Hello

Your subscription is almost coming to an end. Don’t miss out on the great content on Nation.Africa

Ready to continue your informative journey with us?

Hello

Your premium access has ended, but the best of Nation.Africa is still within reach. Renew now to unlock exclusive stories and in-depth features.

Reclaim your full access. Click below to renew.

BoT allays fears amid forex drop

What you need to know:

  • 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.