An Empirical Assessment of the Impact of External Debt on Economic Growth in Tanzania.

Sampa, Francis Moris (2020) An Empirical Assessment of the Impact of External Debt on Economic Growth in Tanzania. Masters thesis, The Open University of Tanzania.

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Abstract

The purpose of this study was to investigate the impact of external debt on economic growth in Tanzania. External debt continues to be a crucial source of financing strategic economic infrastructure and unleashing Tanzania’s economic growth potential. External debt fills the gap left by domestic revenues and the declining foreign development assistance. Over the past 50 years, the over 70%of Tanzania’s debt stock was attributed to external debt, while domestic loans constituted only 30%. By June 2019, share of external debt increased to 77% (USD 21.9) while domestic debt decreased to 23% (USD 6.5 billion). Empirical results show that Tanzania’s external debt as percentage (%) of GDP had positive but not significant impact on growth; external debt as % of export had positive but not significant impact on growth; external debt service as the % of export has negative but not significant impact on growth. Concessionality of Tanzania’s debt had positive and significant impact on growth; reserves as percentage of external debt had positive and significant impact on growth. It is recommended that Tanzania continues to maintain sound macroeconomic performance and monetary policy, ensures debt management is more robust and that debt remains sustainable and largely concessional, borrowed funds are invested in productive and strategic economic infrastructure that boost economic growth and debt service remains within the government’s ability to pay. Tanzania should also strengthen its terms of trade position by expanding and diversifying its exports, attract investment by ensuring a competitive business environment and maintain exchange rate stability to prevent it and negatively affecting the economy and debt serving. Keywords: Reserves, Concessional debt, GDP Growth, External Debt.

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