Shilling stable in 2013

The year 2013 was a good year for the Tanzanian shilling as it fluctuated by 0.1 per cent and 4.0 per cent almost throughout the year.

The highest point it slid was at 1,620/- in March, but ever since it started to appreciate to reach 12-month high at 1,579/98 on December 27 (on Friday). The shilling, going by data, ends the year as it has started.

It opened at 1,575/77 in January, and closed at 1,579/98 over the weekend, meaning that oscillation was merely 0.2 per cent.

In March, when the shilling was 12-month low, the Governor of the Bank of Tanzania (BoT), Prof Benno Ndulu told ‘Business Standard’ that the movement was the outcome of the of normal market forces as opposed to failure of country’s monetary policy.

“For the past 14 months, since December 2011, the exchange rate of the shilling against the US dollar remained stable in comparison to the depreciation registered in the preceding year,” Prof Ndulu said. He said in 2012 the shilling depreciated by nearly 15 per cent, “but the measures we took have considerably slowed down its depreciation”.

Three years ago, BoT introduced tight measures to control liquidity in the economy to curb shilling depreciation, which saw the local currency at historical lowest level of 1,800/- for the greenback as the inflation rate reached 20 per cent.

Some of the key measures introduced included raising the statutory minimum reserves for commercial banks from 20 per cent to 30 per cent to try and mop up excess liquidity, and lowering the foreign exchange net open position limit that banks can hold from 20 per cent to 10 per cent.

According to the Governor the monetary measures paid off despite fresh tendency that significantly increased the demand for the US dollar among nontypical 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,” Prof Ndulu said.

The weekly demand for US dollar by TANESCO to purchase power from the IPPs and to pay for their fuel import bill is substantial and at present in excess of US$4mil, putting additional pressure on the amount spent on importing expensive fuel for transportation and industrial use.

Furthermore, foreign contractors building roads and other infrastructure projects funded by domestic revenue have to be paid and they typically externalise their revenues adding pressure for foreign exchange demand. But the shilling despite all those pressures held dearly, with minor fluctuation in between.

In May the shilling slid by 1.31 per cent since January, but the central bank said the depreciation was a “normal shock” which could be absorbed by the markets without derailing macroeconomic fundamentals. “The depreciation is no big issue,” the BoT Director of Policy and Research, Dr Joseph Masawe, told ‘Business Standard’ in May.

He added that the shilling was behaving well despite the drop which is termed as “normal shock” for currency fluctuations. As the year approached its end, the shilling started to gather the appreciation pace, supported by mainly agricultural exports, tourism and hospitality industry.

The National Microfinance Bank (NMB) predicted that the shilling was expected to stabilise as the economy approached the year-end boosted by US dollar inflows from tourism and agricultural sectors. 

NMB says “The shilling is expected to receive more support from dollar inflows from the tourism and agriculture.”

The shilling, according to money market analysts, also expects to receive more support going in the last month of the year, for year-end tax payments buoying the currency. Normally, due to social interaction yearend activities, including Christmas and New Year festivals, the demand for the shilling goes up to enable holiday makers to travel and socialise with relations and friends.

“This phenomenal is expected to push the shilling up, as consumers’ purchasing power is up due to low inflation (6.3 per cent)” an economist, Mr Leonard Mwanga says. 

A senior lecturer with Mzumbe University’s Dar es Salaam Business School, Dr Honest Ngowi says the demand for dollar had gone up drastically something which calls for a proper analysis of the trend. “In principle, we export less than we import.

There is a need for a re-look at what we are importing. Some of the items we import can be produced locally,” he said. “It’s a lost opportunity to import goods that could be produced locally.” 

The way forward, according to the economist, is to increase productivity and marketing the country’s tourist destinations to maximize revenue from the hospitality industry.

On other hand, the Tanzania Securities, a stock brokerage firm, predicted the shilling would depreciate to an average of 1,626/- for the greenback this year and 1,670/- next year. 

However, the Tanzania Securities prediction failed miserably to hold water as BoT data shows the shilling closed trading at 1579/- for the US dollar on Friday.
Source: Daily News, reported by Abduel Elinaza from Dar es Salaam, Tanzania
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