Current foreign reserves standing offers good hope

BoT HQ at DSM:
Tanzania has enough foreign reserves to cover four months of projected imports of goods and services, which can cushion the country against external shocks in global trade.

But economists urged that the amount is not sufficient given the fact that global economic outlook is clouded in weak signs that may slow down international trade.

However, the International Monetary Fund (IMF) said at the end of its mission in the country that the import bill was made more manageable following adequate foreign reserve funds.

“External vulnerabilities are made more manageable by the adequate level of foreign reserves,” the IMF said in a release issued last week after conclusion of its mission to Dar es Salaam, which was led by Mr Paolo Mauro.

The Bank of Tanzania (BoT) August monthly economic review for August indicated that at the end of July, gross official reserves amounted to 3.86 billion US dollars. Also in the same period, the gross foreign assets of BoT stood at 908 million US dollars.

The July reserves were slightly higher compared to end of February this year, which were 3.51 billion US dollars, or enough to cover imports for about 3.7 months of projected imports of goods and services.

Although the amount was termed as sufficient, economists say the exports road ahead was bumpy as the world’s biggest importers -- US, Euro Zone, China and India --economies were yet to be out of the woods. “I beg to differ with the IMF,” Dr Honest Ngowi of Mzumbe University Dar es Salaam Business School told the ‘Daily News’ as ‘looking at the global signs our exports might actually decline.’

Hope was pegged on the emerging markets, China and India, but the global economic outlook painted a dim picture showing imports from these economies were on the decline, Dr Ngowi said.

August data released by BoT indicates that the value of non-traditional exports was USD 4.14billion dollars in July compared to 3.63 billion recorded during the year ended July 2011.

However, the economists said the country has managed to accumulate more foreign reserves in the past and going by the rule of the thumb more is better. In early 2002 the reserves hit almost a nine-month equivalent to imports. The large amount ensured a longer period of imports that absorbed external vulnerabilities.

The University of Dar es Salaam, Senior Economics Lecturer, Dr Haji Semboja, said developing countries needs to have enough reserves to cover not less than four months of imports, otherwise the position becomes alarming.

“It’s like a case where one is driving a car and the fuel tank light turns red ....the only option is to refuel. The level should be somewhere between six and 12 months of imports,” Dr Semboja said.

He said recently, the country graduated from exporting traditional crops only to manufactured goods, but the efforts were frustrated by erratic power supply.

“It’s time to solve the power woes, restructure our export economics and change the law to control the export of gold and other precious minerals, this will help us to increase our export earnings,” the Economic Lecturer said.

IMF said although the economic growth is projected to remain buoyant in 2013, risks remain: “In particular, near-term challenges relate to the need to preserve ample and reliable electricity supply while ensuring the financial viability of the national power utility TANESCO.”

Another factor that posed challenge on the level of reserves was imports/ exports imbalance, where at the end of July the current account deficit widened to 4.13 billion US dollars from 2.46 billion US dollars recorded last July.

Early this year, BoT Governor, Professor Benno Ndulu, told the ‘Daily News’ that pressure on foreign reserves was driven by demand for imports of capital goods, as inward investment flows were recovering from global financial crisis.

“The coverage of months of imports depends on several variables including the size and value of imports.

“This includes capital goods for investment in infrastructure, mining, gas and extraction of other resource,” Prof Ndulu explained.

The same was echoed by the IMF last week. The international standard for adequacy reserves, according to IMF, is three months for developing countries. Some developed countries like Norway boast of eight-year reserves for the import of goods and services.
Source: The Daily News,http://www.dailynews.co.tz, reported by Abduel Elinaza in Dar es Salaam
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