BoT governor, Zitto differ over causes of shilling fall

Prof Benno Ndulu. 

By Mkinga Mkinga,The Citizen Reporter

In Summary

• However, as Bank of Tanzania (BoT) fronted these as factors, former Kigoma North MP Zitto Kabwe suspects a foul play by major banks in the country as being behind the more than normal depreciation of the local currency.

Dar es Salaam. The drop of gold price in the world market, donors withholding aid funds and business loans are to blame for the fall of shilling against the US dollar, according to central bank governor Prof Benno Ndulu.

He said gold earnings have dropped by close to 40 per cent, while other sectors have failed to fill the gap. However, as Bank of Tanzania (BoT) fronted these as factors, former Kigoma North MP Zitto Kabwe suspects a foul play by major banks in the country as being behind the more than normal depreciation of the local currency.

While BoT governor met law makers yesterday to explain the recent shocks experienced by the shilling, Mr Kabwe gave his assessment through social media.

Prof Ndulu told members of the Parliamentary Committee on Economy, Trade and Industries yesterday that BoT was in control of the situation, thus asking legislators and the general public to remain calm.

He was accompanied by officials from his office aswell as Finance deputy minister Mwigulu Nchemba. Prof Ndullu asked legislators not to politicise the issue.

He said further that the US dollar’s strengthening was another factor which saw not only the shilling tumbling, but other currencies around the world as well.

“I’m using the correct statistics and my expertise in this area. We’ve two markets for foreign currency, the interbank foreign exchange under which banks sell forex and we regulate. The other market is bureaux de change, which buys from banks,” Prof Ndulu said.

He said in June 2011, there was a fall of 8.6 per cent, which he said was caused by the global economic recession. The governor said during that period the whole of East Africa was impacted.

He, however, said that for about three years the shilling has been stable at around Sh1,500 a dollar but from March this year Euro had a problem and the US dollar took advantage and gained.

“Most of the investors rushed for the dollar and this was a global phenomenon. The Euro has depreciated by 23 per cent in a year,” he said.

He said on the backdrop of those trends, there was also the decline of gold prices at the world market.

Elaborating, the BoT boss said while the US dollar was gaining, foreign revenue was declining due to fall of gold price. He noted for instance that in the past three years, Tanzania earned an average of $2 billion from gold sales, but these fell to $1.3 billion, in this year.

He said, even though earnings from tourism have increased from $1.5 billion to $2 billion and industries from $950 million to $1.3 billion, the amount was not enough to cover the drop of gold earnings provided that “we are selling more to the neighbouring countries.”

“The delay of the funds from donors and business loans are other factors which hit our shilling. Donors released only $120 million out of $500 million which they promised. We expected $800 million in business transactions but only $300 million was available,” he said.

He said the central bank has used its forex to pay about $660 million for the import of train engines and wagons as well as clear Tanesco debts. He said much of the payments were done in March and April.

Commenting on the actions taken by the central bank, he said in the last four months BoT has released to the market about $340 million.

“There is a month which we sold about $100 million. But we should remember that there is no way you can rescue the shilling by injecting dollars in the market as this will attract more people to come and buy, thus compounding the problem,” he said.

But Mr Kabwe was of the opinion that currency manipulation by major banks as well as flight of US dollars by some individuals, some of them using VIP lounges, were behind the current shocks to the local currency.

“There is also a possibility that uncertainties around the General Election are behind this as investors have stopped bringing in their money with others taking away theirs,” he said.

Mr Kabwe urged the government to conduct impromptu investigation at all major commercial banks to check currency manipulation.