government’s external debt stood at $26.2 billion, while its domestic debt stood at $16.06 billion. Moreover, the debt-to-GDP ratio stood at 35.7% in April 2023, which is considered to be high by international standards. And the Tanzanian government has said that it plans to reduce the debt-to-GDP ratio to 30% by 2028.
According to The Citizen, these $42 billion allocated to service the Tanzanian national debt amounts to a 15% rise from the $37.26 billion that the Parliament approved for paying the loans that the government took from various sources in the current fiscal year. Moreover, as he requested the Parliament’s approval of a total of $62 billion for his ministry for the fiscal year 2023/2024, the Finance and Planning Minister, Dr. Mwigulu Nchemba, said a total of more than $42 billion would be spent on servicing the government debt.
Tanzania national debt projected to 2028
Source: Statista
Debt can be used to finance productive investments that can boost economic growth. However, if debt is not managed carefully, it can lead to financial problems. The national debt of Tanzania was forecast to continuously increase between 2023 and 2028 by in total 16 billion U.S. dollars (+47.07 percent). The national debt is estimated to amount to 49.97 billion U.S. dollars in 2028. The anticipated augmentation of the debt-to-GDP ratio of Tanzania may lead to many economic woes.
First, it can lead to higher interest rates. When a country has a high debt-to-GDP ratio, it is seen as a riskier borrower. This means that lenders will charge the country higher interest rates on its borrowings. Higher interest rates can make it more expensive for the government to borrow money, which can lead to a decrease in government spending.
Second, it can lead to inflation. When a government has to borrow a lot of money, it can print more money to pay off its debts. This can lead to inflation, which is a decrease in the value of money. Inflation can make it more expensive for businesses to operate and for consumers to buy goods and services.
Third, it can lead to a decrease in economic growth. When a government has to spend a lot of money on debt repayment, it has less money to spend on other things, such as infrastructure and education. This can lead to a decrease in economic growth.
And fourth, it can make it difficult to respond to economic shocks. When a country has a high debt-to-GDP ratio, it has less flexibility to respond to economic shocks, such as a recession or a natural disaster. This is because the government may not have the money to spend on stimulus measures or to provide financial assistance to businesses and individuals.