Tanzania ‘vulnerable’ to US interest rate hike

Tanzania's economy is vulnerable to the impact of global financial tightening as the US Federal Reserve is expected to raise interest rates later this month, a new report has cautioned.

The Economic Insight: Africa Q4 2015 report by the Institute of Chartered Accountants in England and Wales says Tanzania is among five most vulnerable economies in Africa on account of the current account deficit of 9.3 per cent and vulnerability score of slightly below 250.

According to the report, the maximum risk of 300 is equivalent to the highest possible score across these three measures of current account balance, growth in private sector credit and the ratio of foreign debt to reserve.

Tanzania recorded a current account deficit of 221.50 million US dollars in September of 2015, according to Trading Economics. 

The current account in Tanzania averaged- 287.06 million US dollars from 2006 until 2015, reaching an all time high of 263.80 million US dollars in August of 2007 and a record low of -780.20 million US dollars in March of 2014.

However, Kenya and Uganda are considered the most vulnerable in the East African Community region with current account deficits of 10.4 per cent and 9.7 per cent respectively.

Tanzania (9.3%) and Ethiopia (8.0%) follow closely behind. According to the report, Ghana emerged as the weakest economy in Africa with a score of 273 out of 300 due to very high current account deficit and spiraling debt.

Ghana’s economy suffers from both a very high current account deficit and history of rapid credit growth. The current account deficit stood at 9.6 per cent in 2014 according to estimates from the IMF’s World Economic Outlook.

“While this is far from being the highest on the continent, it is still expected to be a significant drag on Ghana’s ability to cope with the potential havoc caused by US rate rise in the near future.”

Generally, an economy with higher current account deficit will be more vulnerable to sudden capital outflows given the suggested dependence on imports. As its currency depreciates, imports become more expensive to the local population.
Source: Daily News, reported from Dar es Salaam, Tanzania

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