Joseph Isangura
In recent months, the Tanzanian shilling has been losing value against both the Ugandan and Kenyan currencies, even though exports to these neighboring countries have been on the rise.
Despite the increase in trade, the local currency has faced growing pressure, with many wondering why the shilling continues to weaken.
Interestingly, the shilling has been performing better against the Rwandan and Burundian currencies, strengthening in comparison. This shift in currency values has raised questions about how different economic factors are influencing the exchange rates in the region.
Experts believe the explanation lies in the way trade is conducted between Tanzania, Uganda, and Kenya. While these three countries are part of the East African Community (EAC), most of Tanzania’s exports to Uganda and Kenya are paid for in US dollars, not the Tanzanian shilling. This, according to analysts, has led to an increased demand for the dollar, which in turn puts pressure on the Tanzanian currency.
Financial analyst Bernard Mumwi explains, “Although we are exporting more to Uganda and Kenya, the payment for these goods is often made in dollars. This creates a higher demand for the dollar and leaves the Tanzanian shilling struggling in comparison.” Mumwi points out that exporters prefer to be paid in dollars, which further fuels the demand for the American currency, to the detriment of the local shilling.
The Governor of the Bank of Tanzania, Emmanuel Tutuba, shares similar views. He notes that the strength of a currency is closely tied to how it is used in trade. “When people use the Tanzanian shilling to purchase goods, it helps strengthen the currency,” Tutuba explains. “But when traders from neighboring countries like Uganda or Kenya come and make transactions in dollars, it weakens the local currency.”
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Looking at the numbers, the Tanzanian shilling’s decline against the Kenyan and Ugandan currencies is evident. In January 2021, it took about Tsh20.906 to exchange for one Kenyan shilling. By October 2024, that same amount of shillings only exchanged for Tsh21.046 per Kenyan shilling, showing a small decline of about 0.7%.
The situation is even more striking when you look at the Ugandan shilling. In January 2021, one Tanzanian shilling was worth Ush0.612, but by October 2024, it had dropped to Tsh0.725 to equal Ush1, reflecting an 18% decline.
These trends highlight the challenges facing the Tanzanian currency, despite an increase in exports. Experts suggest that to help stabilize the shilling, Tanzania may need to explore ways to reduce reliance on the dollar in trade with its East African neighbors. As global economic shifts continue, this issue will likely remain an important focus for Tanzanian policymakers.
