Abstract: This study empirically analysed the effect of external debt on Tanzania’s economic growth for the period 1970 – 2020. The study was guided by five specific objectives which were tested empirically to check the relationship between the dependent variable and the independent variable. The specific objectives of the study were: to test the relationship between external debt and economic growth, to establish the influence of external debt service to GDP growth. Also to ascertain the outcome of exchange rate on economic growth, to determine the effect of inflation rate to growth of GDP and to find out the impact of interest rate on the growth of the economy in Tanzania. The study used quantitative research approach to analyse macroeconomic variables. The method was used because it is a statistical measurement used to analyse secondary time series data set. In this case Vector Error Correction model was applied to check the relationship between the dependent and independent variables. Regression results show no short-run significant relationship between dependent and independent variables except for the long-run... The study recommends among others, that the government has to investing external debt on sustainable development projects including infrastructure. Again the government of Tanzania has to foster tourism and export which are the major sources of raising earnings of foreign exchange in the country so as to reduce external borrowing.
Keywords: External Debt, Economic Growth, External Debt Service, Augmented Dickey Fuller