Tanzanian shilling strengthens to become world’s top-performing currency

The 𝗗𝗶𝗿𝗲𝗰𝘁𝗼𝗿 𝗼𝗳 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗠𝗮𝗿𝗸𝗲𝘁𝘀 𝗮𝘁 𝘁𝗵𝗲 𝗕𝗮𝗻𝗸 𝗼𝗳 𝗧𝗮𝗻𝘇𝗮𝗻𝗶𝗮 (𝗕𝗼𝗧), 𝗘𝗺𝗺𝗮𝗻𝘂𝗲𝗹 𝗔𝗸𝗮𝗿𝗼 (pictured), said the outlook for the Tanzanian shilling is positive throughout the year, bucking the historical trend of depreciation of the local currency during the first half of a calendar year.

Akaro, who also holds a Chartered Financial Analyst (CFA) designation with over 20 years of experience as a central banker, breaks down the factors behind the strengthening of the shilling against the U.S. dollar in this Q&A interview with our Staff Writer.

𝐐. 𝐓𝐡𝐞 𝐬𝐡𝐢𝐥𝐥𝐢𝐧𝐠 𝐜𝐚𝐦𝐞 𝐮𝐧𝐝𝐞𝐫 𝐩𝐫𝐞𝐬𝐬𝐮𝐫𝐞 𝐚𝐠𝐚𝐢𝐧𝐬𝐭 𝐭𝐡𝐞 𝐔.𝐒. 𝐝𝐨𝐥𝐥𝐚𝐫 𝐢𝐧 𝐭𝐡𝐞 𝐟𝐢𝐫𝐬𝐭 𝐪𝐮𝐚𝐫𝐭𝐞𝐫 𝐨𝐟 𝐭𝐡𝐢𝐬 𝐲𝐞𝐚𝐫, 𝐛𝐮𝐭 𝐡𝐚𝐬 𝐫𝐚𝐥𝐥𝐢𝐞𝐝 𝐨𝐯𝐞𝐫 𝐭𝐡𝐞 𝐩𝐚𝐬𝐭 𝐭𝐡𝐫𝐞𝐞 𝐦𝐨𝐧𝐭𝐡𝐬 𝐭𝐨 𝐛𝐞𝐜𝐨𝐦𝐞 𝐨𝐧𝐞 𝐨𝐟 𝐭𝐡𝐞 𝐰𝐨𝐫𝐥𝐝'𝐬 𝐛𝐞𝐬𝐭 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐢𝐧𝐠 𝐜𝐮𝐫𝐫𝐞𝐧𝐜𝐢𝐞𝐬. 𝐖𝐡𝐚𝐭'𝐬 𝐭𝐡𝐞 𝐬𝐞𝐜𝐫𝐞𝐭 𝐛𝐞𝐡𝐢𝐧𝐝 𝐭𝐡𝐞 𝐜𝐡𝐚𝐧𝐠𝐢𝐧𝐠 𝐟𝐨𝐫𝐭𝐮𝐧𝐞𝐬?

A. The Tanzanian shilling has appreciated as a result of increased inflows of U.S. dollars from the agriculture, gold exports, tourism, and transport sectors, as well as the implementation of foreign exchange regulations published in March 2025.

𝐐. 𝐖𝐡𝐚𝐭 𝐜𝐚𝐧 𝐲𝐨𝐮 𝐭𝐞𝐥𝐥 𝐮𝐬 𝐦𝐨𝐫𝐞 𝐚𝐛𝐨𝐮𝐭 𝐔𝐒𝐃 𝐢𝐧𝐟𝐥𝐨𝐰𝐬 𝐟𝐫𝐨𝐦 𝐠𝐨𝐥𝐝?

A. As you are aware, Tanzania is a major gold producer, with an annual output of more than 1.9 million ounces of gold. Gold prices on the world market have increased by around $1,000 per ounce over the past year, from $2,310 per ounce to $3,326 per ounce as of yesterday.

Without factoring in gold production, the price increase alone over the past year has been significant, with inflows from gold rising by 43.94% or equivalent to around $2 billion going forward.

The new gold output from June 1 is being sold at record-high prices, while there hasn't been any significant increase in the cost of mining.

