The Tanzanian shilling is depreciating against the US dollar after a brief rally in December 2024. Factors include increased demand for foreign currency from imports and declines in exports, notably from minerals and agriculture. Analysts see the current dip as cyclical but worry about prolonged effects on the economy.
The Tanzanian shilling rallied against the US dollar in December 2024 but has been depreciating since then. On October 4, 2024, the shilling was valued at Sh2,721.68, climbing to Sh2,513.1169 by December 10, 2024. By year-end 2024, the shilling closed at a mean rate of Sh2394.7558 but began to lose value, concluding January 2025 at Sh2,486.6387. This downtrend persisted into February, where it fell to Sh2,611.786.
The Bank of Tanzania attributes this depreciation to heightened demand for US dollars, driven by surging imports, especially with the approaching holidays of Ramadhan and the Chinese New Year. Additionally, increasing fuel imports and recent landslide impacts on small-scale mining are exerting economic pressure. BoT Governor Emmanuel Tutuba noted a decline in agricultural sector sales and a low tourism season, constricting foreign currency flow.
Financial analyst Oscar Mkude suggested that the shilling’s decline is a temporary cyclical trend likely to stabilize soon. He emphasized that while short-term fluctuations are normal, a prolonged depreciation could raise concerns.
Professor Dickson Pastory from the College of Business Education highlighted a significant drop in exports, particularly in minerals and agricultural products, factors contributing to the imbalance. Coupling decreased exports with rising dollar demand from imports is constraining foreign currency supply. Moreover, a global upsurge in the US dollar intensifies this challenge.
The impact of the shilling’s sustained depreciation extends to rising fuel import costs, which subsequently increase transportation costs and contribute to inflation. The prices of imported machinery and consumer goods will also rise, affecting both businesses and households. Analyst Christopher Makombe remarked that the shilling’s decline to 2,640 against the dollar correlates with historical patterns, driven by increasing demand post-holiday and declining foreign exchange inflows.
The Tanzanian shilling is undergoing a depreciation against the US dollar due to increased demand for dollars tied to higher imports and reduced exports. Factors such as rising fuel costs, seasonal declines in tourism and agriculture, and the global strengthening of the US dollar exacerbate this situation. While current drops are viewed as temporary, the potential for extended depreciation could lead to inflation and economic challenges.
Original Source: www.thecitizen.co.tz
