| Prof Ndulu |
The Tanzania shilling has been the most stable currency in
the Eastern African region, but since the beginning of this year, it fails to
hold against the US dollar and currencies of the country’s other major trading
partners. The shilling currently trades at 1,620/- for the greenback, up from
last year’s average of 1,580/-. Staff Writer ABDUEL ELINAZA had an interview
with the Central Bank Governor, BENNO NDULU, on the issue. Excerpts...
QUESTION: Why is the shilling sliding down against the US
dollar to reach 1,620/- by mid-last month?
The annual depreciation of the shilling against the US
dollar at the end of January 2013, was only one per cent. In the 12 months to
December 2011, the shilling had depreciated by nearly 15 per cent, but the
measures we took have considerably slowed down the rate of depreciation.
Q: Has the tight monetary policies failed?
A: No. Not at all. Actually, the data shows that while
Tanzania Shilling depreciated by 1 per cent in the 12 months ending January
2013, the Kenyan shilling depreciated by 4.6 per cent and the Ugandan shilling
by 11.7 per cent. At the same time the exchange rate of the South African Rand
against the US dollar depreciated by 11.8 per cent, while that of Indian Rupee
depreciated by 6.8 per cent and that of Japanese yen by 18.6 per cent during
the same period. There has been significant increase in the demand for the
dollar among non-typical users.
Typically we pay for power generation in shillings.
Currently the Independent Power Producers (IPPs) -- other than TANESCO are
mostly paid in foreign exchange -- since they have to meet their obligations in
foreign currency. The weekly demand for US dollars by TANESCO to purchase power
from the IPPs and to pay for their fuel import bill is substantial and at
present in excess of four million US dollars, putting additional pressure on
the amount spent on importing expensive fuel for transportation and industrial
use.
The annual bill for importing expensive oil still stands at
more than 3,300 million US dollars a year. Furthermore, foreign contractors
building roads and other infrastructure projects funded by domestic revenue
have to be paid and they typically externalise their revenues adding to the
demand pressure for foreign exchange.
Q: Tanzania is now taking the IMF Standby Credit Facility
loan of about 117 million US dollars. Is this because we have failed to boost
exports and thus the foreign exchange inflow?
A: The decision by Tanzania to take the IMF’s Standby Credit
Facility of about 117 million US dollars is not unusual. This decision is based
on our assessment of the balance of payment needs, external debt sustainability
position and concessionality of the loan. Tanzania has been borrowing from
external concessional sources such as the World Bank and the African
Development Bank to finance various development projects and programmes in
order to boost economic growth and expedite poverty reduction.
It has also borrowed from the IMF from time to time for
balance of payments purposes. In its endeavour to expedite implementation of
development projects, including transport infrastructure, power generation and
the gas pipeline, the government has decided to borrow from nonconcessional
sources.
This decision has been taken with careful consideration of
the country’s debt sustainability status. In 2011, the government borrowed
221.8 million US dollars for power generation. In 2012, some 213.5 million US
dollars was borrowed for construction of the gas pipeline.
Source: The Daily News, www.dailynews.co.tz, reported from Dar es Salaam
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