A senior Bank of Tanzania (BoT) official has warned that attempts aiming at absolute liberalisation of Tanzania?s capital account may set in motion more economic harm than good, unless pertinent processes and practices are well managed from the word go.
These concerns were expressed during an interview with the BoT Director of Economic Policy Dr. Joseph L. Masawe at a leasing investment conference held in the city Tuesday.
He sees the partial liberalisation of country?s capital account as ``a big challenge``, given the on-going economic reforms in the region.
The capital account of a nation normally deals with payment of debts and claims of a country including loans from or to foreigners, capital repayment or transfers from or to foreigners and the International Monetary Fund (IMF), as well as purchase and sale of capital assets, among others.
While full liberalisation of the capital account would most directly enhance portfolio flows, it has to be judiciously being done so as to ensure stability of the small and fragile financial sector of the country.
Early this year, Tanzanians failed to participate in Kenya`s Safaricom`s Initial Public Offer (IPO) that was floated across the East African region partly because the country`s capital account is partially liberalised.
Meanwhile, Dr. Massawe said that currently, trends in leasing industry shows high demand for finance leasing in Tanzania especially from agriculture, mining, transportation, health, and information and communications technology (ICTs) sectors of the domestic economy.
As of December 2006, total finance leasing portfolio in Tanzania amounted to USD 44.8m, designated in three major sectors of transportation equipment (77 percent), construction equipment (20 percent) and production equipment with 3 percent.
One of the objectives of the conference was to mobilise investments for leasing and to accelerate leasing development in the country.
However, more positive financial regulations needs to be introduced and enforced in the direction of reducing the cost of access to finance by having lower and competitive interest rates, ensuring stable exchange rate as well as putting in place prudential risk management measures.
During the launch of the 2008 World Investment Report on Wednesday, the Executive Director of Tanzania Investment Center (TIC) Emmanuel ole Naiko cited lack of full liberalisation of capital account ``as one of major obstacles to the national efforts to attract significant Foreign Direct Investments (FDIs).``
Authorities and experts are wary that to undertake full liberalisation of the Tanzania`s capital account would drain country`s scarce foreign exchange reserves as well as encouraging capital flight.
SOURCE: Guardian
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