Prime
What it means as shilling appreciates against US dollar
What you need to know:
- The shilling has gained ground against the US dollar over the past few weeks, bringing positive news to industrial producers, vehicle importers and motorists, among others
Dar es Salaam. The shilling has gained ground against the US dollar over the past few weeks, bringing positive news to industrial producers, vehicle importers and motorists, among others.
Official data from the Bank of Tanzania (BoT) shows that the local currency has appreciated by nearly three percent in just one month.
On October 25 the BoT quoted a dollar as fetching Sh2,703.6/Sh2,730.64, but by Monday the shilling had gained to Sh2,652.84/Sh2,652.1. The mean exchange rate improved from Sh2,717.122 on October 25 to Sh2,638.97 as of Monday.
The appreciation of the shilling is expected to stabilise or reduce the cost of major imports, including refined white petroleum products, motor vehicles and spare parts, industrial-use sugar, pharmaceutical products, iron and steel, and footwear — all of which make up a significant portion of Tanzania’s import bill.
Analysts say a stronger local currency provides more advantages than disadvantages for an import-heavy economy like Tanzania’s. Official figures show that Tanzania’s total imports of goods and services reached $16.454 billion for the year ending September 2024, up from $16.103 billion the previous year. The increase was largely driven by imports of refined white petroleum products.
In contrast, exports of goods and services grew to $15.353 billion during the same period, up 13.4 percent from $13.543 billion in 2023. This increase was largely attributed to higher service receipts, particularly from tourism and exports of gold, tobacco, cashew nuts and horticultural products.
Prof Semboja Haji of the University of Dar es Salaam noted that the shilling often appreciates against the US dollar once the financial year stabilises. He suggested that ongoing export seasons for major agricultural products and the peak tourism season played a key role in boosting Tanzania’s foreign exchange earnings, aiding the local currency’s appreciation.
“The challenge for our economy, like many other African nations, is that what we produce may not be required by neighbouring countries,” Prof Semboja explained. “However, seasonal factors like agricultural exports and tourism can help support the local currency’s strength.”
The BoT expects this trend to continue, anticipating a further decrease in demand for the dollar, leading to a stronger Tanzanian shilling as the year progresses into 2025. The country currently has an ample supply of dollars, and reserves continue to grow. As of September 2024, Tanzania’s foreign exchange reserves stood at $5.414 billion, sufficient to cover 4.4 months of projected imports — above the national benchmark of four months.
BoT governor Emmanuel Tutuba told The Citizen on Monday that the global economic environment has contributed to the shilling’s recent strength.
“The stabilisation of the US economy has resulted in reduced interest rates, prompting investors to explore opportunities elsewhere, which in turn increased the global supply of dollars, making them more accessible — including in Tanzania,” he said.
