Introduction

Tanzania is accelerating its economic transformation by leveraging Public-Private Partnerships (PPPs) as a key strategy for sustainable development. With a total development budget of TZS 54.575 trillion for 2021/22 to 2024/25, the government is focusing on infrastructure, energy, and social service projects. Notably, TZS 33.794 trillion of this budget is sourced domestically, showcasing Tanzania’s commitment to reducing reliance on external funding.

The PPP cost-sharing model, where the private sector contributes 80% while the government covers 20%, plays a pivotal role in financing major projects such as the Standard Gauge Railway (SGR), Julius Nyerere Hydropower Project, and rural electrification initiatives. These projects aim to create 10,000 jobs and add TZS 1 trillion annually to the economy, reinforcing Tanzania’s position as a regional economic hub.

Tanzania’s Development Budget and Key PPP Projects

The table below outlines the development budget allocations across fiscal years:

1. Infrastructure Projects

• Standard Gauge Railway (SGR): Enhancing regional trade and connectivity.
• Kigongo-Busisi Bridge & Road Networks: Reducing transport costs and boosting trade in the Lake Zone.
• Msalato International Airport: Supporting tourism and international business.

2. Energy Sector

• Julius Nyerere Hydropower Project (2,115 MW): A game-changer in energy stability.
• Rural Electrification Program: Targeting universal energy access.

3. Social Services

• Education Investments: Improving school infrastructure and student loans.
• Healthcare & Water Projects: Strengthening public health and clean water access.

4. Economic Development

• Agricultural Modernization: Expansion of irrigation and agribusiness.
• Dodoma City Development: Strengthening government operations and investment climate.

Economic Impact of PPPs

1. Job Creation:
   • PPP projects are projected to create 10,000 jobs, with 8,000 in the private sector and 2,000 in government-related roles.
2. Economic Growth:
   • Infrastructure development is expected to boost Tanzania’s economic output by TZS 1 trillion annually.
   • Trade efficiency could improve by 5%, enhancing Tanzania’s regional competitiveness.
3. Financial Efficiency:
   • Government capital savings of 80%, reducing reliance on state funding.
   • Private sector absorbs 80% of risks, ensuring cost-effective project implementation.
   • The Julius Nyerere Hydropower Project alone could generate TZS 31.725 billion annually, with a 15% efficiency increase expected from private-sector involvement.

Regional PPP Comparisons

Tanzania’s PPP model aligns with successful strategies in other African nations:

Success Factors in PPP Implementation

1. Clear Regulatory Framework:
   • Strengthening PPP laws and procurement processes ensures efficiency and investor confidence.
2. Risk Allocation:
   • Construction risk is managed by the private sector.
   • Political risk is absorbed by the government to maintain stability.
   • Market risk is shared to balance incentives and mitigate uncertainties.
3. Financial Structuring:
   • A 70:30 debt-to-equity ratio is common in PPPs.
   • Government-backed guarantees reduce investor risk.
   • Revenue-sharing mechanisms ensure sustainable returns for both public and private players.

Recommendations for Tanzania’s PPP Strategy

1. Optimize Cost-Sharing Models:
   • Maintain a 70-30 private-public cost-sharing structure to align with successful regional practices.
   • Focus on revenue-generating sectors like toll roads and renewable energy to enhance sustainability.
2. Prioritize Strategic Sectors:
   • Transportation: To boost trade efficiency.
   • Renewable Energy: To ensure sustainable power supply.
   • Technology & Digital Economy: To foster innovation and job creation.
   • Water & Sanitation: To enhance public health.
3. Strengthen Risk Mitigation Mechanisms:
   • Establish a dedicated PPP unit for project monitoring.
   • Standardize contracts and legal frameworks to attract investors.
   • Improve public awareness to gain community support for PPP projects.

Conclusion

Public-Private Partnerships are indispensable in Tanzania’s journey toward achieving Vision 2025. With infrastructure, energy, and social services at the core of PPP investments, Tanzania is reducing government financial burdens, improving public service delivery, and stimulating long-term economic growth.

By expanding PPPs into healthcare, education, and emerging industries, Tanzania can maximize economic resilience, enhance investor confidence, and create sustainable development pathways. With an annual economic output increase of TZS 1 trillion, Tanzania’s PPP-driven model positions the country as a leading economic hub in East Africa.

Zanzibar’s economy grew by 6.2% in 2024, up from 5.8% in 2023, driven by tourism (12.7% growth), trade (7.1% growth), and infrastructure investments. The inflation rate dropped to 3.9%, improving purchasing power, while government revenue reached TZS 1.43 trillion (+5.6%), exceeding targets. However, a budget deficit of TZS 190 billion remains, requiring better expenditure management. Exports grew by 9.8% (TZS 596.2 billion), but import dependence remained high at TZS 2.01 trillion. To sustain growth, Zanzibar must diversify its economy beyond tourism and enhance domestic production to reduce trade imbalances​.

