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Shilling nosedives to lowest rate in years

Discussion in 'Biashara, Uchumi na Ujasiriamali' started by BAK, Sep 21, 2011.

  1. BAK

    BAK JF-Expert Member

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    Sep 21, 2011
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    By ABDUEL ELINAZA, 20th September 2011 @

    It is gloomy news for the shilling as economists predict it will depreciate to its lowest level in the next three months to exchange at 1,800/- a US dollar.

    The currency nosedived to 1,659/75 last Monday, the lowest level ever in 45 years, but bounced back slightly to 1,635/50 over the weekend. The demand is pushed by oil imports.

    The prospect threatened not only to trigger further inflation that has already reached 14.1 per cent but will also have far reaching impact on economic growth.

    "We predict the shilling will have dropped to 1,700/- to a dollar by December, but could sink further to between 1,800/- and 1,900/- a dollar," Dr Honest Ngowi of Mzumbe University's Dar es Salaam Business School said.

    His predictions were based on the fact that the only short term cure is for the Bank of Tanzania (BoT) to pump more dollars into the market to ease the pressure. But the million dollar question is that reserves are dwindling fast because of the huge imbalance between imports and exports.

    The BoT Monthly Economic Review for June shows that foreign reserves have dwindled fast to 3.6 billion US dollars, enough only for 4.4 months of imports. The lowest is three months.

    "If imports grow faster than exports, as is the current situation, depreciation of the local currency is inevitable," Dr Ngowi said. "We need to explore all opportunities to increase foreign exchange earnings."

    The economic guru said foreign reserves could slide further as European donors concentrate on austerity measures to fix their economies and bail-out indebted countries amid a euro crisis. "Remittances from the Diaspora is another avenue to earn
    foreign currency, we should send abroad more people to work," he said.

    To reverse the shilling depreciation trend is by
    increasing productivity. But the effort is blocked by the current power blues rocking the country since January.

    The Director of Economic
    Statistics at the National Bureau of Statistics (NBS), Mr Morrice Oyuke, said some of the sectors including manufacturing were hard hit by erratic power supply.

    The crisis slowed the country's economic growth to 6.7 per cent in the second quarter of this year, compared to 7.2 per cent recorded during the similar period last year.

    Mr Oyuke said the manufacturing sector recorded a growth rate of 6.2 per cent in the second quarter of this year compared to 7.5 per cent in the second quarter of 2010.

    "The decline was due to unreliable electric supply in the country," he noted. The statistician said the energy sector recorded a 3.1 per cent growth, down from 10.0 per cent during a similar period last year. "One of the reasons for these quarterly statistics is to show policy makers and responsible authorities the trend of the economy so that necessary action can be taken," he said.

    Nevertheless BoT is optimistic that the shilling will gain strength against the dollar in the fourth quarter of this year due to an increase in exports of traditional crops, tourism and mining.

    The central bank Director of Policy and Research, Dr Joe Massawe, said, "there will be increased exports of traditional crops like cotton, coffee, cashew nuts, cloves, tobacco as well as tourism and mining."

    He added that the inflows of US dollars from the mining companies and tourism would also appreciate as the peak season approaches. Although exports were smaller than 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.

    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 cashew nuts.

    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.

    Several economists have blamed the 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 University of Dar es Salaam, Senior Economics Lecturer, Dr Haji Semboja, said in recent years the country graduated from exporting only traditional crops to manufactured goods, but the efforts 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," the economist said.
     
  2. Anheuser

    Anheuser JF-Expert Member

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    Sep 21, 2011
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    Ok, so what is the question?

    Poor semi-educated Tanzanian press.
     
  3. Gaijin

    Gaijin JF-Expert Member

    #3
    Sep 21, 2011
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    Ukisikia kutumia phrase bila kujua maana ndo huko alikofanya mwandishi
     
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