Tanzania: IMF – Bot Should Allow More Flexible Exchange Rate

TANZANIA: THE International Monetary Fund (IMF) has said a coordinated macroeconomic policy response is needed to address emerging forex imbalances.

The IMF country report issued recently said the Bank of Tanzania (BoT) should allow more exchange rate flexibility and ensure that the exchange rate responds to market conditions and cushions the economy against external shocks.

The central bank should also continue its efforts to revive the forex markets, return to a market-clearing exchange rate system and continue to maintain an adequate level of reserves while limiting forex interventions only to avoiding disorderly market conditions.

These measures should be accompanied by fiscal consolidation and tightening of local currency liquidity.

The Monetary Policy Committee (MPC) that met last week said the policy stance lessened the pressure on demand for foreign currency in the previous months of October and November supported by fiscal policy and an improvement in proceeds from exports and tourism.

The MPC noted further with satisfaction the measures implemented by the BoT in addressing the shortage of foreign currency and observed that the implementation of policies by the government to increase export and import substitution would improve the current account position, boost foreign exchange reserves and stabilise the exchange rate.

The current account improved slightly, mainly due to an increase in foreign exchange earnings from traditional export crops and tourism.

The foreign exchange reserves remained adequate at about 5.0 billion US dollars last month, sufficient to cover more than four months of imports.

The exchange rate depreciated by around 7.8 per cent year-on-year, reflecting the shortage of foreign currency liquidity. The foreign reserves are projected to remain adequate.

The shilling was trading at 2,496/2,521 at the end of last month compared to 2,495/2,520 yesterday, according to the BoT daily exchange rate report.

According to BoT monthly economic review for November, inflows from traditional goods exports increased to 910.3 million US dollars compared to 742.7 million US dollars largely driven by coffee and tobacco exports.

On a monthly basis, inflows from traditional goods exports almost doubled to 120.9 million US dollars, higher than 64.5 million US dollars recorded in a similar month last year.

The inflows from travel (tourism) and transportation receipts increased to 5,838.8 million US dollars in the year ending last October compared to 4,555.1 million US dollars in the corresponding period last year.

The surge in travel receipts reflects the tourism sector rebound, as tourist arrivals rose to 1,750,557, a record high, from 1,381,881 in the year to October last year.

On a monthly basis, the service receipts were 550 million US dollars compared with 460.4 million US dollars in October last year.

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