The Tanzanian shilling has suffered a severe depreciation in 2025, becoming the worst-performing currency globally. As of March 20, the exchange rate against the US dollar dropped to 2,645 shillings per dollar, the lowest level since late November 2024. The year-to-date decline stands at 8.9%, placing it at the bottom of major emerging market currencies.
Root Cause: Infrastructure Boom Fuels Imports and Debt
The primary pressure on the shilling comes from Tanzania's massive infrastructure investment plan. The government is pushing ahead with projects including a new port, an oil pipeline, and a liquefied natural gas (LNG) facility. While these projects are expected to boost long-term economic growth and export earnings, their construction phase heavily relies on imported equipment and materials, causing import spending to surge and widening the current account deficit.
Meanwhile, public debt has climbed to fund these projects, intensifying liquidity pressures in the foreign exchange market. Confidence in the shilling has weakened, increasing the risk of capital outflows.
Growth vs Depreciation Paradox
Notably, Tanzania's economic fundamentals are not entirely bleak. The International Monetary Fund (IMF) projects the country's GDP growth to reach 6% in 2025, still leading among East African nations. However, a stark contrast has emerged between short-term currency depreciation and long-term growth prospects. Economists point out that the peak of import demand driven by infrastructure investment is yet to pass, while export revenues will only materialize after projects become operational. Therefore, the shilling is likely to remain under pressure in the near term.
Liquidity constraints are also a critical factor. Although the central bank has taken some intervention measures, foreign reserves are relatively limited, making it difficult to halt the shilling's slide. Markets expect the shilling to potentially weaken further to 2,700 shillings per dollar or lower if import demand remains high and foreign exchange inflows stay insufficient.
Regional Impact and Outlook
The shilling's weakness has triggered ripple effects across the region. Neighboring countries such as Kenya and Uganda have also faced some depreciation pressure, but Tanzania's situation is the most severe. Analysts believe the Tanzanian government needs to balance the pace of infrastructure investment with foreign exchange reserve management, while accelerating foreign direct investment inflows to mitigate short-term pressures.
In the medium to long term, once the new port and LNG projects become operational, Tanzania's export capacity is expected to improve significantly, benefiting sectors like tourism and high-value agricultural products. The current account deficit may then narrow, and the shilling could gradually stabilize and recover. Until then, the central bank must adopt more prudent monetary policies to prevent excessive exchange rate volatility from disrupting the broader economy.