Tanzanians are facing tough times as their local currency, the Tanzania shilling, has hit a rock bottom against the US dollar.
This situation has led to an increase in the cost of imports and foreign products in the country, putting a strain on the pockets of ordinary citizens.
As of August 16, 2023, the Central Bank of Tanzania reported that the average exchange rate for the shilling against the dollar had plummeted to an all-time low of 2428.7. This means that importers will now have to spend more money on bringing in goods and raw materials for their businesses.
One of the immediate impacts of this currency depreciation is the rise in the cost of inputs for firms. This increase in cost will eventually be passed on to consumers, resulting in higher prices for various products and services. Dr. Jane Buberwa, an economist based in Dar es Salaam, highlighted that the detrimental effects of this situation go beyond just import costs.
Dr. Buberwa explained that the depreciation of the shilling against the dollar is not unique to Tanzania. Many other sub-Saharan African countries are experiencing the same issue, leading to a widespread surge in import prices. This, in turn, fuels inflationary pressures across the continent.
The consequences of this currency devaluation are far-reaching. Basic necessities, such as food, which heavily rely on imports, will become more expensive. This places an additional burden on Tanzanian citizens who are already grappling with rising costs of living.
According to Mr Aziz Rashid, an assistant lecturer on Banking and International currency at Ardhi University, the current situation poses a risk to the economy of a country that relies heavily on imports. The high prices of imported goods can lead to a deterioration in the standard of living for its citizens.
In order to address this issue, Mr Rashid suggests that the government could consider implementing subsidies on all products purchased by citizens and exempting taxes on imported goods. Additionally, he recommends using monetary policies that depend on the government’s reserve of money to help mitigate the pressure caused by the increase in the value of the dollar against their local currency.
To stabilize exchange rates, Mr Rashid proposes adopting “Direct Intervention Policies” similar to what Turkey has successfully implemented. This involves releasing a significant amount of dollars into the forex market against their local currency. Furthermore, he suggests exploring opportunities to transact with major trading partners using local currencies instead of relying solely on foreign currencies. For instance, Tanzania and India have already conducted transactions using Shillings and Rupees respectively.
Overall, it is crucial for policymakers to take decisive actions to alleviate the economic strain caused by importing more than producing and minimize dependence on foreign currencies.
Based on the International Monetary Fund’s analysis, the depreciation of currencies in the region can be attributed to external factors. Factors such as reduced risk appetite in global markets and interest rate hikes in the United States have led investors to shift towards safer and more lucrative investments in US Treasury bonds. Consequently, countries within the region have experienced a decline in foreign exchange due to decreased demand for their exports resulting from the economic slowdown in major economies.
Dr. Dickson Pastory, a lecturer at the College of Business Education (CBE), suggests that governmental intervention could potentially address this issue by increasing the availability of dollars in foreign exchange markets. By doing so, circulation of dollars would be enhanced, alleviating concerns regarding dollarisation.
Furthermore, Dr. Pastory emphasizes the importance of developing Tanzania’s tourism industry to attract more visitors to the country. However, it is crucial that these efforts align with guidelines stipulating purchase of goods using Tanzanian shillings instead of foreign currencies. This measure would create a demand for shillings within the market.
In response to ongoing violations of these guidelines, BoT issued a statement in June reaffirming its public notice from August 2007 and December 2017 which prohibited domestic payments for goods and services using foreign currencies among Tanzania residents. The general public is reminded that adherence to these directives is imperative at all times.
The notice, entitled “Dealing with the Currency within the United Republic of Tanzania,” highlights the necessity for all prices of goods and services in the country to be expressed in Tanzanian shillings. Dr. Buberwa stressed the significance of this measure, emphasizing its importance for conducting business within Tanzania. It is imperative that individuals adhere to this requirement when engaging in any economic activities within the nation’s borders.