Analysis of the Declining Tanzanian Shilling Against the US Dollar

The Tanzanian shilling is currently depreciating against the US dollar after a brief rally in December 2024. Factors contributing to this decline include increased import demands, falling agricultural exports, and seasonal declines in tourism. Experts suggest that while current fluctuations may be temporary, ongoing trends could have significant economic impacts.

The Tanzanian shilling, having appreciated against the US dollar in December 2024, is currently experiencing a decline. As of October 4, 2024, the exchange rate was Sh2,721.68, climbing to Sh2,513.1169 by December 10, and concluding the year at a mean rate of Sh2394.7558. However, by the end of January 2025, it had depreciated to Sh2,486.6387 and further decreased to Sh2,611.786 by the following February.

According to the Bank of Tanzania (BoT), this depreciation is attributed to several factors, including a surge in demand for US dollars driven by increased imports ahead of Ramadhan and the Chinese New Year. BoT Governor Emmanuel Tutuba indicated that rising fuel imports and recent landslides affecting small-scale mining operations are adding pressure to the economy. “The agricultural sector has seen a decline in sales that would typically boost the flow of dollars into the country, and tourism is currently in its low season,” he stated.

Financial analyst Oscar Mkude remarked that the shilling’s decline is likely a temporary cyclical movement, suggesting it may stabilize soon. He emphasized, “The real concern would arise if this trend continues for a longer period.” Prof. Dickson Pastory from the College of Business Education noted significant reductions in exports, particularly in minerals and agricultural products, which traditionally contribute to foreign exchange. He explained that this, coupled with strong demand for imported goods, is aggravating the imbalance.

The ongoing depreciation poses immediate economic consequences, including increasing costs for fuel imports, which could drive up transportation expenses and inflation. As Christopher Makombe, an independent analyst, observed, the shilling’s fall to 2,640 aligns with historical trends, driven by high demand for foreign currency as businesses replenish inventories post-holiday, while foreign exchange inflows from tourism and agriculture drop significantly.

In summary, the Tanzanian shilling’s depreciation against the US dollar is primarily driven by rising demand for foreign currency, reduced exports, and seasonal factors impacting key sectors such as agriculture and tourism. Although current fluctuations are expected to stabilize, long-term effects could include higher transportation costs and inflationary pressures. Stakeholders must remain vigilant regarding these economic trends to mitigate possible repercussions.

Original Source: www.thecitizen.co.tz