Tanzania’s economy is growing, yet its currency has fallen 8.9% in 2023, making it the worst-performing globally. This decline is fueled by rising imports and increasing public debt related to infrastructure projects. Analysts warn of further depreciation of the shilling before it stabilizes, amid substantial ongoing investments. Tanzania is investing heavily in infrastructure projects like a deep-water port and an LNG facility, which, while beneficial in the long term, are currently contributing to the shilling’s decline due to rising import costs and debt.
Tanzania’s economy is witnessing growth; however, the Tanzanian shilling has suffered a depreciation of 8.9% in 2023, rendering it the world’s worst-performing currency. This decline correlates with soaring imports and escalating public debt, primarily due to substantial infrastructure developments. Analysts forecast continued weakening of the shilling before any prospects of stabilization may emerge.
As of Tuesday, the shilling fell an additional 0.2% to 2,645.10 per U.S. dollar, marking its lowest closure since late November. Despite a projected GDP growth of 6% this year, the currency remains under pressure from increasing imports and rising public liabilities related to significant infrastructure projects.
Economic experts indicate that the Tanzanian shilling may experience further declines driven by a widening current-account deficit and seasonal liquidity constraints. Shani Smit-Lengton, senior economist at Oxford Economics Africa, highlighted these issues as short-term challenges affecting the currency. Nevertheless, she remains optimistic about the long-term economic advantages that these infrastructure investments are expected to bring.
Tanzania is significantly increasing its infrastructure spending, with numerous high-profile projects in progress such as a deep-water container port in Bagamoyo and the $5 billion East African Crude Oil Pipeline connecting Uganda’s oilfields with Tanzania’s Tanga port. Plans are also advancing for a $42 billion liquefied natural gas (LNG) facility in collaboration with leading global energy firms like Shell, Equinor, and Exxon Mobil.
Although these undertakings are likely to foster long-term economic advancement, they concurrently heighten the country’s import levels and public debt, exerting additional strain on the already vulnerable Tanzanian shilling. According to the Bank of Tanzania, the country’s imports surged by 5% to $16.9 billion over the past year, driven by increased acquisitions of industrial supplies and transport equipment, which reflect growth in various sectors such as manufacturing, construction, and transportation. Furthermore, the national debt remains relatively stable at $47.6 billion, while external debt has risen by 11.5% to $33.9 billion, according to recent data from the central bank.
In conclusion, while Tanzania’s economy shows signs of growth through substantial infrastructure investment, the Tanzanian shilling faces significant challenges, including a depreciating value against the U.S. dollar and mounting public debt. Experts anticipate further declines in the currency before stabilization occurs. Immediate economic pressures are linked to rising imports and market constraints, yet long-term prospects remain optimistic due to potential benefits from ongoing infrastructure initiatives.
Original Source: africa.businessinsider.com
