Tanzanian Shilling Plummets Amid Rising Imports and Debt

The Tanzanian shilling has depreciated by 8.9% this year, making it the worst-performing currency globally. This decline stems from rising imports and increasing public debt, despite optimistic GDP growth projections. Analysts indicate further weakening of the currency is likely before stabilization occurs, highlighting the pressures from investments in infrastructure projects.

The Tanzanian shilling, despite the nation’s economic growth, has experienced a significant decline of 8.9% this year, rendering it the poorest-performing currency globally. This depreciation is primarily attributed to increasing imports and escalating public debt arising from substantial infrastructure projects. Analysts forecast additional weakening of the shilling before it reaches a point of stabilization.

On Tuesday, the Tanzanian shilling fell another 0.2%, closing at 2,645.10 per dollar, signaling its lowest level since late November. Though Tanzania’s GDP is predicted to grow by 6% this year, rising imports and debt-linked challenges continue to exert considerable pressure on the currency, as experts express concern over the potential for further declines before any semblance of stability is achieved.

Shani Smit-Lengton, a senior economist at Oxford Economics Africa, highlighted a widening current-account deficit and seasonal liquidity constraints as key factors responsible for the short-term pressures on the Tanzanian shilling. While the current economic landscape poses challenges, she also noted that substantial investments in infrastructure are expected to yield substantial long-term benefits.

Tanzania is in the midst of an infrastructure expansion, with several major projects, such as a deep-water container port in Bagamoyo and a $5 billion East African Crude Oil Pipeline, currently underway. Additionally, plans for a $42 billion liquefied natural gas facility in collaboration with global energy partners like Shell, Equinor, and Exxon Mobil are advancing. While these initiatives promise to stimulate economic growth, they also exacerbate the issues facing the Tanzanian shilling due to increased imports and debt.

Over the year leading to January, Tanzania’s imports grew by 5%, totaling $16.9 billion, driven mainly by higher demand for industrial supplies and transport equipment. As reported in the Bank of Tanzania’s monthly economic review, this reflects a growing manufacturing, construction, and transportation sector. Concurrently, national debt has remained stable at $47.6 billion, with external debt increasing by 11.5% to $33.9 billion, further compounding the financial strains on the shilling.

In summary, the Tanzanian shilling faces significant challenges, marked by an 8.9% decline this year due to rising imports and public debt linked to infrastructure investments. Although the economy is projected to expand, further weakening of the currency is anticipated before any stabilization occurs. The balance between infrastructure growth and the financial pressures it creates will be critical in determining the future stability of the shilling.

Original Source: africa.businessinsider.com