Strong US dollar weighs on Tanzania's shilling

The performance of the shilling against major international currencies was caused by the impact of the US dollar on the global economy, the Bank of Tanzania (BoT) has said.

The BoT’s Director of Economic Policy and Research, Dr Joseph Masawe, told the ‘Business Standard’ that the trajectory of the shilling this year was a function of demand and supply in the market, strong US dollar and investor’s perception about the economic performance of Tanzania.

He said the strength of the dollar against other currencies has made the shilling to be seen struggling. “Surges in demand and supply of US dollars, coupled with investors’ perceptions about the performance of Tanzania and the US economy will cause short term variations from the medium term trajectory from time-to-time, Dr Masawe said in an email communication.

“For instance, in the past one month the perception that the US economy is becoming stronger has led to substantial strengthening of the US dollar against other currencies across the world.

This development has locally been manifested in above normal depreciation of the shilling against the US dollar,” he said. The US economy grew at its quickest pace in 11 years in the third quarter, the strongest sign yet that growth has decisively shifted into higher gear.

The US Department of Commerce last week revised up its estimate of gross domestic product (GDP) growth to a 5.0 per cent annual pace from the 3.9 per cent rate reported last month, citing stronger consumer and business spending than it had previously factored in.

The strong growth triggered a bull run of the dollar which reached its highest since 2006 against a basket of major currencies. Economists attributed the dismal performance of the shilling to low exports and rising imports and impacts of aid suspension by development partners due to allegations of corruption in the energy sector.

They also mentioned effects of Ebola threat on tourism in the East African region and the work of speculators or movers and checkers in money market.

Dr Honest Ngowi, a lecturer in economics with the Mzumbe University, said the struggling of the shilling against the dollar was an indication that there was a shortage of the greenback in the economy.

He said the struggling of the shilling was a result of declining exports and rising imports, meaning there has been low activities in the economy.

Aid suspension by development partners in the wake of the corruption scandals in the energy sector was also another major reason for the instability of the shilling, he said.

International donors have suspended nearly $500m (about 850bn/-) in budget support to Tanzania in response to claims that senior government officials siphoned off funds from the country’s central bank under the guise of energy contracts.

A group of 12 funders have given Tanzania $69m for general budget support so far this year and the group has committed to contributing $559m towards the current budget. According to economists, exports and donor aid are major sources of foreign exchange for Tanzania.

The Chairman and CEO of Infotech Investment Group, Mr Ali Mufuruki, shares Dr Ngowi’s views on the shilling. He attributes the dismal performance of the local currency to declining exports, rising oil import bill and suspension of aid by development partners.

He said in an interview early this month that a decline in exports of major cash crops and a fall in global price of gold, which dominates the country’s export portfolio, had a major effect on the local currency.

The two suggest that the value of imports rose faster than exports during the first seven months of the year, widening the trade gap further and putting the stability of the shilling at risk.
Source: Daily News, reported by Henry Lyimo from Dar es Salaam, Tanzania
Share on Google Plus

About Abduel Elinaza

This is a short description in the author block about the author. You edit it by entering text in the "Biographical Info" field in the user admin panel.