Tanzania: Shilling tumbles to record low in 45 years

HARDLY a week after the government read its 13.5trn/- budget for 2011/12; the Tanzanian shilling has tumbled to the lowest value in its 45-year history.

The shilling, established following the set up of the Bank of Tanzania (BoT) in 1966, exchanged for almost 1,600/- against the US dollar at money shops on Monday.

The spot survey at some money shops showed the shilling trading at between 1,530/- and 1,540/- by last weekend, before dropping drastically on Monday to trade at over 1,580/- per dollar.

On year to year basis, the shilling has depreciated by almost 12 per cent from 1,363/33 to 1,519/88 against the dollar in the first week of this month, according to data by the central bank.

Though, the cause for the sharp decline was not immediately established, stakeholders believe that market forces — demand and supply — are to blame for the depreciating shilling. This not being the season for the export of traditional crops, has also contributed to the minimal supply of hard currencies in the market.

Some financial analysts, however, link the speedy depreciation of the shilling to people who decide to store their money value in the form of US dollar, fearing further fall in value of the shilling due to prior and post budget consequences.

Tanzania Bankers' Association (TBA) Chairman Lawrence Mafuru says the shilling will continue depreciating no matter how good the budget is as long as productivity remains low:

“The shilling will only strengthen if the government comes up with plain strategies to boost agricultural outputs and promote value addition in agricultural produce,” he emphasized.

Sectors with high potential of generating foreign currencies, tourism for instance, deserve special attention to enable them withstand the stiff competition with other countries like Kenya. The government, in its budget for the 2011/12 fiscal year, has prioritised the infrastructure sector, allocating to it a walloping 2.78trn/- or 20.5 per cent of total budget of 13.5trn/-.

According to KAI Bureau de Change Clerk Yusuph Khan, the shilling has in the last two years tended to depreciate sharply as the budget approaches, a trend linked to people’s rush to purchase hard currencies to restore the value of their money.

“Customers’ demand has dropped lately…business is not good, we receive a client after almost an hour,” Mr Khan told the 'Daily News' in Dar es Salaam.

The days before the budget was read at the parliament, trading at the Foreign Exchange Market surged from 5.9 million to 10.15 million US dollars in just one week. The free fall of the local currency is sending new signals to importers and consumers of the net-import nations of tough times ahead.

Though the theories of economics suggest that currency depreciations is good for an economy because it makes exports cheaper, the theory hardly works for Tanzania due to minimal exports.

Economists have it that the weaker shilling inflates the import bill because of more local currency needed to purchase the same foreign units, for equivalent quantity. There are also fears of increased inflation as a result of declining value of the shilling in relation to major currencies.