Tanzania and Uganda have resorted to loans and repurchase agreements in a
bid to shore up their declining foreign reserves. PHOTO | FILE
By Allan Olingo, The EastAfrican
In Summary
- The two countries have seen a fall of more than $1.1 billion in foreign reserves in the past 12 months as a result of public spending on imports and currency interventions.
- It is however not clear at what rate Tanzania will be borrowing from South Africa and China and why it opted for private bank financing rather than getting a precautionary facility from the International Monetary Fund like Kenya did.
- The choice by Uganda to have a repo arrangement of $4.2 million is also unconventional, but analysts say that it works for both the country and the banks involved in the arrangements.
Tanzania and Uganda have resorted to loans and repurchase agreements in a bid to shore up their declining foreign reserves.
The two countries have seen a fall of more than $1.1 billion in
foreign reserves in the past 12 months as a result of public spending on
imports and currency interventions.
Tanzania last week said it had signed $800 million in loans from
Rand Merchant Bank in South Africa and China Development Bank Corp to
bolster its foreign-exchange reserves, as it shores up a weakening
currency and plugs the budget deficit of $2.99 billion.
According to Bloomberg, the negotiations for the loans are
complete; the Johannesburg-based Rand Merchant Bank will raise $600
million through private placements while $200 million will come China
Development Bank.
“We are expecting about $800 million and we should receive it
from both banks before the end of June. We are hoping this will improve
the supply of foreign currency in the market,” Joseph Masawe, Bank of
Tanzania’s head of economic research and policy told Bloomberg.
The Tanzania shilling has weakened 21 per cent so far this year
and is Africa’s second worst-performing currency, after Ghana’s cedi.
Tanzania has scaled down its sales of foreign currency to banks.
As at the end of last week, its foreign reserves stood at $4.07 billion, down from $4.61 billion a year ago.
Tanzania’s central bank has sold $339 million to lenders in the
past five months to support the shilling. It also spent $380.3 million
on its external debt obligations as repayment on interest and principal
in the 2014/15 financial year.
“Currency depreciation has been caused by the strengthening of
the US dollar, while the government’s external obligations and
speculation inthe treasuriesmarket are also to blame,” Mr Masawe said.
It is however not clear at what rate Tanzania will be borrowing
from South Africa and China and why it opted for private bank financing
rather than getting a precautionary facility from the International
Monetary Fund like Kenya did.
An economist at the Central Bank of Kenya said that Tanzania
opted for private bank borrowing because it has reached its borrowing
limits with the IMF.
“The country could also want to avoid paying for its imports
using the dollar, hence looking at paying with the currency of the
source of imports like China, which it has a lot of development
agreements with. That reduces the currency exchange losses it would
incur,” he said.
No comments :
Post a Comment