Prime
Why shilling’s rally is set to continue
What you need to know:
- The shilling has rallied to a ten-month high against the US dollar and the government is confident the trend will continue until at least February 2025
Dar es Salaam. The shilling has rallied to a ten-month high against the US dollar and the government is confident the trend will continue until at least February 2025.
The Bank of Tanzania (BoT) quoted the shilling as trading at a mean rate of Sh2,513.1169 per dollar on Tuesday, as it extended gains that began in early October.
The shilling was on October 4 quoted at Sh2,721.68 per dollar and had appreciated to Sh2,716.48 and Sh2,620.57 by October 23 and November 29, respectively.
The last time the shilling was quoted at around the Sh2,500 mark was February 1, 2024.
Apart from domestic interventions and an increase in exports, the trend can also be attributed to the US’ decision to maintain its interest rate easing cycle as Mr Donald Trump prepares to return to the White House on January 20, 2025. Another decision is expected this month.
According to analysts, much as the US rate cuts seek to improve the personal financial situations of Americans, they are also good news for other countries as they enable investors to adjust their portfolios toward assets with more attractive yields
This, in essence, could boost equity and bond markets across other key markets, providing some breathing space for more vulnerable economies.
Bank of Tanzania governor Emmanuel Tutuba told The Citizen that the shilling is expected to continue appreciating until February 2025, driven by a number of factors, including increased exports, growth of tourism and a reduction in imports.
He said the tourist influx is likely to continue until March 2025 and the production of key crops such as cashew nuts, maize and rice is expected to rise after Christmas.
Since the launch of the Export Guarantee Scheme in June 2023, the volume and value of agricultural exports have increased.
Mr Tutuba said the central bank has provided export guarantees for various sectors, including agriculture, transport and manufacturing.
“We are currently waiting for details of mining projects from Stamico (State Mining Corporation) so that we can offer guarantees for them as well,” he added.
The BoT administers two key credit guarantee schemes on behalf of the government – the Export Credit Guarantee Scheme (ECGS) and the Small and Medium Enterprises Credit Guarantee Scheme (SME-CGS).
The ECGS was launched in 2002 to help borrowers with viable export-oriented projects, but who lack sufficient collateral. The scheme was reviewed in June 2023.
Mr Tutuba noted that the revival of these schemes is a key part of the government’s strategy to boost domestic production and exports.
“The government continues to collaborate with the agricultural, livestock, fisheries and manufacturing sectors to improve productivity. Trade volumes of several key crops have increased, while imports of certain products have decreased. For example, we now produce glass, tiles, electric cables and other goods locally,” he said.
Mr Tutuba added that guarantees for improved seeds, seedlings and pesticides have led to higher harvests of crops like cashew nuts, maize, beans and sesame.
The price of coffee, for instance, has risen from Sh1,000 per kilogramme to Sh3,000 per kilogramme, while cashew nuts now fetch up to Sh4,000 per kilogramme, thanks to initiatives such as the Tanzania Mercantile Exchange (TMX).
Despite tourism entering its low season, Mr Tutuba noted that the sector continues to show growth.
Additionally, efforts to encourage Tanzanians to use the local currency rather than foreign currencies for domestic transactions are helping to ease demand for the US dollar.
Mr Tutuba also highlighted stabilisation of electricity supply, which has led to a reduction in the importation of diesel used to power generators.
As for the wider global economic situation, Mr Tutuba pointed to the decline of the US dollar driven by increased production following the ravages of the Covid-19 pandemic, saying these trends contribute to a more favourable environment for the shilling.
Financial analyst Oscar Mkude underscored the importance of exports in building economic resilience and sustainability.
“The government’s efforts to boost exports and reduce imports have played a key role in strengthening the shilling,” he said.
Mr Mkude also noted that the rise in gold prices has enabled the shilling to claw back losses in recent months.
He said gold purchases by the BoT are likely to continue propping up the shilling since the central bank can sell the precious metal when the local currency weakens.
However, Mr Mkude added that the government must carefully manage its fiscal policies, particularly in relation to expenditure and borrowing, to avoid undermining the shilling’s value.
