As global credit crunch bites harder: BoT seeks safer haven for foreign exchange rese

[BAK]

As global credit crunch bites harder: BoT seeks safer haven for foreign exchange reserves

MASATO MASATO
THIS DAY
Dar es Salaam ​

THE Bank of Tanzania (BoT) has moved the country’s foreign reserves amounting to $2.8bn from foreign commercial banks and stock markets around the world, to central banks it perceives as ’havens of peace’ in the midst of the global economic meltdown.

Previously, the national reserves were invested in fixed deposits with the foreign commercial banks, where they were earning interest. However, a decline in confidence and trust among financial institutions in the West 'which has in turn triggered a drop in lending between the banks and a drying up of interbank liquidity' has prompted the government to rethink this strategy.

BoT Director of Economic Policy, Dr Joseph Massawe, told THISDAY in Dar es Salaam yesterday that a large chunk of the country’s foreign reserves - in US dollars, British pounds sterling, and euros - has now been diverted to the central banks of France and England, along with the Federal Reserve Bank in New York.

The rest of the national kitty has been invested in Treasury Bonds in the US and other developed economies, he said.

’’We have always kept our foreign reserves with big commercial banks around in the world," said Dr Massawe, citing Citibank as one of them. "But we are now looking at options that are not quite so prone to the financial crisis.’’

He said the crisis, which emanated from the sub-prime mortgage market in the US with its effects spreading to other financial markets in the US, Europe and Asia, has forced the country to take some serious steps to ensure its money stays safe.

This, he noted, is more so since the global credit crunch has adversely affected major forex-earning sectors like agriculture and tourism, both of which are struggling to deal with sharp declines in consumer demand.

The foreign reserves are meant to give the country adequate economic comfort in the midst of such crises. It is understood that Tanzanian residents presently have $1.6bn deposited in various commercial banks, while forex-denominated assets held by the banks stand at $600m.

The country’s nominal Gross Domestic Product (GDP) is estimated to level at about 24.8trn/- by December this year.

Said Dr Massawe: ’’The strength of foreign exchange reserves is important for stabilizing our financial markets and boosting the confidence of foreign investors in the economy.’’

He described the depreciation of the shilling as an incentive for attracting tourists, saying it has helped off-set the impact of declining world commodity prices.

’’It has made tourism cheaper and increased the shilling value of donor aid,’’ he said.

Concern has been raised in various quarters over the fate of the country’s forex reserves, with Bariadi East Member of Parliament John Cheyo recently cautioning Tanzanians with accounts in foreign banks that many of those banks are losing credibility quite fast.

’’It is unfortunate that so many Tanzanians - even the government itself - fancy stashing money in foreign banks. That is an increasingly dangerous ploy in these times of global economic uncertainty,’’ the legislator on an opposition UDP party ticket said