BoT, don lock horns on shilling stability

Dar es Salaam. A reduction in the value of imports sound liquidity management in the economy have stablised the shilling in the last six months of this year, the central bank has said.

The shilling exchanged at the rate of between Sh2,180 and Sh2,190 per 1US$ in the last month registering the longest period of stability in the last 17 months.

The governor of the Bank of Tanzania, Benno Ndulu told reporters last week that good performance of both the Tanzanian and the global economy and an improvement in exports have also helped the stability of the local currency in the past six months. “The decrease in the value of imports has been largely contributed by falling oil prices,” Prof Ndulu, a former economics teacher at the University of Dar es Salaam told reporters in the city last Tuesday.

The shilling was highly volatile and exhibited frequent fluctuations between October 2014 and December 2015, data from the BoT show.

During that period the currency weakened from Sh1690 per 1US$ to Sh2,200 per 1US$. There was a sharp weakening of the local currency in the two months between April 1, 2015 and June 24, 2015 when it fell from Sh1,820 per 1US$ to Sh2,320 in bureaux de change. It was the worst weakening of the local currency in a short period in the past two years.

The most volatility, however, was between May 13, 2015 and August 5, 2015 when it fell from Sh2,010 per 1US$ in May 13 to Sh2,320 per 1US$ in June 24 and then rose to Sh1,980 in June 28 and then fell to Sh2,230 in July 10 and then rose to Sh2,050 in July 15. It then fell to Sh2180 in the following 24 hours. It then rose to Sh2100 in July 25 and went ahead fluctuating in lower volatility till January 20, 2016 when it stabilized at between Sh2180 and Sh2190 per 1US$. It has remained stable since.

“The stability of the shilling in the past six months has shown us that sound monetary policy and a good balance of payment are the way to go. Tight control of the foreign currency can only lead to problems as the experience in South Africa shows,” Prof Ndulu noted. More energy should be put in improving the investment climate in sectors that are the largest foreign exchange earners such as tourism, manufacturing, mining and agriculture, he said.

In the meantime the government policy should remain staying away from foreign controls.

“Tanzania stopped foreign exchange controls in the 1980’s as one of the ways of curbing foreign currency shortages. The result has been adequate supply of foreign currency in the economy,” Prof Ndulu, a former World Bank economist said.

He added that countries such as Zambia, which have re-introduced foreign exchange controls have experienced foreign currency shortages.

“We should stop thinking that controls will amount to anything better. Increasing production is the way to go,” Prof Ndulu noted. Reacting to Prof Ndulu’s assessment of the shilling Economics Professor from the University of Dar es Salaam, Humphrey Moshi, said the stability of the shilling in future is not guaranteed because of several factors. They include dollarisation of the economy, failure of bureaux de change to follow foreign exchange regulations and weak implementation of the anti-money laundering law.

Prof Moshi said the high rate of dollarization has led to a systematic devaluation of the shilling because businesses are left to quote their prices and charge in dollars. It has also weakened monetary policy setting and has fueled money laundering.

“Bureaux de change also pay lip services to regulations that put a cap to how much foreign currency they can sell in a day and in issuing receipts,” Prof Moshi said adding that bureaux de change have been the largest conduit of money laundering in the country.

Most of the billions of shillings swindled in corrupt deals are exchanged in bureax de change and then repatriated outside the country, he added.

One way that shows poor implementation of anti-money laundering laws is the failure to take to task banks that were involved in the External Payment Arrears account (EPA) and Escrow account scandals.

“We had banks that allowed people to withdraw billions of shillings in piles of cash in plastic bags, in a single day. And those banks have their licenses intact! That can only happen in Tanzania,” Prof Moshi noted.

In another development the banking sector has recoreded impressive growth in the first six months of this year. A new bank, Mwalimu Commercial Bank, started operations bringing the number of banks and financial institutions to 65 all having 739 registered branches, according to governor Ndulu.