Professor Ibrahim Lipumba.
The Shilling traded at Sh l, 950 to the US Dollar at various
bureaux de change in the city, an on the spot survey by the The Guardian
this week has revealed.
They said the Bank of Tanzania (BoT) should take stabilisation
measures, otherwise the trend will worsen; noting that the main source
of foreign currency is donor funds and exportation of national
products.
Dr Prosper Ngowi, Mzumbe University, Dr Haji Semboja, Professor
Ibrahim Lipumba-Economist and Economic and Social Research Foundation
(ESRF) Researcher Apolonius Mbilinyi spoke with the The Guardian in
separate interviews.
Election fever, withholding of funds by donors and imbalance
between demand and supply of dollars were the main factors contributing
to the fall of national currency.
Dr Ngowi said: “During election most people hold their money - to
change it to forex and transfer it abroad. They bring it back after
election, but we also import much and export very little...this also
increases high demand of dollars.”
He said Tanzania was a net importer, buying a lot compared to
selling abroad which is responsible for low supply and high demand of
foreign currency
Dr Semboja predicted a further fall of the Shilling if no measures
are taken because the source of foreign currency is unstable.
Dr Seemboja said most local traders have habit of transferring
their money because they believe in a developing country 'anything can
happen during election,' this also causes of the problem. “They collect
money and transfer it abroad.”
The source of foreign currency is export of traditional exports
like cashew nuts, cotton and coffee but their price has remained low for
all the years, he added.
The non-traditional exports include gold,flowers and industrial
products: “But even if we may have much gold, we are unlikely to benefit
because investors are foreigners who invested abroad the money they
earn locally.”
Also, Tanzania imports many industrial goods but export very
little: this situation makes the national currency continue losing the
value.
Dr Semboja underscored the contribution of donor funds, saying that
its absence means little foreign currency in the country, and the
Central Bank in turn adjusts the the value of national currency.
Professor Ibrahim Lipumba said there are problems of transferring
foreign currency illegally, which also increases the demand for the
dollar.
Prof Lipumba who is also Chairman of Civil United Front (CUF) said
increased government borrowing in the domestic market contributed to
drop the of the Shilling.
Commenting on donors holding funds, the professor said: “Because
donor funds decreased,some were stopped, this makes high demand of
dollars while there is low supply.”
Reguarding 'election fever' traders were afraid of political instability, and so they prefer to save their money away.
Mbilinyi said the Central Bank has failed to stabilise the national
currency, which is why the Shilling is continuing to decline.
The Cenral Bak should control 'dollarization system' in the country
because the dollar payments in hotel and other places increase its
demand.
Mbilinyi advised the BoT take all dollars' and put them in the
market, saying that without such an intervention the Shilling will
continue to decline.
According to the BoT, the exchange rate of the Tanzanian Shilling
against the US Dollar has recorded a mixed trend since 2005 but on
average it has been gradually depreciating at a rate of 3.9 per cent
annually from December 2004 to January 2015.
BoT Director of Economy and Research Policy Dr Joseph Massawe said
in 2005, the the Shilling's exchange rate was one US Dollar to
Tanzania Shilling 1,169, and by December 2014 the rate had changed to
Sh1,716.
This means the Shilling has depreciated by 31.9 per cent against
the US Dollar for the period of 10 years, says the official of the BoT.
He said the trend translates to an average rate of depreciation of 4.2 per year since 2006.
Before 2007, BoT relied more on government securities to manage
liquidity, but it changed strategy to government securities and foreign
exchange,leading to supply of the US Dollar in the market. This
subsequently lead to the appreciation of the Shilling.
The Shilling's depreciation that began in the second half of 2014
has been caused by the strengthening of the US Dollar because of the
good performance of the US economy.
Massawe said the exchange rate in Tanzania is freely determined
by the market forces a policy adopted as part of economic reforms in
early 1990s with a view to preventing the value of the Shilling from
being misaligned with the real economic conditions.
He noted before the adoption of this policy the Shilling's
exchange rate was administrated by government, a practice that led to
severe shortage of foreign exchange in the 1980s.
Reached for comments over the matter, economists say there are many
reasons for the Shilling's decline in the past ten past years. They
said one of the main reasons for the decline is an unfavorable balance
of trade.
Beginning with the Arusha Declaration on Socialism and
Self-Reliance in 1967, Tanzania has been importing goods valued more
than the value of exports down the years.
“”Generally, the depreciation implies that the country is
importing a lot more than it is exporting,” said Adam Mwakangale, a city
based economist.
“This is dangerous for the economy, as some of our trading partners
may in the foreseeable future refuse to accept the Shilling if its
fluctuation trend continues.”
Another economist, Rebecca Thomas who works with Akiba Commercial
Bank noted: “What is happening in Tanzania today is that businessmen
import almost everything for which they pay in US Dollars.
Inevitably, this translates into a high demand for foreign currency at the local markets, an aspect that leads to inflation.
A quick survey of the famous Kariakoo shopping area in Dar es
Salaam showed that imported goods, ranging from sweets, toys, clothes,
plastic bags and shoes to electronic goods, foodstuffs and construction
materials dominated the domestic market at the expense of locally
manufactured ones.
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