By Business Insider Reporter
The Bank of Tanzania (BoT) has warned that depreciation of the Tanzanian shilling alone is insufficient to improve the country’s trade balance, underscoring the urgent need for export diversification, industrial expansion and stronger productive capacity to support long-term economic stability.
The findings, published in the central bank’s April 2026 Research Newsletter, challenge the conventional assumption that a weaker currency automatically boosts exports and reduces imports.
Instead, the BoT says Tanzania’s external balance problems are rooted more deeply in structural economic constraints – including limited manufacturing capacity, low export diversification and continued dependence on imported fuel, machinery and industrial inputs.
“Our findings indicate that exchange rate depreciation, in isolation, is not an effective instrument for restoring Tanzania’s external balance,” the central bank noted in the report.
The study examined whether Tanzania satisfies the Marshall-Lerner condition, an economic principle which states that currency depreciation can improve a country’s trade balance if demand for exports and imports is sufficiently responsive to price changes.
However, the research found that Tanzania does not meet that threshold.
According to the BoT, the country’s export and import demand elasticities remain too weak for currency depreciation to significantly improve the trade balance, largely because Tanzania’s export sector lacks sufficient scale, diversification and value addition.
The report points to persistent supply-side bottlenecks that limit the economy’s ability to respond to exchange rate movements, particularly in higher-value manufacturing and industrial sectors.
Structural reforms now critical
The findings come at a time when Tanzania has experienced sustained pressure on the shilling amid rising import demand, foreign exchange shortages and increasing global economic uncertainty.
While a weaker shilling may provide limited support to certain export sectors, the BoT says broader structural reforms are now essential.
The central bank recommends expanding manufacturing capacity, diversifying exports into higher-value goods and services, strengthening industrial supply chains and reducing reliance on imported intermediate products.
Analysts say the findings reinforce Tanzania’s growing push toward industrialisation under Dira 2050, where export competitiveness and domestic production are increasingly viewed as central pillars of economic transformation.
The BoT research also highlighted the importance of infrastructure investment – particularly in transport and information and communication technology – to improve efficiency and strengthen Tanzania’s competitiveness in regional and global markets.
Inflation risks remain
In a separate study contained in the same newsletter, the BoT warned that excessive currency depreciation could also fuel inflationary pressures.
The research found that a 1 percent depreciation of the shilling raises inflation by approximately 0.046 percent on average, with inflationary risks rising more sharply once annual depreciation exceeds 7.32 percent.
The findings underscore the balancing act facing policymakers as authorities seek to support exports while maintaining macroeconomic stability and protecting consumer purchasing power.
Opportunities in manufacturing and horticulture
Despite the broader concerns, the BoT noted that some sectors continue to benefit from exchange rate flexibility.
The study found that a weaker shilling can improve export performance in manufactured goods and horticulture, with a 1 percent depreciation estimated to increase exports by about 1.47 percent in the short term and 1.40 percent over the long term.
However, the report warned that excessive exchange rate volatility can undermine export growth, particularly in horticulture and transport services where predictability remains important for investors and exporters. For Tanzania, the message from the central bank is increasingly clear: sustainable trade competitiveness will depend less on currency weakness and more on building a diversified, industrial and export-oriented economy.
