How BOT's Covid-19 relief measures will affect you

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Bank of Tanzania yesterday announced a number of monetary policy measures aimed at protecting financial sector stability and cushioning the economy from Covid-19

Dar es Salaam. Members of Tanzania’s business community yesterday expressed hope and optimism following measures taken by the Bank of Tanzania (BoT) to mitigate the impact of the Covid-19 pandemic on the economy.
From banks to retailers and business associations, the monetary measures were well received, although demands for new fiscal policy measures emerged.
The central bank announced some key monetary policy measures, which it said would protect financial sector stability and cushion the economy from Covid-19, which has had a devastating effect on economic activities around the globe.
The measures include lowering the statutory minimum reserve requirement the amount of cash banks must maintain as reserves from seven to six percent to provide lenders with additional liquidity.
BoT also reduced the discount rate the level of interest at which com-mercial banks borrow from the cen-tral bank from seven to five percent to allow them to access cheaper loans, hence signalling lower lending inter-est rates.
“The Monetary Policy Committee of the Bank of Tanzania which met on May 8, 2020, approved various policy measures to cushion the economy from adverse effects of Covid-19 after a thorough assessment of the impact on various sectors,” the central bank said in a statement signed by governor Florens Luoga.
Other measures include allowing the banks to borrow from the BoT with less collateral than before by reducing haircuts on government securities from 10 per cent to five percent for treasury bills and from 40 per cent to 20 per cent for treasury bonds.

A haircut is a reduction in the stated value of an asset in order to determine the collateral or market value.

BoT also allowed the commercial banks to discuss with their custom-ers the possibility to restructure loans and ask the lenders, in collaboration with the mobile network operators to increase transaction limits from Sh3 million to Sh5 million and daily balance from Sh5 million to Sh10 mil-lion.
The raft of measures were greeted with hopes with the business mem-bers saying their inputs were consid-ered.Standard Chartered Bank chief executive Sanjay Rughani congratu-lated the move which he described as good collaboration between the banks and the BoT.
“These measures are the outcome of the negotiations we have had with the BoT and it’s actually the first round. We will continue looking at other important measures,” said Mr Rughani, who is also deputy chair of the Tanzania Bankers Association (TBA).
According to him, the measures will have positive impact on liquidity improvement and “marginally” lower interest rates.

The measures will also allow flexibility for banks to restructure loans for businesses such as hotel, tourism and transport which are already hard hit by the coronavirus.

“They will also increase the use of digital money and reduce the risky cash-based transactions,” added Mr Rughani.

Tanzania Private Sector Foundation (TPSF) executive director Godfrey Simbeye said it was a good move as liquidity improvement would increase access to finance for the private sector.

He said TPSF had demanded the measures and commended the cen-tral bank for its response.However, Mr Simbeye said there is more to be done to address the impact of Covid-19.
“We are now waiting for fiscal measures and we hope the Ministry of Finance will do justice in the com-ing budget,” he said.

According to him, some of the fis-cal measures proposed include sus-pending payment of NSSF and skills development levy contributions, low-ering value-added tax rate from 18 to 16 percent, paying the money the government owes the industrial sugar users (soft drink manufacturers).

TPSF also proposed designing of a special package for the small and medium-sized enterprises (SMEs) which accounts for the largest share of the private sector to revive the economy.
Similar sentiments were echoed by opposition MP Zitto Kabwe who said it’s a delayed important move.
“It is very important to ensure liquidity in an economy. However monetary policy alone isn’t enough. Fiscal measures commensurate with these ones must be adopted.
The economy is tottering as we speak,” Mr Kabwe said in a Twitter post.
Retailers were also happy with the move explaining that they were involved by the central bank.Association of Tanzania Business Community secretary-general Abdal-lah Mwinyi said they received the pol-icy directives with relief.
“We had a meeting with the BoT on Monday to discuss challenges we face in business and we thank that 90 per-cent of them were addressed through the measures taken,” he said.
According to him, he worked on the advise provided by the central bank to talk with their respective banks and personally he was allowed by his bank to repay half of what he repaid before.