Zanzibar’s economy showed steady growth in 2024, supported by strong tourism recovery, increased trade activities, and improved infrastructure investments. The real GDP growth rate was estimated at 6.2%, up from 5.8% in 2023, driven by expansions in tourism, construction, and agriculture​.

1. GDP Growth and Sectoral Performance

• Real GDP growth: 6.2% in 2024, up from 5.8% in 2023.
• Nominal GDP: Estimated at TZS 5.2 trillion, reflecting expansion in key sectors.

Sectoral Contributions to GDP

Key Observations:

✅ Tourism (29.5% of GDP) remained the backbone of Zanzibar’s economy, recording a 12.7% growth, supported by 1.02 million tourist arrivals (+14.2%).
✅ Trade & transport (18.3% of GDP) benefited from increased imports and port activities.
⚠️ Agriculture (16.8% of GDP) recorded slow growth (+4.9%), affected by unpredictable weather and limited value addition.

2. Inflation and Cost of Living

• Average inflation in Zanzibar stood at 3.9% in December 2024, lower than 4.5% in 2023, supported by stable food prices and energy costs.
• Food inflation declined to 4.1%, down from 5.3% in 2023, due to improved local food production and steady imports.
• Non-food inflation remained stable at 3.7%, driven by controlled fuel prices and lower transport costs.

Implication:
✅ Lower inflation improved purchasing power, benefiting households and businesses.
⚠️ Food price volatility remains a risk, requiring further investment in food security and agro-processing.

3. Government Revenue and Expenditure

• Total government revenue: TZS 1.43 trillion, exceeding the target by 5.6%, due to improved tax collection and tourism levies.
• Tax revenue: TZS 1.22 trillion, up 8.4% from 2023, with strong contributions from VAT (TZS 368.9 billion, +10.2%) and import duties (TZS 292.5 billion, +7.8%).
• Total government expenditure: TZS 1.62 trillion, with 62% allocated to development projects such as roads, water, and education infrastructure.

Implication:
✅ Higher revenue collection reduces reliance on central government transfers.
⚠️ A budget deficit of TZS 190 billion remains, requiring better expenditure management.

4. Trade and Investment in Zanzibar

• Total exports: TZS 596.2 billion, up 9.8% from 2023, driven by seafood (TZS 212.4 billion, +12.3%) and spices (TZS 159.7 billion, +11.8%).
• Total imports: TZS 2.01 trillion, up 6.7%, mainly in machinery (TZS 521.3 billion, +9.2%) and petroleum (TZS 642.8 billion, +10.1%).
• Foreign Direct Investment (FDI): TZS 324.7 billion, up 15.6%, led by tourism, construction, and port expansion projects.

Implication:
✅ Higher exports and FDI indicate increased investor confidence.
⚠️ Import dependence remains high, especially in energy and industrial goods.

5. Banking and Financial Services

• Total banking sector assets: TZS 3.42 trillion, up 7.9%, indicating a growing financial sector.
• Private sector credit growth: +10.8%, mainly in real estate (TZS 312.5 billion, +11.2%) and trade (TZS 254.3 billion, +9.6%).
• Interest rates on loans: Average lending rate at 12.8%, slightly lower than 13.2% in 2023, making credit more accessible.

Implication:
✅ Lower interest rates encourage borrowing and investment.
⚠️ Credit concentration in a few sectors (real estate and trade) increases risks if economic shocks occur.

Key Takeaways

📌 Zanzibar’s economy grew by 6.2%, with tourism (12.7% growth) and trade (7.1% growth) as key drivers.
📌 Inflation remained stable at 3.9%, while government revenue (TZS 1.43 trillion) exceeded targets.
📌 Exports increased by 9.8% (TZS 596.2 billion), but import dependence remains high (TZS 2.01 trillion).
📌 The financial sector is expanding, with private sector credit growing by 10.8%.

To sustain growth, Zanzibar must diversify exports, improve agricultural productivity, attract more investment in manufacturing, and manage public spending efficiently

The economic performance of Zanzibar in December 2024 provides key insights into growth trends, sectoral contributions, fiscal management, and financial stability:

1. Zanzibar’s Economy is Expanding, Led by Tourism and Trade

• Real GDP growth reached 6.2% in 2024, up from 5.8% in 2023, showing strong economic momentum.
• Tourism contributed 29.5% of GDP and grew by 12.7%, with tourist arrivals reaching 1.02 million (+14.2%), confirming a full post-pandemic recovery.
• Trade & transport (18.3% of GDP) grew by 7.1%, benefiting from increased port activities and import demand.

