Macroeconomic Determinants of Accumulation of Public External Debt : The Case of Tanzania

This paper analyses the role of some macroeconomic variables in determining debt accumulation in Tanzania from 1975-2008. It establishes a quantitative relationship between public external debt to GDP ratio and some major internal factors (domestic savings and budget deficit) and external factors (trade deficit, interest payments and real exchange rate). The results suggest that, while the external factors are also significant, internal factors seems to play greater part in explaining variations in debt to GDP ratio; implying that the domestic authorities could apply both fiscal and monetary policy tools to control debt accumulation and reduce too much dependence on debt relief and other forms of foreign aid. -- Relevance to Development Studies -- External debt has been a major global concern regarding poor countries for number of decades. It is a big issue in many LDCs and generally a concern of global finance and world economy at large. This research paper contributes to the discussion on debt literature by analysing factors for debt distress in Tanzania as a typical developing country, from which other LDCs can draw les-sons. Therefore, the policy relevance is tackling debt problem from the source and its implications for debt sustainability.