Tanzanian Shilling Faces Decline Amidst Economic Growth Challenges

Despite a projected 6% growth in GDP, the Tanzanian shilling has fallen 8.9% this year, making it the worst-performing currency in the world. Factors contributing to this decline include rising imports and public debt linked to significant infrastructure projects. Analysts foresee further weakening before stabilizing.

Tanzania’s economy, while expanding, faces significant challenges as its currency, the Tanzanian shilling, has depreciated by 8.9% this year, marking it as the worst-performing currency globally. This sharp decline is mainly attributed to rising imports and increased public debt linked to extensive infrastructure projects. Analysts foresee further weakening of the currency before any potential stabilization occurs.

While the country’s GDP is projected to grow by 6% this year, the shilling has depreciated to its lowest closing value since November, positioning it at 2,645.10 shillings per dollar. The decline can be linked to an increased current-account deficit and seasonal liquidity constraints. Shani Smit-Lengton, a senior economist at Oxford Economics Africa, emphasizes these pressures affecting the currency’s stability.

Tanzania is undertaking significant infrastructure investments, including the development of a deep-water container port in Bagamoyo and a $5 billion East African Crude Oil Pipeline from Uganda to Tanzania’s Tanga port. Moreover, plans for a colossal $42 billion liquefied natural gas facility are underway in collaboration with global partners such as Shell, Equinor, and Exxon Mobil. While these projects are anticipated to foster long-term economic growth, they concurrently exacerbate the issues faced by the shilling.

Data from the Bank of Tanzania reveals that imports of goods and services have risen by 5% over the past year, reaching $16.9 billion, primarily driven by increased demands in the manufacturing and construction sectors. Concurrently, the national debt stands at $47.6 billion, with external debt rising by 11.5% to $33.9 billion. These financial pressures are compounding the existing strains on the Tanzanian shilling as the country navigates its economic development efforts.

In summary, although Tanzania’s economy shows promising growth, the depreciation of the shilling signifies underlying financial challenges exacerbated by rising imports and national debt. Infrastructure investments, while beneficial in the long term, place immediate pressure on the currency’s stability. Analysts predict continued weakness for the shilling before any potential recovery can be realized.

Original Source: africa.businessinsider.com