In the Tanzania's Monthly Economic Review for August 2025, inflation remained stable at 3.3% in July 2025, within the 3-5% target, while national debt exhibited modest growth (1% increase to USD 46,586.6 million in June 2025), driven by balanced inflows and prudent management. These factors have collectively supported the stability and recent appreciation of the Tanzanian Shilling (TZS) against the US Dollar (USD). Stable inflation preserves purchasing power and enables accommodative monetary policy, reducing depreciation pressures, while controlled debt enhances fiscal credibility, attracting foreign inflows and bolstering reserves (USD 6,194.4 million in July 2025, covering 5 months of imports). This has contributed to a narrowed current account deficit (USD 2,079.2 million in the year to July 2025, down 23.4%), easing external vulnerabilities. However, broader pressures like import demands and global USD strength have led to a net annual depreciation, though recent data shows stabilization and mild appreciation by September 2025 (around TZS 2,488 per USD).

Key Impacts on TZS Value

1. Stable Inflation's Positive Influence

• Low and predictable inflation (3.3%) anchors expectations, supporting the TZS by maintaining relative purchasing power parity with trading partners. This stability allowed the Bank of Tanzania to lower the Central Bank Rate (CBR) to 5.75% in July 2025, stimulating credit growth (15.9%) and economic activity without fueling inflationary pressures that could erode currency value.
• Decelerating energy inflation (1.0% from 2.1%) and core inflation (1.9%), amid global commodity moderation (e.g., crude oil at USD 69.2 per barrel), reduced import costs, alleviating downward pressure on the TZS. This contributed to the shilling's monthly depreciation slowing to 0.11% annually in July 2025 (from 0.21% in June).
• Overall, stable inflation has fostered investor confidence, with foreign exchange reserves rising to support interventions (e.g., USD 17.5 million sold in July 2025), helping stabilize the TZS at an average of TZS 2,666.79 per USD in July.

2. Debt Developments' Stabilizing Role

• The modest debt increase (external: +0.1% to USD 32,955.5 million; domestic: -0.4% to TZS 35,351.4 billion) reflects fiscal discipline, with disbursements (USD 868.4 million) outpacing services (USD 234.4 million). This sustainability reduces risk premiums, making Tanzania more attractive for foreign investment and remittances, which bolster TZS inflows.
• A shift toward domestic financing (79.7% Treasury bonds) and concessional multilateral debt (58.7% of external) minimizes forex exposure, mitigating depreciation from debt servicing. Strong revenue (TZS 3,753.4 billion in June, +5.1% above target) further supports this, narrowing borrowing needs.
• Combined with export growth (goods and services up 14.4% to USD 16,655 million), stable debt has narrowed the current account deficit, reducing TZS sell-off pressures. However, high external debt (70.7% of total) remains a vulnerability if global rates rise.

3. Net Impact on TZS Value

• The TZS depreciated annually by about 9.6% through mid-2025 due to import surges and debt-financed infrastructure, but inflation and debt stability have driven recent appreciation (e.g., from TZS 2,666.79/USD in July to ~TZS 2,488/USD by September 6, 2025). This reflects improved external balances and policy credibility.
• Projections indicate moderate depreciation (3.7% for 2025 overall), but sustained low inflation could further strengthen the TZS if debt remains manageable. Risks include global uncertainties (e.g., trade policy index spikes) potentially reversing gains.

Key Figures