When President Kikwete assumed power in 2005, the mean official exchange rate was 1,141.5/-. When he left State House to retire at his home village of Msoga around Chalinze in Coast Region on November 5, it had depreciated to 2,151.5/-.
This is a battering of 80 per cent in 10 years that has cost the national economy dearly. The depreciation has contributed to skyrocketing of consumer prices and made the running of businesses expensive.
Consequently, the costs of living and doing business have soared mostly making it harder for low-income earners to put decent meals on the table. In the corporate sector, margins of enterprises have plummeted considerably during the period and the import bills have been ballooning against shoddy export earnings.
Yesterday, the central bank quoted the local currency at 2124/2145 for every dollar compared to 2157/2167 on the same day last week. Commercial banks were selling the dollar at up to 2206/- and buying it at 2078/- on Tuesday while at bureau de change outlets, the greenback was quoted at 2140/2221.Bank of Tanzania (BoT) quotations on Monday and Tuesday were 2125/2147 and 2116/2138 respectively. Monday’s rates were among the lowest since August 29 when the indicative BoT rates were 2129/2150.
The highest indicative exchange rate by BoT a few days before the General Election was 2194/2216.
Money outlets sold the shilling to an all-time low exchange rate of 2300/- and 2,400/- in June this year. The Bank of Tanzania (BoT) rescued it from more suffering by mostly restricting money supply that led to its stability since August until the foreign exchange market was gripped by the elections fever thereafter.
“Today, the shilling has greatly stabilised compared to the 2,400/- exchange rate we had reached a few months ago. BoT is not selling or buying hard currencies in the Interbank Foreign Exchange Market like we were doing when the situation was bad,” Governor Benno Ndulu told The Guardian yesterday.
“The fluctuations we have been seeing recently are normal and they require no BoT interventions,” he added noting that the depreciation also had much to do with inflation rates in Tanzania’s trading partners.
Commentators say that although President John Magufuli has hit the ground running, major challenges for his government will include dealing with the shilling troubles that increased the most during the reign of his predecessor.
“The recent depreciation of the shilling against the US dollar reflects to a large extent the strength of the dollar and should not be resisted,” the IMF notes in its latest review of the national economy.
The global financial prefect has it that between mid-2014 and May 2015, the shilling depreciated by about 20 per cent against the dollar, but appreciated against a number of other currencies such as the euro, suggesting that movements against the US dollar mostly reflected the latter’s strengthening.
On September 30, IMF chief of Debt Policy, Hervé Joly, said other factors that clobbered the shilling were the high liquidity in the banking system, seasonally low export earnings, and high repatriation of corporate dividends. The situation was further compounded by delays by donors to disburse pledged funding of the budget during 2014/15, which fuelled a foreign exchange shortage psychology.
“A combination of measures, including a tightening of monetary policy and seasonally higher export earnings, subsequently helped to stabilise the shilling and allowed a return to normalcy in the interbank and foreign exchange markets since August 2015,” Joly noted.
“The shilling, which was assessed to be somewhat overvalued in 2014, is now closer to equilibrium,” the debt guru said in a statement after an IMF mission had completed assessment of the economy and how the government was implementing directives from the Bretton Woods organisation.
Spurred by concerns over exchange rate volatility and possible overshooting, BoT has been ramping up foreign exchange sales to help bring sanity in the money markets and the whole economy at large.
The sales increased from US$41m in December to a monthly average of US$85m for January–April. On September 3, immediate former Finance Minister Saada Mkuya said East Africa’s second-biggest economy had been selling as much as US$10m a month to support the shilling.
“Depreciation of the shilling against the US dollar is driven by external and internal factors. In the second half of 2014, the US dollar strengthened against currencies across the world following improved economic performance in the US, which led to increased demand for US dollar as investors preferred investing in the US economy,” BoT notes in the Economic Bulletin for the Quarter Ending June 2015.
“This saw the annual depreciation of the shilling picking up from 2.5 per cent in July 2014 to 9.0 per cent in March 2015, a trend that was also observed between other currencies and the US dollar.
“From April 2015 onwards though, the depreciation of the shilling against the US dollar accelerated as it was compounded by domestic factors that included continued decline in receipts from some exports, particularly gold and cotton,” the central bank further explains.
BoT says that the exchange rate depreciated rapidly in April, May and June 2015.
Gas sector consultant Dr Antipas Massawe attributes the shilling’s troubles to the stagnation of industrial production in the country. According to him, power blues have dented industrial growth hence Tanzania being a net importer and exporter of raw materials.
He said what was produced for local consumption and export in the last 10 years was inadequate compared to what was imported during the period.
"The value of Tanzania's exports is less than what it imports. We sell a lot of unprocessed commodities like gold, cashew and coffee but we have to import more expensive finished products such as fuel, electronics, cars and even clothes," the Head of Strategy at NMB Bank, Manzi Rwegasira, told ‘The Guardian’ on Tuesday.
"We pay for the imports in US dollars; so we always have to sell many Tanzanian shillings to buy enough dollars to import what we need. That is why the shilling keeps on falling steadily every year against the dollar and other big currencies,” he added.
Tanzania held a largely peaceful General Election on October 25 and since then the shilling has steadied against the dollar with most of the strength obtained this week.
Some market players believe its new found strength has also come from the optimism in the new administration, which has been making positive fiscal and monetary policy statements.
There is also the slowdown in demand of the greenbacks from importers, whose bill was nearly US$13.5bn in the year ended August 2015.
To the doubting Thomases, the gains the shilling is making will be short-lived. They see strengthening of the local currency not going beyond next week when importers are expected to start demanding more dollars.
“There isn't much activity in the market. We don't expect to see significant demand for dollars until mid-November," said Sameer Remtullah, a trader at CBA Bank Tanzania told Reuters last week.
SOURCE: THE GUARDIAN
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