Inflows boost Shilling in FYDP IV Year 1

TANZANIA: THE beginning of the firstyear of the Fourth Five-Year Development Plan (FYDP IV) aligns with a period when the Tanzanian shilling is projected to strengthen in the second half of 2026.

This will bring the average exchange rate for 2026 to 2,560/- per USD, revised from our earlier estimate of 2,580/- per USD.

The boost is expected due to seasonal export inflows and ongoing policy measures, although Tanzania still has a few days before embarking on its journey toward becoming a 1 trillion US Dollar economy by 2050.

Improved inflows of goods and services, fuelled by mining exports, tourism, and increased use of Tanzanian infrastructure, will counteract external headwinds, such as higher global shipping and fuel costs, according to a thorough analysis of Bank of Tanzania ( BoT)’s data and National Bureau of Statistics (NBS)’s authority to issue national data.

Based on the shilling’s trend and its strength against other currencies, and after subjecting the data to several scenarios, it is anticipated that the currency will exhibit a similar seasonal trend in 2027, averaging 2,600/- per US dollar throughout the year, with a decline in H1 and a rise in H2.

Risks remain skewed towards depreciation, particularly due to weather-related disruptions to agricultural output and a possible resumption or escalation of the US-Iran confrontation.

From a spot rate of 2,630/- per US dollar in June 22 to 2,550/- by year’s end (revised firmer from the earlier end-2026 projection of (2,525), a closer look indicates that the Tanzanian shilling will gain in H2 2026.

As a result, the previously projected average for 2026 will now be 2,560/- per US dollar instead of 2,580/- per US dollar.

The Tanzanian shilling has outperformed expectations and its performance over the same period in 2025, despite a 6.9 per cent decline against the US dollar so far this year, driven by a higher import bill, a seasonal decline in exports, and a lower appetite for risk amid the US-Iran conflict.

This resilience has been aided by high gold prices and central bank interventions, which amounted to 297.4 million US dollars in the first five months of 2026, up from 137.3 million US dollars in the same period in 2025.

The real effective exchange rate (REER) trends indicate that a detailed analysis of currency volatility points to an expected improvement in the currency’s performance in the second half of the year.

Historically, the Tanzanian shilling tends to weaken against its long-term average in the first half of the year (H1) and then strengthen in the second half (H2). This trend was observed in both 2024 and 2025, as the REER spread was negative during H1 and then rebounded.

This reflects seasonal phenomena, like agricultural export cycles and tourist inflows, which typically peak later in the year.

Amid the approved FY2026/2027 national budget and the just-passed financial bill for 2026 that has taken into account the advice and the recommendations from the Parliamentary Standing Committee on Budget in a move to ease tax burden, unquestionably, the shilling will strengthen in H2 due to increased seasonal demand for Tanzanian exports of goods and services.

Nonetheless, foreign exchange inflows are expected to increase significantly for the rest of the year, even though disruptions related to the US-Iran war may negatively affect Q3 export performance, particularly through higher aircraft fuel and shipping costs, whose effects extend far beyond.

Strong mining output, high metal prices, strong demand for Tanzanian manufactured goods in the East African Community and within SADC economic regions, and the main MayAugust harvest will all contribute to export receipts.

At the same time, rising demand for Tanzanian port services and increased tourism will lead to higher service inflows.

Although reduced trade conditions usually lessen the need for intervention, the Bank of Tanzania (BoT) will remain ready to support the currency if necessary.

A deep dive into BOT’s data shows that reserves fell slightly in the first four months, reaching 4.4 months of import cover in April, below the East African Community’s 4.5-month standard.

Nevertheless, given the good news from the approved FY2026/2027 national budget, reserves are expected to rebound in the latter half of the year, allowing greater policy flexibility.

Given the inflation risks associated with devaluation and Tanzania’s external debt—approximately twothirds of which is in foreign currency—preserving currency stability remains a key policy focus.

Stronger demand for the US dollar, driven by a higher-for-longer US Federal Reserve policy rate stance and persistent prospects of further tightening, is a supportive factor that will help counter emerging external challenges.

Nevertheless, it is anticipated that at its July meeting, the BoT will raise the policy rate by 25 basis points to 6.00 per cent, thereby supporting the currency by maintaining a real interest rate above 200 basis points.

What are the likely comparable seasonal trends in 2027, considering the economic environment and data from the BOT and NBS?

Based on the best-case scenarios, and banking on BOT loans, seen as a shock absorber that allows the government to obtain temporary advances from the BoT, as captured in the Financial Act 2026, all forecasts point to relative stability in 2027, with the shilling depreciating by just 1.6 per cent to an average of TZS2,600/USD. The currency is expected to follow a similar seasonal pattern, declining in H1 and rising in H2.

With no major changes in the world gold price, a lower gold price will put pressure on reserve accumulation and constrain the BoT’s ability to act.

Knowledgeable about the Metals and Mining sector’s price dynamics data easily accessible at LMEs, it forecasts an 8.7 per cent year-over-year decline to USD4,200/oz, following an anticipated 33.7 per cent increase to USD4,600/oz in 2026.

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Nonetheless, an improving external balance will offset this. The current account deficit is expected to narrow from 2.7 per cent of GDP in 2026 to 2.2 per cent in 2027.

Lower oil prices, with Brent crude predicted to fall by 7.7 per cent to USD72/ bbl and stronger services exports, bolstered by the growing use of Tanzanian infrastructure for regional commerce, particularly EACOP, will help mitigate downward pressure on the currency.

It is not necessary to be content with the desired outcome. There remains a bias in favour of a weaker shilling. Based on data, it can be warned of a high probability of a collapse in negotiations and a resumption of confrontation, possibly with higher escalation, despite the USIran agreement reached under the Islamic Memorandum of Understanding.

Even if gold prices remain high, this would prolong elevated oil and freight costs and high insurance premiums, burdening trade in both goods and services.

A stronger-than-anticipated El Niño, nonetheless, poses conflicting risks to agricultural exports: although above-average rainfall can increase output, extreme floods might disrupt planting and damage crops and the infrastructure needed to access markets in a timely manner.