The Tanzanian shilling has depreciated after a brief rally in December 2024, influenced by rising US dollar demand due to increased imports ahead of key festivities, disrupted small-scale mining, and declining agricultural sales. Economic analysts predict this trend may stabilize in the short term, although significant implications for inflation and costs remain.
The Tanzanian shilling had experienced an upward trend against the US dollar in December 2024 but has recently begun to depreciate once again. The Bank of Tanzania (BoT) reported that the shilling was valued at Sh2,721.68 on October 4, 2024, climbing to Sh2,513.1169 by December 10, before closing 2024 at an average of Sh2,394.7558. However, this trend was reversed as it closed January 2025 at Sh2,486.6387, continuing to decline to Sh2,611.786 by early February 2025.
According to the BoT, various factors are contributing to this depreciation, particularly a surge in demand for US dollars attributed to increased imports ahead of Ramadhan and the Chinese New Year. BoT Governor Emmanuel Tutuba indicated that rising fuel imports and disruptions from recent landslides affecting small-scale mining operations could also be creating economic pressure.
The agricultural sector is witnessing a downturn in sales that typically bring in foreign currency, while the tourism industry is experiencing a lull in activity. Together, these elements are constraining foreign currency flow within the economy. Financial analyst Oscar Mkude observed that the current fluctuations in the shilling’s value against the dollar are cyclical and expected to stabilize shortly, barring long-term persistence of this trend.
Prof. Dickson Pastory from the College of Business Education noted a drastic reduction in exports from critical sectors, like minerals and agriculture, which have historically supplied foreign exchange. This reduction and rising dollar demand are causing an imbalance. A weaker supply of foreign currency is further compounded by the strengthening global US dollar.
The depreciation of the shilling will likely have significant economic ripple effects, particularly increasing fuel import costs, which will elevate transportation expenses and contribute to inflation. Moreover, costs for imported goods, ranging from machinery to everyday consumer products, are predicted to rise, thus impacting both businesses and households.
Analyst Christopher Makombe remarked that the shilling’s decline to Sh2,640 against the dollar fits historical patterns, as the demand for foreign currency spikes when businesses restock post-holiday, and foreign exchange inflows from tourism and agricultural exports wane after the peak seasons.
In conclusion, the Tanzanian shilling is currently facing significant depreciation against the US dollar due to multiple factors including increased demand for foreign currency, seasonal declines in tourism and agricultural exports, and rising import costs. This depreciation poses potential economic challenges, including higher inflation and increased costs for businesses and households. Stakeholders will need to monitor this situation closely to determine if these trends will persist or stabilize in the near future.
Original Source: www.thecitizen.co.tz
