Tanzania’s Currency Faces Pressure Despite Economic Growth

Tanzania remains one of Africa’s fastest-growing economies, yet its local currency continues to struggle. The Tanzanian shilling has weakened by 8.9% this year as of Tuesday, making it the worst-performing currency globally. The depreciation is attributed to rising imports and public debt, driven by major infrastructure projects fueling the country’s projected 6% GDP growth in 2024. Analysts suggest the currency may face further declines before recovering.

A widening current-account deficit and liquidity constraints—common at the start of the year—are adding pressure on the shilling, according to Shani Smit-Lengton, a senior economist at Oxford Economics Africa. However, she emphasized that infrastructure investments would yield long-term benefits.

“As long as the government ensures efficient project implementation and maintains sustainable debt levels, these initiatives should strengthen the shilling over time,” Smit-Lengton stated.

Tanzania is ramping up spending on large-scale projects, including a deep-water container port in Bagamoyo, near the capital Dar es Salaam, with India’s Adani Ports and Special Economic Zone Ltd. securing the concession to operate the harbor. Other key developments include the $5 billion, 1,443-kilometer East African Crude Oil Pipeline, which will transport Ugandan crude to Tanzania’s Tanga port. The pipeline, backed by the Export-Import Bank of China, is set to begin operations next year.

In addition to these infrastructure projects, Tanzania produces natural gas for electricity generation and plans a $42 billion liquefied natural gas (LNG) facility in partnership with Shell Plc, Equinor ASA, and Exxon Mobil Corp.

While these initiatives promise long-term economic growth, they are also increasing the country’s import and debt burden, exerting downward pressure on the shilling. According to the Bank of Tanzania, imports of goods and services rose 5% year-on-year to $16.9 billion as of January, driven by increased purchases of industrial supplies and transport equipment.

Despite the rising debt, the central bank described Tanzania’s national debt stock—amounting to $47.6 billion, including both government and private-sector obligations—as “broadly stable.” External debt climbed 11.5% over the year to reach $33.9 billion.

“We expect government debt to continue rising in the coming years, though it should remain below the International Monetary Fund’s 50% of GDP threshold at least until 2028,” Smit-Lengton noted.

On Tuesday, the shilling weakened by 0.2% to 2,645.10 per dollar, its lowest closing level since November 26. Nelson Kishanda, head of treasury at Exim Bank Tanzania Ltd., attributed the strong demand for U.S. dollars to key sectors such as oil and gas, manufacturing, mobile networks, construction, and trade.

“These sectors have expanded year-on-year, leading to increased dollar demand,” Kishanda explained. “In the medium term, we expect the shilling to trade in the 2,620 to 2,650 range.”

While Tanzania’s economy continues its robust expansion, the short-term challenges facing its currency underscore the delicate balance between growth and financial stability.