𝐐. 𝐇𝐨𝐰 𝐢𝐬 𝐭𝐡𝐞 𝐭𝐨𝐮𝐫𝐢𝐬𝐦 𝐬𝐞𝐜𝐭𝐨𝐫 𝐜𝐨𝐧𝐭𝐫𝐢𝐛𝐮𝐭𝐢𝐧𝐠 𝐭𝐨 𝐭𝐡𝐞 𝐬𝐭𝐫𝐞𝐧𝐠𝐭𝐡𝐞𝐧𝐢𝐧𝐠 𝐨𝐟 𝐭𝐡𝐞 𝐬𝐡𝐢𝐥𝐥𝐢𝐧𝐠?

A. Tanzania received 2.6 million international tourist arrivals last year, fetching the country about $3.9 billion. To illustrate the significance of the $3.9 billion inflows from tourism, during the Covid-19 pandemic in 2020, this sector attracted fewer than 250,000 visitors and generated just $715 million. It did manage to generate $1 billion.

A year ago (2022), tourism earned the country nearly $2.5 billion, so you can see the surge in tourism revenue in 2024.

𝐐. 𝐇𝐨𝐰 𝐡𝐚𝐬 𝐭𝐡𝐞 𝐟𝐚𝐫𝐦𝐢𝐧𝐠 𝐬𝐞𝐜𝐭𝐨𝐫 𝐡𝐞𝐥𝐩𝐞𝐝 𝐭𝐨 𝐩𝐫𝐨𝐩 𝐮𝐩 𝐭𝐡𝐞 𝐬𝐡𝐢𝐥𝐥𝐢𝐧𝐠?

A. In agriculture, if you follow the TMX (Tanzania Mercantile Exchange) auctions, they are currently auctioning thousands of tonnes of sesame seeds every day, with a kilogramme of the commodity fetching the equivalent of TZS 2,300 to above TZS 3,000. This increases the supply of U.S. dollars to the Tanzanian economy.

We also expect around $400 million in inflows from tobacco exports alone this season. This is also expected to increase the amount of FX liquidity in the market.

𝐐. 𝐖𝐡𝐢𝐜𝐡 𝐨𝐭𝐡𝐞𝐫 𝐬𝐞𝐜𝐭𝐨𝐫𝐬 𝐚𝐫𝐞 𝐚𝐥𝐬𝐨 𝐜𝐨𝐧𝐭𝐫𝐢𝐛𝐮𝐭𝐢𝐧𝐠 𝐭𝐨 𝐔.𝐒. 𝐝𝐨𝐥𝐥𝐚𝐫 𝐢𝐧𝐟𝐥𝐨𝐰𝐬 𝐢𝐧 𝐓𝐚𝐧𝐳𝐚𝐧𝐢𝐚?

A. Transportation is another key source of foreign exchange for the country. You can see on the Dar es Salaam-Dodoma highway that there are many trucks from Tanzania carrying transit goods to and from neighbouring countries, and these customers pay in U.S. dollars.

𝐐. 𝐓𝐡𝐞 𝐠𝐨𝐯𝐞𝐫𝐧𝐦𝐞𝐧𝐭 𝐡𝐚𝐬 𝐫𝐞𝐜𝐞𝐧𝐭𝐥𝐲 𝐭𝐢𝐠𝐡𝐭𝐞𝐧𝐞𝐝 𝐟𝐨𝐫𝐞𝐢𝐠𝐧 𝐞𝐱𝐜𝐡𝐚𝐧𝐠𝐞 𝐫𝐞𝐠𝐮𝐥𝐚𝐭𝐢𝐨𝐧𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐜𝐨𝐮𝐧𝐭𝐫𝐲. 𝐖𝐡𝐚𝐭 𝐢𝐦𝐩𝐚𝐜𝐭 𝐡𝐚𝐬 𝐭𝐡𝐢𝐬 𝐡𝐚𝐝 𝐨𝐧 𝐭𝐡𝐞 𝐬𝐡𝐢𝐥𝐥𝐢𝐧𝐠?

A. Following amendments made to the Bank of Tanzania Act last year to Section 26-2 and the subsequent issuance of Regulations on the Use of Foreign Currencies 2025 by the Finance Minister, it is an offence, amongst residents to quote prices for and make payments of goods and services in foreign currency instead of Tanzanian shillings.