Implication:
✅ Zanzibar’s economy is growing steadily, driven by services and trade.
⚠️ Overreliance on tourism makes the economy vulnerable to external shocks (e.g., global crises, pandemics).

2. Inflation is Under Control, Improving Household Purchasing Power

• Inflation averaged 3.9% in 2024, lower than 4.5% in 2023, due to stable food and energy prices.
• Food inflation dropped to 4.1% from 5.3%, reflecting better domestic production and imports stability.

Implication:
✅ Lower inflation supports economic stability and consumer spending.
⚠️ Food price volatility remains a risk, requiring further investment in local food production.

3. Government Revenue is Improving, but a Fiscal Deficit Remains

• Revenue collection exceeded targets, reaching TZS 1.43 trillion (+5.6%), with strong tax contributions.
• Total expenditure was TZS 1.62 trillion, with 62% allocated to development projects.
• The budget deficit stood at TZS 190 billion, showing Zanzibar still relies on financing to meet expenditure needs.

Implication:
✅ Improved tax collection reduces dependency on mainland Tanzania.
⚠️ The budget deficit indicates a need for better public spending control and domestic revenue mobilization.

4. Trade and FDI Are Growing, but Import Dependence is High

• Exports increased by 9.8% (TZS 596.2 billion), mainly from seafood (+12.3%) and spices (+11.8%).
• Imports rose by 6.7% (TZS 2.01 trillion), with petroleum and machinery as the largest contributors.
• FDI inflows reached TZS 324.7 billion (+15.6%), driven by tourism, construction, and port expansion.

Implication:
✅ Rising exports and FDI show increasing investor confidence in Zanzibar.
⚠️ High import dependency, especially on petroleum and industrial goods, increases trade vulnerabilities.

5. Banking Sector is Expanding, Encouraging Private Sector Growth

• Total banking assets grew by 7.9% (TZS 3.42 trillion), showing financial sector strength.
• Private sector credit expanded by 10.8%, mainly in real estate (+11.2%) and trade (+9.6%).
• Lending rates dropped slightly to 12.8% (from 13.2% in 2023), making credit more affordable.

Implication:
✅ More credit availability supports business growth and investments.
⚠️ High credit concentration in real estate and trade may pose risks if the market slows.

Key Takeaways and What Needs to Be Done

📌 Zanzibar’s economy is growing steadily (+6.2%), with tourism (+12.7%) and trade (+7.1%) as key drivers.
📌 Inflation is low (3.9%), supporting household purchasing power and business growth.
📌 Government revenue (TZS 1.43 trillion) is improving, but a budget deficit (TZS 190 billion) remains a challenge.
📌 Trade and FDI are increasing, but import dependence on petroleum and industrial goods is high.
📌 The financial sector is expanding, with private sector credit growing by 10.8%.

Policy Recommendations:

🔹 Diversify the economy beyond tourism by promoting manufacturing, agriculture, and ICT.
🔹 Strengthen food security to reduce reliance on imported food items.
🔹 Enhance fiscal discipline to control the budget deficit and ensure sustainable spending.
🔹 Invest in renewable energy to reduce reliance on imported petroleum.
🔹 Support financial inclusion to expand credit access beyond real estate and trade.

Zanzibar’s economic outlook remains positive, but diversification and fiscal discipline will be key to sustaining long-term growth​

As of December 2024, Tanzania’s domestic debt stood at TZS 32.65 trillion, reflecting a decline of TZS 919.9 billion from the previous month, signaling improved revenue collection and reduced short-term borrowing needs. Commercial banks (30%) and pension funds (27.5%) hold the largest share of government debt, indicating significant financial sector exposure. Meanwhile, state-owned enterprises (SOEs) such as DAWASA (66.7%) and Tanzania Fertilizer Company (27.5%) accounted for TZS 74.1 billion in domestic debt, showing reliance on borrowing for infrastructure and operational financing. While the reduction in government borrowing is a positive sign, high financial sector exposure to government securities underscores the need for balanced fiscal policies and debt diversification​

Tanzania’s domestic debt stock stood at TZS 32.65 trillion at the end of December 2024, reflecting a decrease of TZS 919.9 billion from the previous month. The decline was primarily due to reduced government overdrafts from the Bank of Tanzania (BoT) as revenue collection improved​.

1. Government Domestic Debt by Creditor Category

Tanzania’s domestic debt is held by commercial banks, pension funds, the Bank of Tanzania, insurance companies, and other financial institutions.

