How plunging Pound, Euro is affecting Tanzania
The British Pound has fallen to record low against the dollar since 1972
What you need to know:
- The British pound fell to a record low against the globally-bullish US dollar on Monday as markets reacted to last weekend's UK's biggest tax cuts in 50 years (since 1972) which have raised the cost of the UK government borrowing.
Dar es Salaam. Tanzania could enjoy cheaper imports and slightly lower loan repayments after the euro and British pound plunged to record lows against the US dollar following recession fears that sparked volatility in financial markets.
The British pound fell to a record low against the globally-bullish US dollar on Monday as markets reacted to last weekend's UK's biggest tax cuts in 50 years (since 1972) which have raised the cost of the UK government borrowing.
The weakening of the pound against the dollar is reflected in other markets partly because the greenback, the US currency, serves as the global benchmark in foreign exchange markets.
The pound is among the major international currencies that have been falling against the bullish US dollar amid continued increases in interest rates by the Federal Reserve, the American central bank, to curb runaway inflation.
The euro dipped below the dollar in August 2022 for the first time in nearly 20 years at $0.9, while the pound also hit a record low at $1.035.
In Tanzania, the euro has dropped from the exchange rate of Sh2,690.89 in September 2021 to Sh2,223.04 yesterday, according to Bank of Tanzania (BoT) updates.
During the same period, the pound fell by 20.9 percent to Sh2,492.43 from Sh3,152.9 last year.
This drop is expected to cut the cost of goods Tanzania imports from Europe such as construction products, machinery and steel.
The National Bureau of Statistics (NBS) estimates that Tanzania’s imports from Europe stood at $915.9 million in 2021, while exports were valued at $891.5 million.
The country’s exports are mainly minerals, fish and fish products and horticultural products, which are imported by Switzerland, Belgium, Netherlands and Germany, among other European nations, according to NBS.
A financial markets expert, Mr Christopher Makombe, told The Citizen that since Tanzania is a net importer in the trade balance with the EU, it can benefit from the recent fall in the values of the euro and pound as the businesspeople importing from the region will be paying less in the local currency for the same quantity of goods.
“Tanzanian companies with loans denominated in euros and pounds may also see significant exchange gains in their financial reports since they are paying less now to purchase these currencies when they are servicing their loans,” he said.
The low cost of servicing foreign loans might also benefit the government, with recent data showing that as of July 2022 the outstanding national debt in euros stood at 3.81 billion, accounting for 15 percent of the total external debt.
An independent forex analyst, Mr Bernard Mumwi, said one of the key factors that pulled the pound down include the US Federal Open Markets Committee to increase interest rate by 75bps (0.75 percent), a move which saw the dollar strengthen and a shift of investors from Europe to US securities in search of lucrative returns.
“We hope to see more investments in our financial markets. Investors have been looking for a stable and profitable market to put their money in. Tanzania has proven to be one of these markets. Stocks and securities that have suffered a shock in Europe are expected to make a way to us,” he said.
Mr Mumwi said some political statements by world leaders have also triggered recession fears amid ongoing inflationary pressures.
“In sectors such as tourism, we may lose some numbers of tourist arrivals from European markets while there is hope that the gap may be filled with tourists from the US and Asian markets,” he said.
For his part, Prof Haji Semboja of the State University of Zanzibar’s Economics Department said amid the ongoing trend in the global economy, Tanzania can re-evaluate on where to utilise opportunities for the benefit of its economy.
“Tanzania’s currency has remained stable against the dollar, which is the benchmark of all foreign trading, thus now we can look for opportunities to boost our export values, especially to countries that are having difficulties with Europe,” he said.
Prof Semboja said the war has limited supply of key commodities of energy and food which can also be manufactured in Tanzania if more investments and emphasis is provided.
“We need short and long term plans that would help boost of foreign exchange, these include policies, governance and proper systems,” he said
