The depreciation of the Tanzania shilling (TZS) is a key factor that can have significant impacts on the country's economic development. Focus on the causes, effects, and implications of the shilling’s depreciation.

1. Depreciation Figures

• Exchange Rate in July 2024: The Tanzania shilling traded at an average of TZS 2,663.76 per USD in July 2024.
• Exchange Rate in June 2024: In the preceding month (June 2024), the shilling traded at TZS 2,626.07 per USD.
• Annual Depreciation: Over the past 12 months, the shilling depreciated by 12.6% against the USD.

2. Factors Contributing to Depreciation

• Trade Imbalances: Tanzania’s import costs (e.g., for fuel, machinery, fertilizers, and other goods) may be higher than its export revenues, creating a trade imbalance that weakens the currency.
• Inflationary Pressures: The increasing yields on government securities (like the rise in Treasury bills from 6.75% in June to 8.81% in July 2024) suggest inflationary pressure in the economy, which typically leads to currency depreciation.
• Global Market Conditions: Depreciation can be influenced by international factors such as the strength of the US dollar, rising global interest rates, and fluctuations in the prices of key commodities like oil and gold. Since Tanzania imports several essential goods, a stronger USD makes imports more expensive, further straining the shilling.

3. Effects of Depreciation

• Increased Cost of Imports: The depreciation of the shilling makes imported goods more expensive. For example, the cost of importing fuel, machinery, pharmaceuticals, and food items like sugar and edible oil would increase as the value of the shilling falls.
• Example: If the exchange rate was TZS 2,626.07 per USD in June 2024, a USD 100,000 import would cost TZS 262.6 million. By July 2024, at TZS 2,663.76 per USD, the same USD 100,000 import would cost TZS 266.3 million. This represents an additional cost of TZS 3.7 million due to the shilling’s depreciation.
• Higher Inflation: The increased cost of imports, especially for essential goods like fuel and food, can contribute to inflation. Inflation erodes the purchasing power of consumers, reducing their ability to afford goods and services.
• Increased Debt Servicing Costs: For Tanzania’s external debts (those denominated in foreign currencies like the USD), a depreciating shilling means it takes more local currency to service those debts. This increases the debt burden, which could limit the government's ability to invest in infrastructure and other development projects.

4. Benefits of Depreciation

• Boost to Exports: A weaker shilling can make Tanzania exports more competitive in global markets, as Tanzania goods become cheaper for foreign buyers. Sectors like mining (especially gold), agriculture (cash crops like coffee, tobacco, cotton), and tourism stand to benefit.
  • Example: If a Tanzania exporter sells goods worth USD 1 million, the exchange rate in June 2024 would yield TZS 2.626 billion. In July 2024, the same USD 1 million export would yield TZS 2.663 billion—a gain of TZS 37 million due to the weaker shilling.
• Foreign Investment Inflows: A weaker currency can attract foreign direct investment (FDI) as foreign investors can get more value for their money in Tanzania. This could lead to more investments in sectors like manufacturing, infrastructure, and services.

5. Government Measures and Future Expectations

• Gold Exports and Reserves: Tanzania is leveraging its gold exports to generate foreign exchange. The Bank of Tanzania’s domestic gold purchase program aims to increase the country’s foreign reserves, which can help stabilize the shilling.
• Tourism: Seasonal improvements in tourism inflows, especially in July 2024, have provided foreign exchange earnings, which can help offset some of the depreciation pressures.
• Reduction in Imports: The government is focusing on reducing imports of fertilizer, edible oil, and sugar, which could reduce demand for foreign currency and help ease the depreciation of the shilling.

6. Long-term Implications

• Sustained Depreciation: If the depreciation trend continues, Tanzania may face challenges such as:
  • Increased inflation, especially for imported goods.
  • Greater burden on servicing foreign debt.
  • Pressure on domestic consumers due to rising costs.
• Economic Growth: On the positive side, depreciation could stimulate sectors like exports and tourism, driving economic growth and improving the current account balance in the long term.

Summary of Key Figures:

While the depreciation of the Tanzania shilling presents challenges such as higher import costs and inflation, it also offers opportunities for boosting exports and attracting foreign investment. Balancing these effects will be crucial for supporting Tanzania's long-term economic development.

• Current Exchange Rate (July 2024): TZS 2,663.76 per USD.
• Previous Exchange Rate (June 2024): TZS 2,626.07 per USD.
• Annual Depreciation: 12.6% against the USD.