Forex alarm as exports dwindle

Dar es Salaam. Tanzania is having difficulties in generating foreign exchange earnings.

This has been largely due to poor performance in its export trade in recent months, The Citizen on Saturday has established.

The failure to raise enough forex has also been caused by the current tendency of donors not to honour and timely disburse their aid commitments. Central bank figures show that of the $84 million (about Sh134.4 billion) they had pledged to give Tanzania in March this year, only $28.6 million (about Sh45.9 billion) was made available.

Economists say the situation would have been worse were similar difficulties being experienced in foreign direct investment inflows. Hard currencies obtained from external borrowing, which is now a major source of the government for financing its budgetary deficits have also greatly helped to ease the shortcoming. Money traders and treasury experts say despite the current high demand for the US currency against limited supplies, there is no shortage of dollars in the market.

 According to the central bank, the stock of gross official reserves was $4,620.4 million at the end of March, sufficient to cover 4.5 months of projected imports of goods and services.

Economic analyst Erick Mwakibete of Dar es Salaam says if the trend of not generating enough forex is not timely arrested it will upset the economy and eventually trigger economic austerity. The hardships, he explains, will most be in the cost of living due to rises in prices of consumer goods.

“When a country fails to raise enough foreign exchange that means imports will cost much more money and that will directly and indirectly affect the consumers in different ways, depending on their socioeconomic activities and status,” says Mr Mwakibete.

He told The Citizen on Saturday yesterday that, inadequate forex will weaken the shilling and make it more susceptible to global economic pressures. Various money market reports show that the local currency further depreciated against the dollar this week as growing demand for the greenback continues to put pressure on the shilling.

The shilling started the week on a low note and was by Wednesday trading at the range of between Sh1,630 and Sh1,646. The Bank of Tanzania (BoT) indicative rate for the dollar against the shilling ranged between Sh1,634 and Sh1,650 by close of business yesterday.

Around this time last year, BoT indicative rates were Sh1,580 and 1,596. In January this year, the dollar was being bought at Sh1,598 and sold at Sh1,613.

“If the forex trade continues to become poor the Bank of Tanzania will have difficulties in making sure that international transactions will go smoothly and that will affect the local currency, raising inflation,” Mr Mwakibete says.

Figures in the latest BoT monthly economic review show that exports in March were $11.2 million short of what they were during the previous month. In March 2012, Tanzania’s total exports amounted to $692.9 million compared with $649.4 million during the same month this year.

The difference of the forex earnings which was generated in March 2012 and 2013 amounted to $154.6 million. The slump has been mostly experienced in the export of goods which declined by 4.6 per cent during the year ending March in 2014 from what it was in the same period in 2013.

“In the year ending March 2014, the value of exports of goods and services declined by 1.7 per cent to $8,709.5 million compared with the amount recorded in the year ending March 2013. With the exception of travel and manufactured goods, all other major exports recorded declines,” BoT says in the latest review of the economy.

According to the report, the current account deficit widened by nearly $4.8 billion in the year to March mostly on the back of increased oil import costs and lower aid receipts.

The import bill shot up 6.6 per cent to $13.87 billion to create a trade balance of $5.17 billion. The surplus in the overall balance of payments declined to $192.2 million compared with a surplus of $798 million recorded in the year ending March 2013, BoT said. “The surplus was explained by inflows in the form of capital grants, external borrowing and foreign direct investment inflows that more than compensated the deficit in the current account.”

Aid and grants fell 12 per cent to $754.4 million in the 12 months to March.

Tourism earnings continued to be the country’s top foreign exchange earner outpacing gold, again. Travel fetched $1.93 billion from $1.74 billion a year ago due to higher visitor arrivals whereas gold helped to rake in $1.75 billion compared with $1.97 billion a year ago.