This study investigated the relationship between external debt and economic growth in Tanzania. Time series data on external debt stock and external debt service was used to capture external debt burden on sustainability of economic growth. The study more specifically set out to test causal relationship between external debt and economic growth. An empirical investigation was conducted using time series data on Real Gross Domestic Product, External Debt Stock, External Debt Payments, Gross Capital Formation and Foreign Direct Investment. The techniques of estimation employed in the study include Augmented Dickey Fuller test, Johansen Cointegration, Vector Error Correction Mechanism and Granger Causality Test. The results show a significant long-run relationship and a one way causal relationship between external debt stock and economic growth in Tanzania. The findings of the study shows that lagged values of external debt and debt service significantly affect negatively economic growth and they have long-run association. Based on the findings the study there is a need to consolidate on the gains of any debt relief granted and the consequent reduction in the country.s debt stock. One way to achieve this is through undertaking consistent debt management strategies, persistence servicing of debt and prudential borrowing when seeking external finance in order to ensure sustainability of debt services and promote economic growth.
External Debt Stock, Economic Growth, External Debt Service, Gross Capital formation, Foreign Direct Investment
