Why Tanzania continues to borrow despite huge reserves

Dar es Salaam. Bank of Tanzania (BoT) yesterday explained that despite having a reserve of $5.4 billion, which that could cater for the country’s strategic projects, the government opts to borrow to ensure that future generations also contribute to the country’s infrastructure development(intergeneration equity).

The BoT Governor, Prof Florens Luoga, said this when he was briefing the media on various measures the Central Bank had undertaken to ensure stability of the economy.

Explaining, he said the economy was growing at a good pace according to economic indicators.

“This morning I checked our foreign reserves which stand at $5.4 billion even after finalising all procurements- the reserves are adequate for more than 5 months,” he stressed.

Explaining, he said the foreign reserve was enough to implement a number of government strategic projects including the construction of the Standard GaugeGuage Railway (SGR) but the country opted to borrow for the benefit of intergenerational equity.

He explained that it was imperative for the future generations to contribute d to the country’s infrastructure and that was why the government was undertaking long term loans that will be paid by this and the next generation.

According to him, there was adequate funding, which are directed to cater for other issues including mortgage loans to enable Tanzanians have decent homes.

Bureau de changes

Speaking about the decision to suspend Bureau de changes, he said the move was imperative to control illicit flows of foreign currencies in the country.

“It had come to our attention that the bureau de changes were operating as a highway for illicit outflows,” he said.

He explained that they had done research which revealed that a bureau de change that had been operating for just nine months had cash amounting to Sh4 trillion while the money he used to obtain foreign currency did not exceed Sh200 million.

According to him, if they had not taken action the bureaux sector could have affected the country’s foreign reserves, banks were running out of reserves while the bureaux were evading tax through illicit flows.

National debt

He said the country was not in danger of entering into a huge debt and cautioned analysts to stop making such allegation because they send out negative signals that if used inappropriately could destabilize the country. On Inflation he said it had remained stable at 5 per cent, while the shilling also remained stable.

Banking sector

He said BoT had taken steps to ensure the banking sector was profitable.

‘Loans to the private sector have been growing from 1.7 per cent in 2016 to 11 per cent in 2019, but we aim to reach 20 per cent for economic growth,” he said

In another development, he said BoT had set up a code of conduct for banks and its employees.

The aim is to ensure they exercise integrity. However he noted that if it came to their attention that some employers were conniving with unscrupulous people to defraud banks through ghost loans they would be blacklisted