Impact of External Debt on Economic Growth: A Case Study of Tanzania

This study investigated the impact of external debt on economic growth of Tanzania for the period of 1990-2010. The study used time series data on external debt and economic performance. It is assumed that external debt helps developing countries to meet developing needs. While debt servicing seeks development by restoring credibility to existing and new creditors. The study collected data from Bank of Tanzania (BoT), Zanzibar branch, President’s Office Finance, Economy and Development Planning in Zanzibar and Ministry of Finance (MoF), Tanzania. In addition, data were collected from the World Bank (WB) and International Monetary Fund (IMF) publications. The study revealed that there is significant impact of the external debt and debt service on GDP growth. The total external debt stock has a positive effect of about 0.36939 and debt service payment has a negative effect of about 28.517. Long run relationship the co-integration test shows that there is no long run relationship of the external debt and GDP. Conclusively, there is a need for further research to identify the impact of external debt on foreign direct investments and the impact of external debt on domestic revenues.