In April 2025, the Tanzania Shilling (TZS) depreciated by 3.9% annually to TZS 2,684.41/USD, reflecting pressures from import demand and global economic conditions. The Bank of Tanzania’s interventions, including selling USD 6.25 million in the IFEM, and robust foreign reserves of USD 5.3 billion (4.3 months of import cover) provide critical tools to stabilize the exchange rate, enhancing trade competitiveness, particularly for agricultural exports, which benefit from 5.1% of external debt use (USD 35,505.9 million). A stable TZS supports price competitiveness for agricultural goods like cashew nuts and tobacco, which drove an 18.8% export growth to USD 16,737.6 million in February 2025. Key issues include exchange rate volatility, limited agricultural export diversification, and external pressures. Strategies such as targeted IFEM interventions, reserve management, export promotion, and agricultural investment can strengthen stability and competitiveness, supporting Tanzania’s 6% GDP growth projection for 2025.

Main Key Issues

1. Exchange Rate Volatility and BoT Interventions
   • TZS Depreciation: The TZS depreciated by 3.9% annually to TZS 2,684.41/USD in April 2025, from ~TZS 2,583.31/USD in April 2024 (calculated as 2,684.41 / 1.039). This follows a trend of short-term volatility, with monthly depreciations of 1.37% in January 2025 (TZS 2,454.04/USD from TZS 2,420.84/USD) and 1.55% in February 2025 (TZS 2,492.05/USD). TICGL note a 29% TZS weakening from 2014–2024, driven by import demand and debt servicing (67.4% of external debt in USD, previous responses).
   • BoT Interventions: The BoT sold USD 6.25 million in the IFEM in April 2025 to stabilize the TZS, aligning with prior actions (e.g., USD 7 million in January, USD 8.75 million in February). IFEM transactions in April were not specified, but February’s USD 24.4 million (up from USD 16.3 million in January) indicates active market management. These interventions reduce volatility by meeting USD demand for imports and debt payments, maintaining TZS stability.
   • Reserves Adequacy: Foreign reserves of USD 5.3 billion in April 2025 cover 4.3 months of imports, exceeding the national benchmark of 4 months. Reserves grew to USD 5,576.3 million by February 2025, from USD 4,971.5 million in February 2024, supporting intervention capacity. However, reserves declined from USD 5.7 billion in March 2025 (3.8 months cover), signaling potential pressure from intervention costs or capital outflows.
   • Impact on Trade: Depreciation makes exports cheaper but raises import costs (e.g., fuel, 21.6% of imports), affecting agricultural input prices. Volatility disrupts trade planning, as seen in corporate hesitancy during TZS appreciation phases (TZS 2,750–2,800 range in Q3 2024).
2. Agricultural Export Competitiveness
   • Export Growth: Agricultural exports, supported by 5.1% of external debt use (~USD 1,810.8 million of USD 35,505.9 million), contributed to an 18.8% rise in goods and services exports to USD 16,737.6 million in February 2025, from USD 14,094.5 million in 2024. Key commodities include cashew nuts, tobacco, coffee, and horticultural products, with goods exports reaching USD 9,144.8 million (18.8% growth). Agriculture accounts for 26% of GDP and 85% of exports.
   • Competitiveness Gains: A 3.9% TZS depreciation enhances price competitiveness, reducing export prices in USD terms. For example, a USD 1,000 cashew nut shipment cost ~TZS 2,583.31 million in April 2024 but ~TZS 2,684.41 million in April 2025, making it cheaper for buyers. TICGL note agricultural export proceeds drove TZS appreciation in Q3 2024, suggesting depreciation could amplify this effect.
   • Constraints: Limited diversification (gold dominates at 36.8% of goods exports) and low productivity (agriculture employs 65.51% of workers but contributes 25% to GDP) hinder competitiveness. External debt for agriculture (5.1%) is dwarfed by transport (21.5%) and social welfare (19.9%), limiting investment in irrigation or technology. The Monthey Economic Review highlights irrigation needs.
   • AfCFTA Potential: The African Continental Free Trade Agreement (AfCFTA, ratified 2022) offers market access, but only 8.8% of imports are food, indicating untapped potential. TZS stability is critical to maintain competitive pricing in AfCFTA markets.
3. External Pressures and Global Context
   • Import Demand: Imports rose moderately (USD 14.5 billion in 2024), driven by capital goods and fuel, increasing USD demand and pressuring the TZS. Services payments grew 22.8% to USD 2,842.6 million in April 2025, with transport (USD 1,444.2 million) reflecting freight costs. This widens the current account deficit (USD 2,224.9 million, though improved 18.6%).
   • Global Risks: Geopolitical tensions, global slowdown, and climate shocks (e.g., droughts affecting agriculture) threaten export earnings. The IMF notes downside risks from reduced foreign aid and DRC conflict, impacting reserve inflows. A stronger USD (1 USD = TZS 2,655.59 in June 2025) exacerbates depreciation pressures.
   • Debt Servicing: External debt of USD 35,505.9 million, with 67.4% in USD, requires ~USD 2.4 billion annually for servicing (assuming 6.7% average interest, estimates), straining reserves and TZS stability. Domestic debt servicing (TZS 890.9 billion in February 2025) competes for fiscal.
   • Policy Constraints: The BoT’s free-floating exchange rate system faces anecdotal claims of artificial propping, potentially undermining market confidence. New regulations criminalizing non-TZS transactions may drive liquidity offshore, complicating stability.

