Dar seeks $800m to spur shilling, plug budget hole

Dodoma/Dar. Tanzania will borrow a total of $800 million (about Sh1.76 trillion) from Rand Merchant Bank and China Development Bank to bolster its foreign exchange reserves as the country shores up a weakening currency and plugs the budget deficit, Bloomberg reported yesterday.

Quoting the Bank of Tanzania’s director of economic research and policy, Dr Joseph Masawe, Bloomberg said talks with Johannesburg-based Rand Merchant Bank to raise as much as $600 million and $200 million from China Development Bank (CDB) are at an advanced stage. Rand will raise the money through a private placement while CDB will finance the loan from its own balance sheet.

According to Mr Masawe, about $800 million is expected from the two banks before the end of this month. “We have finalised the details and we are hoping this will improve the supply of foreign currency,” he told Bloomberg in a phone interview on Monday.

The shilling has weakened 21 per cent so far this year and is Africa’s worst-performing currency after Ghana’s cedi. BoT sold $339 million to lenders from January to April to support the shilling. But, as of yesterday, it was exchanging at a range of Sh2,234/2,265--signalling that cumulatively the local currency has fallen by an astounding 103 per cent during the 10 years of the fourth-phase administration.

Dr Masawe is reported to have said that a 13 per cent slump in gold shipments to $1.4 billion in the year through to March and the government’s “external obligations” contributed to the shilling’s decline.

While the central bank says it has enough resources to defend the currency, it has reportedly scaled down sales of foreign currency to banks. “About 65 per cent of the currency depreciation is due to strengthening of US dollar and 35 percent is attributed to internal factors and speculation by banks,” Mr Masawe said.

Analysts predict that it will climb over Sh2,500 as the country heads towards the October General Election. In April 2005, the BoT said the Shilling was exchanging at Sh1,110 against a US dollar.

Tanzania had gross official foreign reserves amounting to $4,043.4 million at the end of April 2015, enough to cover 3.9 months of projected imports of goods and services, excluding those financed by foreign direct investment.

In 2005, the country had enough foreign reserves to cater for eight months of the import cover. Last year, foreign donors--including the World Bank and the United Kingdom--said they would withhold $558 million of budget aid because of the Tegeta Escrow scandal. In December, though, the donors released $15 million of the $558 million budget support they withheld.

The government is reducing its reliance on budget support to 6.4 per cent in the fiscal year that begins on July 1 from 17 per cent in 2010/2011, Finance Minister Saada Mkuya told the National Assembly in Dodoma last week. There are fears that the new loan will further raise the national debt, which stood at $18.956 billion (about Sh42.745 trillion on the current exchange rate) in April 2015.

This means the total budget is almost twice as much as the Sh22.5 trillion budget for the 2015/2016 financial year. But Ms Mkuya told The Citizen in Dodoma yesterday that the $800 million was a normal loan from foreign sources that was already budgeted for in the current financial year. “It’s not new,” she said. “The money is part of the current budget which we planned to borrow from foreign commercial sources under normal arrangements.”