Tanzania: Foreign reserves level dwindles

TANZANIA'S foreign reserves have dropped to 3.6 billion US dollars, which is sufficient to cover 4.4 months of imports, a trend central bank officials and economists attribute to increased expenses on fuel and capital goods.

In January, the country had reserves enough to cover 6.3 months of imports, but the funds were depleted to 4.4 months in May, a level that economists say is dangerous.
Several economics gurus yesterday blamed high petroleum import bill and the central bank's regular intervention at the inter-bank foreign exchange market (IFEM) to protect the shilling from further depreciation, while export earnings continue to dwindle.

The Governor of the Bank of Tanzania (BoT), Professor Benno Ndulu, told the 'Daily News' that pressure on foreign reserves was driven by demand for imports of capital goods, as inward investment flows were recovering from global financial crisis.

"The coverage of months of imports depends on several variables including the size and value of imports.

"This include capital goods for investment in infrastructure, mining, gas and extraction of other resource," Prof Ndulu explained.

The international standard for adequacy reserves, according to International Monetary Fund (IMF) is three months for developing countries.

Some developed countries like Norway boasts of eight years of import of goods and services.

The governor said: "It is always advisable to have a cushion."

The University of Dar es Salaam, Senior Economics Lecturer, Dr Haji Semboja, said developing counties needed reserves that were enough to cover not less than four months of imports, warning that the current position was alarming.

"It's like a case where one is driving a car and fuel tank reserve light turns red ....the only option at that stage is to refuel. The level should be somewhere between six and 12 months of imports," Dr Semboja pointed out.

He said in recent years the country graduated from exporting only traditional crops to manufactured goods, but the effort were frustrated by erratic power supply.

"It's time to solve the power woes, restructure our export economics and change the law to control the export of gold and other precious minerals, this will help us to increase our export earnings," he said.

Mzumbe University's Dar es Salaam Business School Senior Lecturer, Dr Honest Ngowi said low levels of reserves were not good as they reflect the country's inability for pay for its foreign requirements.

"The rate shows that we are importing more and exporting less and this raises concern over the country's capacity to foot its import bills," he said.

Prof Ndulu assured the nation, however, that the situation was not alarming. He said there were some reserves in commercial banks.

"We have started building up our reserves. Traditional exports season is approaching and we will soon witness inward flow of dollars and other foreign currencies," Prof Ndulu said.