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Tanzania’s current account to continue weakening, says AFDB

Dar es Salaam. Tanzania’s current account deficit is forecast to weaken further this year following Covid-19, which has ravaged economies across the world.

The African Development Bank (AfDB) says the deficit will weaken to 4.6 percent of Gross Domestic Product (GDP) compared with the preCovid–19 estimate of 4 percent, a new report shows.

This will be only if the virus has a substantial impact, but of short duration, with AfDB report warning that if it continues beyond July this year, there would be even severe impact.   

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However, according to the Bank of Tanzania (BoT), during the year ending May 2020, the current account recorded a deficit of $0.479 billion (Sh1.1 trillion), far below from a deficit of $2.084 billion (Sh4.8 trillion) recorded during a similar period last year.

The improvement trend of the current account deficit - a measurement of a country’s trade where the value of goods and services it imports exceeds that of the exports, is attributed to an increase in export of goods and a decrease in imports.

The value of non-traditional exports improved to $4.5 billion in the year ending in May 2020 from $3.6 billion in the corresponding period last year.

This was significantly contributed by the increase in export of horticultural products and minerals, particularly gold, whose export rose by 46.8 percent to $2.5 billion due to an increase in both volume and price.

 But, the AfDB predicts that the current account deficit will weaken this year due to lower exports, particularly service export receipts, following the reduction in tourist activities.

 “Reduction in travel and tourism is expected to more than  offset  the  benefits  of  higher  gold  prices  and  lower  global oil prices,” the report reads in part. 

Gold, which accounted for 29.25 percent of total exports last year, is Tanzania’s top export commodity. The report commends the government for taking monetary measures with a view to cushioning the economy, which has been hard-hit by the Covid-19 pandemic, whose first case in Tanzania was confirmed in mid-March this year. 

The government through BoT is implementing a monetary stimulus through reductions in the minimum reserve requirement from seven to six percent.

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