HE Bank of Tanzania (BoT) has expressed optimism for the shilling to gain against US dollar in the fourth quarter of this year due to an increase in exports of traditional crops, tourism and mining.
This was said in Dar es Salaam on Thursday by the BoT Director of Policy and Research, Dr Joe Massawe, while commenting on the performance of the local currency against the US dollar.
“There will be increased exports of traditional crops like cotton, coffee, cashewnuts, cloves, tobacco as well as tourism and mining,” Dr Massawe said.
He added that the inflows of US dollars from the mining companies and tourism would also appreciate as the peak season approaches. Although the rate of growth of exports was disproportionately small compared to imports, the BoT official said such activities would definitely make the shilling gain some stability against the US dollar.
Since the current account deficit was still higher, he added, the shilling acts as a shock absorber to contain the situation while making exports less expensive.
“If imports grow faster than exports as is the current situation, depreciation of the local currency is inevitable to discourage further introduction of goods into the country,” he said.
According to the BoT monthly economic review for June for the year ending May 2011, the current account deficit widened by 3.6 per cent to 2,607.4 million US dollars compared with the level that was recorded in the preceding period.
The central bank report pointed out that the widened gap was mainly on account of the rise in import of goods and services that outweighed the increase in exports of goods and services and official current transfers.
The value of traditional exports according to the Bank report amounted to 701.6 million US dollars, which was 54.3 per cent higher than the value recorded in the year ending May 2010. This was largely attributed to significant increase in both volume and unit prices of coffee, tobacco and cashewnuts.
Records from various economic activities two weeks ago indicated a surging demand for the shilling by some large companies intended to meet monthly financial obligations which in turn made the value of the local currency gain lightly its stability against the US dollar.
For example, before the closure of the markets on Monday for the Eid El Fitr holiday, the shilling strengthened as much as 0.8 per cent to 1,608.41 per dollar. It traded up 0.3 per cent to 1,615.51.
The Finance and Economic Affairs Minister Mustafa Mkulo was recently quoted as saying the shilling would strengthen in the medium term partly due to the onset of the cotton export season.
He said the shilling has depreciated by just 7 per cent over time compared to the Kenyan shilling which fell 20 per cent and the Ugandan currency depreciated by 28 per cent.
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