Money supply increases to two-year high

Dar es Salaam. The level of Tanzania’s money supply is increasingly improving, thus providing the financing needed to stimulate economic growth.

The increased supply - which is almost a two-year high - is raising hopes for borrowers that credit may then be relatively cheaper.

The Extended Broad Money (M3) supply - which measures the total amount of money in circulation, including foreign currency deposits - increased by 11 percent, reaching Sh28.05 trillion in the year to last October, up from the 9.4 percent increase a yeara go, according to s Bank of Tanzania (BoT) report. The progress was reflected in the credit provided by commercial banks to different economic activities which also demonstrated considerable growth.

The central bank’s report states that all major economic activities experienced growth in terms of credit allocation, except hotels and restaurants which are still in a negative trend.

Analysts say this is a welcome news as Tanzania requires more financing for economic activities.

“Tanzania still requires a reasonable amount of financing to spur economic growth,” said Prof Delphin Rwegasira of the University of Dar es Salaam’s economics department.

“More domestic credit is needed as inflation is still low,” he added.

Excessive supply of money increases inflation; but, according to the National Bureau of Statistics (NBS), Tanzania’s annual headline inflation rate for November, 2019 increased to 3.8 percent, from the 3.6 percent recorded a month earlier.

Growth was also recorded of currency in circulation, which grew to Sh4.1 trillion in October 2019 from Sh3.7 trillion during the year that ended in October 2018: a 10.4 percent growth.

The net domestic assets of the banking system grew by 18 percent, to Sh16.3 trillion from Sh13.7 trillion last year.

Where credit goes

Tanzania’s credit provided by the commercial banks goes into different major economic activities. But personal loans account for the largest share, at 29.8 percent.

It was followed by trade (at 17.5 percent) and manufacturing (10.7 percent), according to figures of the Monthly Economic Review for November.

Credit to agriculture – the sector which has been experiencing decreases in the past years – increased by 87 percent, thus raising its share in the loans stakes.

Agriculture accounted for 9.4 percent of the total credit provided by banks to major economic activities, up from 5.6 percent in the previous year.

The agro-loans might have increased due to recent government efforts to guarantee the credit provided to smallholder farmers in the country.

In September, the Tanzania Agriculture Development Bank (TADB) entered into an agreement with the NMB Bank to provide a Sh9.35 billion farm inputs loan to cashew nut smallholder growers in Lindi, Mtwara and Ruvuma regions.

TADB said it would provide 50 percent loan guarantee through the Smallholder Credit Guarantee Scheme.

Credit to hotels and restaurants dropped by 12.6 percent in the year to October 2019. The sector has been experiencing consistent downward trend since last year.

The central bank said the growth in both credit and money supply was partly a reflection of accommodative monetary and measures implemented to improve the business environment, and expansion of economic activities in the country.

Following the increased money supply, interest rates have also shown a downward trend.