As a result of compliance with these new regulations, many people are offloading their FX (foreign exchange) into the market. This increased supply of dollars has therefore lowered the price of the U.S. currency. After the new regulations came into force at the end of March, the liquidity in terms of buying and selling dollars in the retail FX market rose from roughly a daily turnover of $40 million to up to $70 million. During the same period last year, the daily market turnover was $30 million. So, the retail FX market turnover has more than doubled. On the other hand, the daily turnover of the IFEM (Interbank Foreign Exchange) market is currently at around just $10 million.

𝐐. 𝐖𝐡𝐚𝐭 𝐨𝐭𝐡𝐞𝐫 𝐟𝐚𝐜𝐭𝐨𝐫𝐬 𝐚𝐫𝐞 𝐛𝐞𝐡𝐢𝐧𝐝 𝐭𝐡𝐢𝐬 𝐢𝐦𝐩𝐫𝐞𝐬𝐬𝐢𝐯𝐞 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞 𝐨𝐟 𝐭𝐡𝐞 𝐬𝐡𝐢𝐥𝐥𝐢𝐧𝐠?

A. Tanzania's strong macroeconomic fundamentals have also contributed to the strengthening of the shilling. The key macroeconomic fundamentals include GDP growth, inflation, current account deficit, and the foreign exchange reserves position. Our GDP growth stood at 5.5% last year, and we expect it to expand by 6% this year, which is a very strong growth rate for the country's economy. Tanzania's inflation rate has remained stable at 3% for a considerable period, offering attractive real returns on Tanzanian assets. The current account deficit has narrowed significantly from 7.5% to 2.6% as recently as March. Our forex reserves have remained sustainable at almost $5.5 billion as we (BoT) bought $500 million worth of gold since October last year, when we started the gold reserve programme. This offers a solid cushion to support FX liquidity in the market whenever the Bank needs to step in.

Tanzania's imports and exports position is also favorable, with total imports standing at $14.9 billion, compared to around $14.5 billion from total exports based on recent data.

𝐐. 𝐖𝐡𝐚𝐭 𝐢𝐬 𝐭𝐡𝐞 𝐜𝐮𝐫𝐫𝐞𝐧𝐭 𝐬𝐢𝐭𝐮𝐚𝐭𝐢𝐨𝐧 𝐢𝐧 𝐭𝐞𝐫𝐦𝐬 𝐨𝐟 𝐝𝐞𝐦𝐚𝐧𝐝 𝐟𝐨𝐫 𝐝𝐨𝐥𝐥𝐚𝐫𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐜𝐨𝐮𝐧𝐭𝐫𝐲?

A. Demand for dollars has fallen because of the completion of the construction of some of the flagship infrastructure projects, including the Julius Nyerere hydropower dam. Oil prices at the world market have also declined from an average of $100 per barrel to around $65 per barrel. All these factors have contributed to the appreciation of the shilling's exchange rate.

Some commercial banks are currently rationing their purchases of U.S. dollars, as demand for foreign exchange remains lower than supply. This situation is forcing them to request that the central bank buy dollars due to an excess of foreign currency.

𝐐. 𝐆𝐨𝐢𝐧𝐠 𝐟𝐨𝐫𝐰𝐚𝐫𝐝, 𝐰𝐡𝐚𝐭 𝐢𝐬 𝐭𝐡𝐞 𝐨𝐮𝐭𝐥𝐨𝐨𝐤 𝐟𝐨𝐫 𝐭𝐡𝐞 𝐓𝐚𝐧𝐳𝐚𝐧𝐢𝐚𝐧 𝐬𝐡𝐢𝐥𝐥𝐢𝐧𝐠?

A. Due to the onset of the agricultural and tourism seasons as well as compliance with the FX regulations, we expect the shilling to continue appreciating against the U.S. dollar. Over the past 20 years that I have been at the central bank, I have never seen such a significant influx of foreign exchange liquidity during the first half of the year. This implies our economy is evolving with solid macroeconomic fundamentals providing a significant boost to the currency.

The shilling will therefore continue to strengthen up to December, at which point it will be in a very good position.