The Tanzanian shilling has depreciated against the Ugandan and Kenyan currencies despite increased exports, driven by a preference for US dollar transactions, which foster higher dollar demand. This trend has coincided with Tanzania surpassing Kenya as Uganda’s main source of imports, highlighting significant economic shifts in the region.
The Tanzanian shilling has experienced a relative decline against the Ugandan and Kenyan currencies recently, despite a rise in exports to these neighboring nations. Notably, transactions for most exports to Uganda and Kenya predominantly occur in US dollars, increasing the dollar’s demand and consequently diminishing the local currency’s value. Conversely, the Tanzanian shilling has appreciated against the Rwandan and Burundian francs during the same timeframe. Financial analyst Bernard Mumwi explains that this situation emphasizes the demand for dollars over the local currency due to trade dynamics:
“This creates huge demand for the dollar compared to the Tanzanian shilling… thereby creating high demand for the vehicle currency at the expense of the local one” – The Citizen.
From January 2021 to October 2024, the shilling depreciated by approximately 18 percent against the Ugandan shilling, experiencing a shift from an average of Tsh0.612 for 1 Ush to Tsh0.725 at the end of the period. During the same period, the Tanzanian currency appreciated by 58 percent against the Burundian franc and 13.3 percent against the Rwandan franc. Furthermore, Bank of Uganda data indicates that Tanzania surpassed Kenya as Uganda’s top source of imports, reflecting a significant change in trade relations within the region. Notably, gold constitutes a major portion of Uganda’s imports from Tanzania, accounting for more than half of the total, valued at Ush1.08 trillion in 2023. The increased trade volume, alongside currency fluctuations, signifies vital economic trends in East Africa that could reshape regional trade dynamics.
The Tanzanian shilling’s depreciation against its East African counterparts is notably linked to trade practices and currency demand. As the region operates under the East African Community framework, the prevailing preference for dollar transactions highlights the complexities of local currency utilization amid rising import-export activities. Such developments reveal significant shifts in trade relationships, particularly between Uganda and Tanzania, which have started to reshape the commercial landscape, especially in terms of sourcing imports, demonstrating the evolving dynamics in the region’s economic engagements.
The recent performance of the Tanzanian shilling reflects broader economic interactions within East Africa. Despite increased exports to neighboring countries, notably Uganda and Kenya, currency dynamics have led to the shilling weakening against these currencies. Transactions predominantly conducted in US dollars complicate local currency usage and induce higher dollar demand, affecting the shilling’s stability. This phenomenon is further illustrated by the significant shift in Uganda’s import sources, where Tanzania has now become the leading provider, surpassing traditional partner Kenya.
In summary, the Tanzanian shilling’s depreciation against the Ugandan and Kenyan currencies can be attributed to increased export activities accompanied by a prevailing preference for US dollar transactions, creating demand pressures that hinder local currency stability. The economic shift, marked by Tanzania’s emerging role as Uganda’s primary import source, underscores evolving trade relationships in East Africa. This change may have profound implications for regional trade patterns, currency valuation, and economic cooperation moving forward.
Original Source: www.thecitizen.co.tz