Strategies to Enhance Exchange Rate Stability and Trade Competitiveness

1. Targeted IFEM Interventions
   • Action: Increase IFEM sales strategically during high USD demand (e.g., import seasons), scaling up from USD 6.25 million to USD 10–15 million monthly, funded by USD 5.3 billion reserves. Coordinate with liquidity management (M3 growth 11.9% in 2024/25) to avoid inflation (3.3% in March 2025).
   • Impact: This could cap TZS depreciation at 2–3% annually, maintaining export competitiveness. For a USD 1,000 agricultural export, a stable TZS 2,684.41/USD ensures predictable pricing, boosting orders. TICGL confirm BoT interventions stabilized TZS in January (USD 7 million sold).
2. Reserve Management and Diversification
   • Action: Diversify reserves into gold (USD 3,369.7 million export earnings) or SDRs to hedge USD fluctuations, preserving USD 5.3 billion for critical interventions. Attract FDI (e.g., USD 1.4 billion China railway deal) to boost reserves to USD 6 billion, covering 5 months of imports.
   • Impact: Enhanced reserves support TZS stability, reducing volatility. A 10% reserve increase (USD 530 million) could fund interventions for 6 months at USD 10 million/month, ensuring competitive TZS pricing for agricultural exports in AfCFTA markets.
3. Export Promotion for Agriculture
   • Action: Use 5.1% of external debt (USD 1,810.8 million) to subsidize agricultural exports (e.g., cashew nuts, coffee) via tax incentives or marketing under AfCFTA. Promote value addition (e.g., coffee processing) to increase earnings by 10–15%, targeting USD 1 billion annually (10% of 2024 goods exports).
   • Impact: Higher export earnings reduce current account deficit (USD 2,224.9 million) and USD demand, stabilizing TZS. Processed coffee at USD 5/kg vs. raw at USD 2/kg could double revenue, enhancing competitiveness. The Monthey Economic Review supports export diversification.
4. Invest in Agricultural Productivity
   • Action: Allocate TZS 360 billion (as in 2022/23) from domestic revenue (TZS 2,603.3 billion tax in March 2025) to irrigation and seed innovation, targeting 50% cultivated land by 2030. Partner with UNDP to meet irrigation financing gaps (6% met by government).
   • Impact: A 10% productivity increase could boost agricultural exports by USD 914.5 million (10% of USD 9,144.8 million), reducing TZS pressure. Improved output stabilizes supply chains, supporting TZS and AfCFTA competitiveness.

Conclusion

The TZS’s 3.9% depreciation to TZS 2,684.41/USD in April 2025, managed by BoT’s USD 6.25 million IFEM sales and USD 5.3 billion reserves, offers opportunities to enhance trade competitiveness, particularly for agricultural exports (5.1% of USD 35,505.9 million external debt). Key issues include TZS volatility, limited agricultural diversification, and external pressures like import costs and debt servicing. Strategies such as targeted IFEM interventions, reserve diversification, export promotion, and agricultural investment can stabilize the TZS at ~2–3% depreciation, boosting competitiveness for cashew nuts and coffee in AfCFTA markets. These align with Tanzania’s 6% GDP growth goal and Vision 2050’s export-led growth, supported by a narrowing current account deficit (USD 2,224.9 million).

The following table summarizes these key figures.