Tanzania’s economy might be booming, but its currency is taking a hit, and it may take some time before the local currency benefits.
The Tanzanian shilling has dropped 8.9% this year, making it the worst-performing currency in the world. On Tuesday, it slipped another 0.2% to 2,645.10 per dollar, its lowest closing level since late November, Bloomberg reported.
The decline is driven by rising imports and increasing public debt linked to major infrastructure projects, even as the country’s GDP is projected to grow by 6% this year. Analysts suggest the shilling may weaken further before stabilizing.
Experts warn that the shilling may see further declines before it stabilizes. Shani Smit-Lengton, a senior economist at Oxford Economics Africa, points to a widening current-account deficit and seasonal liquidity constraints as key short-term pressures dragging the currency down.
However, she noted that the country’s heavy infrastructure investments are expected to yield long-term economic benefits despite the current challenges.
Tanzania’s infrastructure boom
Tanzania is ramping up infrastructure investments, with major projects underway, including a deep-water container port in Bagamoyo and, a $5 billion East African Crude Oil Pipeline linking Uganda’s oil fields to Tanzania’s Tanga port.
The country is also advancing plans for a massive $42 billion liquefied natural gas (LNG) facility in partnership with global energy giants Shell, Equinor, and Exxon Mobil.
While these developments are set to drive long-term economic growth, they are also contributing to rising imports and debt, adding pressure on the already struggling Tanzanian shilling.
Rising imports and debt burden
Tanzania’s imports of goods and services increased by 5% over the year through January, reaching $16.9 billion, according to the Bank of Tanzania.
The rise was primarily driven by higher purchases of industrial supplies and transport equipment, reflecting growth in the manufacturing, construction, and transportation sectors, as noted in the central bank’s monthly economic review.
Meanwhile, the country’s national debt remained “broadly stable” at $47.6 billion, with external debt rising by 11.5% to $33.9 billion over the same period, according to central bank data.
While these investments support economic expansion, they also contribute to mounting financial pressures, further straining the Tanzanian shilling.
