Tanzanian Shilling: The world’s worst-performing currency in 2025

Bloomberg reports that the Tanzanian shilling is the worst-performing currency in the world in 2025. Since January, the shilling’s exchange rate has weakened 8.9 percent.

The speed of the depreciation is worrying: A week after the Bloomberg report, the shilling’s decline has crossed the 10 percent mark against major trading currencies- the Euro, the pound Sterling, and the US dollar.

Our research shows that between February 3 and March 26^th, it lost an average of 10.33 percent against the three currencies. On February 3, the shilling traded at 2475.83 against The Euro, 3072.00 against the British pound, and 2473.83 against the US Dollar.

Seven weeks later, the rates had fallen to TZS 2830.69, 3383.07, and 2619.31, respectively.  This is not a comfortable pace, market watchers say.

The cause of the depreciation is the current account deficit amid growing imports, particularly of construction materials, among other imports.

According to the Bank of Tanzania’s Monthly Economic Report for February 2025, the deficit stood at US$2 billion, while external debt, including interest arrears, stood at US$34 billion. The country’s forex reserves stood at $5 billion or four months' import cover.

The MER also reports a notable increase in imports of “industrial supplies, transport equipment and associated accessories.” Demand from the oil sector, reported Bloomberg, is a major driver of forex demand in Tanzania, concluding that despite its robust GDP growth, estimated at 6 percent, the shilling will remain volatile for the foreseeable future.

 A weak and depreciating local currency increases external debt service costs, raises the external debt ratio,  raises the cost of imports, lowers profitability of local productive sectors, raises unemployment and domestic inflation- call it the misery-go-round if you wish.

This far, in terms of the shilling, these commitments are up by an estimated 10 percent. This is to say, the current account balance is now up $2.2 billion while the external debt stands at $38.4 billion in terms of the local currency. In simpler language, Tanzania now spends more shillings to buy the same amount of dollars compared to the February 3, 2025 trade.( comment on the external debt ratio)

The Tanzanian shilling takes over from its namesake in Kenya which was the worst-performing currency in 2023.

Kenyans remember the situation in 2023 and early 2024, when the shilling slumped to 160 to the dollar. Fuel prices went through the roof forcing an upward trend in domestic prices. Economic activity slowed, the corporate sector reported lower profits and some even got into the red.

A weak currency can easily wipe out the benefits of economic growth, with all its attendant implications on the social sector, especially poverty alleviation.

 In Kenya, the rebound of the shilling last year caused heavy forex users such as Kenya Airways and Kenya Power to return a profit. It also wiped out some $900 million in external debts.

The gainers have demonstrated that their profitability last year was no fluke, for they have sustained the trend.  KQ reported a full-year profit of KES 5.4 billion while KPLC reported a first-half profit of KES 16 billion at the end of last year.

Now picture the opposite direction, especially where the end of the tunnel is not visible. You won’t envy being in Tanzania’s shoes.

However, Tanzania has a few things going for it:   first, its external debt, at $34 billion, is still manageable even if the shilling shrinks further. Two, she has fewer forex guzzlers. The one potential guzzler, the electricity generating firm, TANESCO, has no debt - both domestic and external. Three, gold prices could rise as a result of the chaos in the USA.

Four, Tanzanians do not wash their dirty linen in public and do not actively sabotage their own economy.

Except for the Air Tanzania Corporation, it has fewer forex guzzlers. This means that she can scrape through the weak shilling by managing her forex inflows.

 The chaos in the USA could also benefit Tanzania.  As the capital market in the US shrinks and investors get jittery, many could seek refuge in gold, raising its demand and therefore price. Tanzania is a large producer of gold. This year, gold is projected to generate US$3.5 billion in export earnings.  However, a rise in demand for gold could push past that target, giving her and other gold producers a windfall.

Such a windfall could plug the hole thus strengthening the shilling. However, this will depend on the speed of the depreciation and how soon investors in the US flee the US capital market. 

Let’s hope for the best.