Foreign currency, energy shortages destabilising Tanzanian shilling


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R.B

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R.B

R.B

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ice fluctuations that Tanzania has witnessed in recent months are signs that the country's economy is structurally unstable, economists say.
  • People from Wete town in Zanzibar buy food at the market. Food prices recently increased as much as 100% due to currency fluctuations. [Pedro Ugarte/AFP]
After food prices in Tanzania briefly dropped with the advent of the October harvest season, they skyrocketed up again in November after the country experienced an oil shortage.


According to data released November 23rd by the Ministry of Industry and Trade, some crop prices increased as much as 100% during the first two weeks of the month.
For example, in Dar es Salaam, the per kilogramme price of beans rose from 600 ($.37) to 1,200 shillings ($.75), the price of maize rose from 600 shillings ($.37) to 700 shillings ($.44), rice from 1,600 ($1) to 2,200 shillings ($1.37) and wheat from 600 ($.37) to 900 shillings ($.56).
To safeguard against the shilling's fluctuations, many Tanzanians rely on the US dollar and other foreign currencies to purchase and sell goods, a practice that further destabilises the local currency and causes food price volatility, according to Mushengezi Nyambele, an economist and former Tanzania Revenue Authority board secretary.
"Even ordinary people have lost confidence in our currency," he told Sabahi. "They all opt for the dollar, which creates dollar scarcity in the country, triggering price increases." He said oil prices are rising because of the limited supply of dollars in Tanzania, in turn impacting the price of goods and services.
Nyambele said the instability is partly due to the government's failed monetary policies.
The use of foreign currency for domestic trade is illegal in Tanzania, but the government has not been able to effectively monitor and enforce the ban, Nyambele said. "It is easier to get foreign currency in Tanzania than anywhere else in the world," he said, adding that the US dollar accounts for 95% of all foreign currency used in the country.
The Bank of Tanzania should limit foreign currency access to international traders and travellers for use abroad, he said.
In July, Minister of Finance William Mgimwa told parliament that the government was aware of the business community's overuse of foreign currency and promised the government would work to tighten loopholes.
Government spokesperson Assah Mwambene told Sabahi that the administration is finalising a comprehensive strategy to eradicate unregulated use of foreign currency in the local market, but declined to specify when the new policies would take effect.
Meagre energy reserves hinder economy

Nonetheless, the lack of a strong energy reserve presents a bigger challenge to the economy than the illegal use of foreign currency, according to economist Honest Ngowi, a lecturer at Mzumbe University.
"We need to diversify our economy and [create] energy security to build a stable economy," he told Sabahi. "We need to have a special programme for energy reserves to avoid external shocks."
The government should spend less and devise policies to better manage energy reserves and create an economy able to absorb market shifts without drastically impacting prices consumers pay on the street, Ngowi said.
He said Tanzania's oil reserves equal 15 days' worth of consumption, which renders the national economy too vulnerable to domestic and international market shifts. "We need to set long term goals, such as having enough oil to support the country's economy for four months," he said.
The stabilisation of the economy can only be achieved by adjusting fiscal policies to facilitate long term investments, including building bigger reserve tanks and other infrastructure to support alternative energy sources, he said.
 

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