The country’s energy shortage has driven its current account deficit to widen by 135 percent on soaring oil imports to generate power in the face of shortages and blackouts.
Despite a rise in gold exports, the nation's total imports bill rose 39.1 percent in the year to February to $12.6 billion, mostly due to a rise in oil imports, its central bank said on Tuesday.
Tanzania's coastline is fast becoming a major gas hub with major discoveries made in the east African region and the country has licensed at least 18 international companies to look for offshore and onshore energy reserves.
But hydro power accounts for around half of Tanzania's energy supplies, with prolonged drought resulting in rolling blackouts across the country. The Tanzanian government has shifted its focus to thermal power projects to wean itself off rain-dependent hydropower stations.
Energy demand is expected to grow to 1,583 megawatts by 2015 from the current demand of around 800MW, according to estimates by the country's energy ministry.
Analysts said rising oil imports could hurt the import-dependent economy, which has been struggling with a high inflation rate and slower growth.
"Tanzania must do away with generating electricity from oil-fired power stations. This source of electricity is very costly to consumers and the economy and is not sustainable. It actually adds up to the cost of doing business in Tanzania, with a high inflation rate," said Humphrey Moshi, professor of economics at the University of Dar es Salaam.
"Tanzania can no longer depend on hydro-power stations due to the effects of climate change, hence the need to turn to alternative sources of energy such as natural gas and coal."
Tanzania's year-on-year inflation rate fell to 18.7 percent in April from 19 percent previously on lower food and energy costs, but analysts said the decline was too slow and forecast the rate to remain in double-digit figures for the rest of the year.
Poor rains across East Africa for much of last year undermined food security and electricity output, triggering spikes in the levels of inflation and threatening economic growth.
In the year to February, the current account deficit widened to $5.248 billion from $2.233 billion a year ago, and slightly higher than in January, when it stood at $5 billion from $2.341 billion the year before period.