Summary
· The Bank of Tanzania yesterday acknowledged that foreign exchange reserves have decreased, but said the situation is not critical
Dar es Salaam. The Bank of Tanzania (BoT) yesterday acknowledged that
foreign exchange reserves have decreased, but said the situation is not
critical.
Foreign exchange reserves had
decreased to $4.9 billion by May 2023 from $5.5 billion in May 2022.
“I first of all admit that there is
a shortage of foreign exchange, but this has been caused by external factors,
which are beyond the control of many countries,” BoT economic research
and policy director Suleiman Misango said.
He added that current reserves,
which are sufficient to cover 4.4 months of imports, are within the country’s
benchmark of at least four months of imports.
“The central bank is aware of the
decrease in the supply of dollars and is taking measures to address and
mitigate the situation. There is no need to panic as we have not reached the
level of calling it a crisis,” Dr Misango said during a meeting with editors at
BoT headquarters.
He added that the decrease in
foreign exchange reserves has been caused by global factors, including the
impact of Covid-19, the war between Russia and Ukraine, the US Federal
Reserve’s decision to raise interest rates and climate change.
These global challenges disrupted
supply chains, leading to higher commodity prices in the world market. This
means that more dollars are needed to import the same quantity of items than
was the case previously, Dr Misango said.
The value of imports increased from
$10 billion in 2021 to $14.2 billion in 2022, while that of exports increased
from $6.7 billion to $7.2 billion during the same period.
“Available foreign exchange reserves
are being utilised carefully to stabilise liquidity,” Dr Misango said, adding
that the central bank is selling at least $2 million to commercial banks daily
as part of measures to regulate the supply of the greenback.
The central bank usually buys
dollars, but has been selling them in recent months to increase liquidity, he
added.
Between January 2022 and May 2023,
the central bank sold $376 million through the Inter-Bank Foreign Exchange
Market (IFEM).
More measures
Dr Misango said the decrease in the
dollar supply in Tanzania is far smaller compared than what other countries are
experiencing and expressed hope that the situation will soon normalise.
He added that since July to
September is the peak tourist season and also the time when cash crops are
harvested, availability of foreign exchange is expected to improve in the next
few months.
Tanzania exports traditional crops
such as coffee, cotton and tea, which generated $766 million in the year to
April 2023.
“Prices of some imports, especially
oil, are now going down and therefore easing the pressure on foreign exchange
reserves. We expect foreign exchange reserves to start rising soon.”
The central bank has also bought six
tonnes of gold worth $280 million to beef up foreign exchange reserves.
BoT is also sustaining the
implementation of a less accommodative monetary policy stance in May and June
2023 to ensure that inflation remains within the target of 5.4, while ensuring
adequate supply of liquidity in the economy.
The central bank recently issued new
directives which, among other things, required all foreign exchange
transactions exceeding $1 million in the retail market to be traded at the
interbank foreign exchange market prevailing quoted prices in an attempt to
increase the availability of the dollar. This amount was previously capped at
$250,000.
BoT also said it is accelerating the
issuance of licences for bureaux de change to increase the number of money exchange
outlets and make foreign currency available throughout the country.
Dr Misango yesterday reiterated the
central bank’s stance on dollarisation, warning agencies and companies against
compelling customers to pay in dollars.
BoT says in its Monthly Economic
Review for May 2023 that the shilling was largely stable against currencies of
major trading partners, consistent with low inflation rate and adequate
reserves in April this year.
The shilling was trading at an
average rate of Sh2,324.07 to the US dollar, compared with Sh2,322.16 to the
dollar in March 2023.
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