Factors Contributing to the Decline of the Tanzanian Shilling Against the US Dollar
The Tanzanian shilling has depreciated against the US dollar after gaining in December 2024. Contributing factors include increased demand for imports, rising fuel costs, and a slowdown in tourism and agriculture. Analysts predict the decline may be temporary but caution against sustained depreciation which could impact the economy significantly.
The Tanzanian shilling experienced a notable depreciation following a brief period of appreciation against the US dollar in December 2024. The Bank of Tanzania reported that on October 4, 2024, the shilling was valued at Sh2,721.68 and improved to Sh2,513.1169 by December 10. However, by January 2025, the shilling began to lose value, closing at Sh2,486.6387, and continued its downward trend into February 2025, ending at Sh2,611.786.
This decline is attributed to several factors, including increased demand for US dollars driven by heightened imports linked to the upcoming holy month of Ramadhan and the Chinese New Year. Furthermore, BoT Governor Emmanuel Tutuba noted that rising fuel imports and disruptions in small-scale mining due to recent landslides are also causing economic strains. The agricultural sector is facing diminished sales, and tourism, currently in its low season, is not providing the usual influx of foreign currency.
Financial analyst Oscar Mkude characterized the shilling’s decline as a temporary cyclical movement, suggesting that while short-term fluctuations are common, stability may return shortly. He emphasized that prolonged depreciation would signify a more concerning trend for the economy. Meanwhile, Prof. Dickson Pastory highlighted a substantial reduction in exports from essential sectors like minerals and agriculture, contributing to an imbalance in foreign currency supply.
This situation is exacerbated by the strengthening global US dollar, limiting foreign investments and remittances. The ongoing depreciation of the shilling will likely result in increased costs for fuel imports, leading to higher transportation expenses and inflation. Additionally, prices of imported goods and services will rise, affecting both businesses and consumers. Analyst Christopher Makombe noted that the shilling’s dip to 2,640 against the dollar during the first quarter mirrors historical trends linked to seasonal demand shifts in the tourism and agricultural sectors.
In summary, the Tanzanian shilling has experienced a decline against the US dollar due to rising demand for foreign currency amidst increased imports and seasonal economic fluctuations. Factors such as higher fuel imports, reduced agricultural exports, and the current tourism slump have contributed to this depreciation. Analysts suggest that while short-term fluctuations are expected, sustained instability could pose significant economic challenges moving forward.
Original Source: www.thecitizen.co.tz
