The Tanzanian shilling, after a brief rally in December 2024, is depreciating against the US dollar due to increased import demands and reduced exports. Economic pressures, including rising fuel imports and a decline in tourism and agriculture, are contributing to this trend. Experts call for careful observation as this situation may lead to increased costs and inflation.
The Tanzanian shilling, which experienced a rally against the US dollar in December 2024, is now facing depreciation. On October 4, 2024, the Bank of Tanzania (BoT) reported the shilling at Sh2,721.68, which improved to Sh2,513.1169 by December 10, 2024, and closed the year at Sh2394.7558. However, by January 2025, the shilling depreciated to Sh2,486.6387 and continued this trend into February, closing at Sh2,611.786.
The BoT attributes this depreciation to multiple factors, including a surge in demand for US dollars driven by rising imports in anticipation of the holy month of Ramadan and the Chinese New Year. BoT Governor Emmanuel Tutuba noted that the rise in fuel imports and economic disruptions from recent landslides, affecting small-scale mining operations, further strain the economy.
In addition, the agricultural sector is witnessing a decline in sales, which typically enhances foreign currency flow into the nation, while tourism remains in its low season, causing further currency restrictions. Financial analyst Oscar Mkude posits that the shilling’s temporary drop is expected to stabilize soon, as such fluctuations are considered normal in economic cycles.
Conversely, Prof. Dickson Pastory from the College of Business Education highlighted significant decreases in exports from critical sectors, specifically minerals and agricultural products, leading to a currency imbalance. He pointed out that a drop in exports, limited foreign investments, and reduced remittances are constraining foreign currency supply, compounded by the global strengthening of the US dollar.
Analyst Christopher Makombe observed that the shilling’s drop to Sh2,640 against the dollar was consistent with historical trends, triggered by heightened demand for foreign currency as businesses restock post-holiday. The tourism sector, a crucial contributor to foreign exchange reserves, experiences a downturn after peak seasons, while agricultural exports face declining inflows as seasonal factors play out.
In summary, the Tanzanian shilling’s recent depreciation reflects a combination of increased import demands, reduced exports, and external economic pressures. This ongoing trend poses potential threats, including rising fuel and goods costs, which could create inflationary pressures affecting both businesses and households in Tanzania.
In conclusion, the Tanzanian shilling is currently losing value against the US dollar due to several intertwined factors, including increased import demands, economic disruptions, and a decline in key exports. While some analysts suggest that this depreciation may be temporary, its persistent nature indicates potential economic implications, including rising costs for imports, that could negatively affect the broader economy. Continuous monitoring of these trends is essential for stakeholders to navigate the challenges ahead.
Original Source: www.thecitizen.co.tz
