Foreign exchange losses are among the main factors behind the sharp increase in Tanzania’s debt servicing expenditure. Between the 2022/23 and 2024/25 financial years, the country incurred about Tsh 8.5 trillion in foreign exchange losses on debt servicing due to the depreciation of the Tanzanian shilling.
These losses accumulated during a period when the country experienced an acute shortage of U.S. dollars, driven by a widening current account deficit caused by the lingering effects of the COVID-19 pandemic, the Russia-Ukraine war, and the financing needs of major infrastructure projects, including the Mwalimu Nyerere Hydropower Project, which was in its final stages.
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According to the government’s audit report on the loan account, Tanzania incurred about Tsh 252 billion in foreign exchange losses on loan repayments during the 2022/23 financial year. However, in the 2023/24 financial year, the losses surged to Tsh 6.9 trillion, before declining to approximately Tsh 2 trillion in the 2024/25 financial year.
The losses are significant because about 67.8 percent of Tanzania’s public debt is external, with most of it denominated in foreign currencies. According to the Bank of Tanzania, as of April 2026, the U.S. dollar accounted for 66 percent of the external debt portfolio, followed by the euro at 17.7 percent and the Chinese yuan at 6.6 percent.
In its Debt Management Strategy 2025/26–2027/28, the Ministry of Finance noted that, “Debt portfolio is highly sensitive to U.S. dollar movements given the dominance of the USD-denominated liabilities in the external debt stock.”
The strategy’s scenario analysis indicates that exchange rate shocks affect several key debt sustainability indicators, including the debt-to-GDP ratio, the present value of debt-to-GDP ratio, and the debt service-to-GDP ratio.
To manage foreign exchange risks, Tanzania has launched a gold purchasing programme, under which sourcing gold in local currency reduces the country’s need to acquire foreign currency for reserves, thereby easing pressure on the shilling. The government has also mandated the use of the Tanzanian shilling for all domestic transactions and introduced measures to curb the outflow of U.S. dollars. These include requiring all Letters of Credit (LCs) for transit cargo to be funded using foreign exchange obtained from the respective destination country.
In mitigation of the foreign exchange pressure on debt, countries such as Kenya have negotiated to convert part of their debt, particularly debt owed to China, from U.S. dollars to Chinese yuan. This approach is also being closely monitored by several other countries, including Ethiopia, Mozambique, and Zambia.
