Shilling use boosts forex liquidity

DAR ES SALAAM: LIQUIDITY in the country’s retail foreign exchange market has surged by 72.5 per cent following government measures to promote the use of the shilling in domestic transactions.

Average daily dollar liquidity rose to 69 million US dollars from 40 million US dollars over the past month, reflecting improved foreign currency availability, according to the Bank of Tanzania (BoT).

BoT Director of Financial Markets Emmanuel Akaro said yesterday that the increase was driven by individuals and businesses shifting from foreign currencies to the shilling for local transactions.

“This has helped us maintain the stability of our shilling compared to similar periods in previous years,” Akaro said during a meeting of the National Technical Committee for Financial Inclusion.

On March 28, the government issued regulations prohibiting pricing and payments for goods and services in foreign currencies within Tanzania.

ALSO READ: Tanzania sees completion of JP Magufuli Bridge

The rules allow exemptions for government payments to international organisations, embassies, dutyfree shops and foreign currency loan repayments.

“All new contracts must now be denominated in shillings,” Akaro said.

Existing contracts have a one-year transition period to renegotiate or seek Ministry of Finance approval. BoT maintains sufficient foreign reserves to cover more than four and a half months of imports.

Since October last year, the central bank’s gold purchase programme has added over 450 million US dollars to reserves, supporting exchange rate stability.

However, Dr Hilderbrand Shayo, an economist and investment banker, told ‘Daily News’ that the improvement in market liquidity is the result of multiple factors chief among them being earnings from tourism, crop exports, and, more recently, an increase in the export of manufactured goods.

“The crackdown on the use of the US dollar for domestic transactions is yet to produce meaningful results,” Dr Shayo said.

The shilling is expected to gain further relief from dollar pressure starting in June, when the tourism season brings increased foreign currency inflows.

However, adding to foreign exchange support, cashew nut sector achieved a historic milestone in the 2024/25 season with production rising to 528,260 metric tonnes, up from 305,000 tonnes the previous year.

Cashew exports reached 410,000 metric tonnes via auctions, generating record earnings of approximately 1.52tri/- (583.7 million US dollars), surpassing the 2017/18 record of 575 million US dollars.

This robust performance in both policy-driven forex liquidity and agricultural exports strengthens Tanzania’s foreign exchange position amid evolving market pressures.