Shilling on deathbed as it falls to 2,000 figure

Counting dollars. Due to reduced confidence in the shilling, some investors have developed a preference for dollars, further weakening the local currency, for this tends to create an unnecessarily high demand for the greenback.PHOTO| FILE 

In Summary

• It is historical free fall in just four months
• After three consecutive months of steady decline, the shilling depreciated to a record low of Sh2,015 to the dollar in some bureaux de change yesterday, sending shock waves among importers as the Bank of Tanzania remained tight-lipped

Dar es Salaam. It is now obvious that the shilling is in a serious crisis because at no time in the past decade have Tanzanians witnessed a free fall of this magnitude of their currency.

Yesterday, the shilling depreciated to a record low, reaching a maximum of Sh2015 against the dollar in some bureaus de change, sending shock waves to importers as Bank of Tanzania (BoT) remained tight-lipped.

In February, this year, the shilling was trading at between 1,830 and 1,900 per dollar.  Last year in January, the shilling traded at an average of 1,630 against the dollar.

But this year, within just three months, the shilling has hit the 2,000 mark, and indications are that it is set to tumble further for analysts now predict that by October, when Tanzanians will go to the polls, it will have further worsened.

But, as the shilling falls to an unprecedented low, no one is willing to offer solid reasons on why the currency is suddenly going downhill so fast.

As the Bank of Tanzania (BoT), which is the regulator, assumes the role of a spectator, letting the market forces—supply and demand—determine the trend, the common man on the street bears the brunt.

At the political level, it is business as usual as no one seems bothered by the shilling free fall. Neither the ruling party nor the Opposition are talking about the local currency’s rapid depreciation.

According to a quick survey conducted by The Citizen, during the past few months when the shilling has been on its “deathbed” no prominent politicians, including those eyeing the presidency via the October polls, have offered a clue to the common man on what is facing the Tanzanian currency.

In a country where the economy is import-oriented, where the value of imported goods is higher than what is exported, the free fall of the shilling could soon trigger the skyrocketing of prices for various goods—including fuel.

Pump prices, which fell three months ago after global oil prices plummeted to a record low of $50 a barrel will soon shoot up if the shilling continues to sink.

Fuel accounts for the bulk of the country’s import bill, whereby during January 2014 and January, 2015, the country imported goods worth $10.823 billion against exports worth $5.335 billion, according to BoT figures.

Thus, a depreciation of the shilling translates into a rise in prices of imported goods, which are pegged on the exchange rate.

The BoT governor, Prof Benno Ndulu, could not be reached for comment yesterday as he was reportedly out of the country.

The bank’s director of economic policy and research, Dr Joseph Masawe, said he was in Italy on an official trip. “Sorry, I am in Italy,” he told The Citizen in an SMS.

The acting director of economic policy and research, Mr Johnson Nyela, was reportedly in Uganda.

Experts believe that the weakening of the local currency could be a consequence of the appreciation of the US dollar against major currencies worldwide, noting that Tanzania’s may not be an isolated case.

 “It isn’t only our shilling that has depreciated; all currencies across the East Africa region have weakened significantly against the dollar,” said CBA Bank treasurer Khamis Mwakibete.

He noted, however, that despite the central bank’s initiative to rescue the shilling, the current pace of depreciation is has not been seen for many years.

“It is unusual to see the local currency going down by Sh20 every day,” he said.

He urged BoT to intervene more so as to increase confidence among users on the local currency.

“Due to regular depreciation of the shilling, many people are opting to hold dollars, so the government must put in place strategies that will see the confidence on the shilling is revived,” said Mr Mwakibete.

He further noted that presently, the country’s source of foreign cash is limited as compared to other months of the year.

“We are yet to start selling agricultural goods as farmers are just harvesting now. Tourists inflow to the country is also low at this time of the year.”

A petroleum products businessman who didn’t want his name published said the reason for the massive depreciation was the looming elections. He said investors are converting their assets to dollar since they aren’t sure of the next government.

“They cannot tell who will take over power and what his position will be towards investors… they’re putting their assets in dollars so that in the event of things turning bad, they could easily leave the country.”

He said, however, that for the country to have a strong currency, it needs to have a long term strategy.

“There’s a need for a very clear strategy to significantly boost local production of goods and services such that we reduce the demand for foreign currency,” he said.

He called on the need for the government have strategies that will lead to revival of confidence on the Tanzanian shilling.