A Dissertation Submitted in Partial/Fulfillment of the Requirements for Award of the Degree of Master of Science in Accounting and Finance (MSc A&F) of Mzumbe UniversityThis study examines the effect of external debt on economic growth in Tanzania. External debt is considered as the significant source of income for less developed countries especially the Sub Saharan African Countries. Tanzania as one of the Sub Saharan African country also relies on external debt to finance its saving investment gap, budget deficit and balance of payment deficit. The main objective of this paper is to examine the effect of external debt on economic growth in Tanzania during the period of 1990-2013, using Time series econometric technique where by data were collected from Bank of Tanzania and World Bank data indicators. The Ordinary Least Squares multiple regression analytical method used to capture the effect of external debt on economic growth, where by GDP annual growth rate used as the dependent variable while external debt and debt service as the independent variables. The study also employed Johansen Co-integration test in order to determine the long run relationship of variables. The empirical result shows that external debt and debt service significantly affect positively and negatively economic growth respectively and they have long run association. Based on the findings the study recommend that, Tanzania Government should establish purposeful policies aimed at diversifying economic activities so as to give nation affluent sources of budget financing instead of relying much on external borrowings.