The Effect Of Public Debt On Economic Growth In Tanzania

ABSTRACT

This dissertation reports the findings of the evaluation of the effect of public debt on economic growth in Tanzania. The specific objectives of the study were two: to find out the effect of external debt on the economic growth of Tanzania and determine the effect of domestic debt on the economic growth of Tanzania. References were drawn from the external debt components, namely multilateral debts and external debt, and domestic debt documents reviewed were treasury bills and government bonds. The control variables of the study are the private investments, imports, exports, subsidies, and tax revenues. A causal relationship research design was employed in which time series data of 18 years were used to generate data from each variable. The study adopted the annual data from financial year 2000/2001 to 2018/2019. The sample for the study was 18 observations. The data collected from various trusted sources which included the World Bank and Ministry of Finance and Planning and the Bank of Tanzania (BOT). The analysis of the data obtained revealed that a total external debt stock has a positive effect on economic growth. Evidence to justify this comes from the calculated p-value (0.000) which is small at all levels of significance (5%,). Further, the domestic debt appears to have no significant effect on economic growth, as evidenced by the probability value of 0.619, which is higher at all levels of significance. The long-term external debt stock does not have significant effect on economic growth. In contrast, a short-term external debt appears to have significant effect on economic growth. However, the effect on the economy is minimal as evidenced by the size of coefficient. Generally, the study concludes that sustainability of the public debts was still below the required threshold of sustainable public debts. External debts have a positive effect on the economic growth while the long term effect has an insignificant effect on economic growth. In contrast, the short term effect appears to have a positive significant impact. However, domestic public debts were found to be statistically significant to economic growth because of high interest. The Ministry of finance are recommended to take soft loans, to allocate on development projects and to make timely payment. And the CAG is should have full authority to examine public debts and his or her recommendations must be followed by the Government.