Key Observations:

✅ Commercial banks are the largest holders of domestic debt (30%), meaning government borrowing has a direct impact on banking sector liquidity.
✅ Pension funds hold 27.5%, indicating a strong link between government debt and social security investments.
⚠️ The Bank of Tanzania (18.2%) has reduced its exposure, reflecting improved revenue collection, reducing the need for government overdrafts.

2. Selected State-Owned Enterprises (SOEs) Domestic Debt Stock

In addition to central government borrowing, state-owned enterprises (SOEs) also accumulate domestic debt. As of December 2024, SOEs' total domestic debt stood at TZS 74.1 billion, a slight decrease from TZS 75.3 billion in November 2024​.

Key Observations:

✅ DAWASA (66.7%) and Tanzania Fertilizer Company (27.5%) are the largest SOE borrowers, likely financing infrastructure and supply chain improvements.
⚠️ TANESCO, TPA, and ATCL have no reported domestic debt, suggesting they rely more on external borrowing or government subsidies.
✅ SOE debt declined slightly, indicating possible repayments or reduced borrowing needs.

Key Takeaways

📌 Tanzania’s total domestic debt stands at TZS 32.65 trillion, with commercial banks (30%) and pension funds (27.5%) as the main creditors.
📌 SOEs hold TZS 74.1 billion in domestic debt, with DAWASA (66.7%) and Tanzania Fertilizer Company (27.5%) as the largest borrowers.
📌 The decline in domestic debt suggests better government revenue collection, reducing dependence on short-term borrowing from the central bank.

To ensure long-term sustainability, the government must balance domestic borrowing with fiscal discipline, ensuring SOEs operate efficiently and do not rely excessively on public debt

The domestic debt structure of Tanzania provides important insights into government borrowing patterns, financial sector stability, and fiscal sustainability:

1. Government Domestic Debt is Declining – A Positive Fiscal Sign

• The total domestic debt stock stood at TZS 32.65 trillion in December 2024, down by TZS 919.9 billion from the previous month.
• This decline suggests improved revenue collection, reducing the need for short-term domestic borrowing to finance budget deficits.
• The Bank of Tanzania’s share of government debt fell to 18.2%, indicating reduced reliance on direct central bank financing.

Implication:
✅ A decline in domestic borrowing reduces debt service costs, freeing up resources for development projects.
⚠️ If revenue collection slows, the government may return to domestic borrowing, increasing financial sector risks.

2. Financial Sector Exposure to Government Debt is High

• Commercial banks hold 30% (TZS 9.78 trillion) of domestic debt, meaning that government borrowing influences banking sector liquidity.
• Pension funds hold 27.5% (TZS 8.99 trillion), making them highly dependent on government repayment capacity.
• If the government delays payments or restructures debt, banks and pension funds could face liquidity challenges.

Implication:
⚠️ High exposure of banks and pension funds to government debt means fiscal instability could weaken the financial system.
✅ If the government continues to reduce borrowing, it may free up liquidity for private sector lending, supporting economic growth.

3. State-Owned Enterprises (SOEs) Rely on Domestic Debt for Operations

• DAWASA (Water Supply) accounts for 66.7% (TZS 49.4 billion) of SOE domestic debt, likely for infrastructure projects.
• Tanzania Fertilizer Company holds 27.5% (TZS 20.4 billion), indicating dependency on government support for agricultural input financing.
• TANESCO, ATCL, and TPA reported no domestic debt, suggesting they rely on external loans or government subsidies.

Implication:
⚠️ SOEs with high debt burdens may struggle with repayments, increasing risks of contingent liabilities for the government.
✅ Reducing reliance on domestic borrowing could improve SOE financial health, ensuring long-term sustainability.

4. Key Risks and Policy Recommendations

📌 Risk: High domestic debt could crowd out private sector lending if commercial banks prefer risk-free government securities over business loans.
📌 Risk: Pension funds are heavily exposed to government debt, meaning fiscal instability could impact retirees’ savings.
📌 Opportunity: Lower government borrowing could lead to lower interest rates, increasing private sector access to credit.

What Needs to Be Done?
🔹 Enhance domestic revenue collection to reduce borrowing needs.
🔹 Diversify pension fund investments beyond government securities.
🔹 Improve SOE financial management to reduce reliance on domestic debt.
🔹 Promote private sector growth by ensuring bank liquidity is used for business financing, not just government lending.

Final Takeaway

📌 The government is reducing its domestic debt reliance, a positive fiscal sign.
📌 However, banks and pension funds still hold significant government debt, making them vulnerable to fiscal shocks.
📌 SOEs like DAWASA and Tanzania Fertilizer Company depend on domestic debt, highlighting the need for financial discipline.

To ensure long-term stability, Tanzania must balance domestic borrowing with efficient revenue collection and responsible debt management​