Tanzania: Borrowing Reaches Highest Rate

Abduel Elinaza

12 December 2011

Bank overnight borrowing reached a 10-year high rate following tight money measures to contain the falling value of the shilling and high inflation rates.

On average, the rate hit 27 per cent at the close of the week, which is the highest since the financial sector was liberalised over ten years ago when the rate was around 5 per cent.

The Bank of Tanzania (BoT) inter-market report at the closure of the week shows that the market experienced the highest level of 35 per cent while the lowest was 15 per cent, all on the highest side ever.

The report shows that despite high inter-bank rates the amount traded was also high at 57bn/- signifying liquidity demand in the market following tight monetary stance.

Standard Chartered Bank said in its 'Daily Market' report on Friday that the inter-bank market remained under tight liquidity constrains with small banks picking overnight funds as high as 35 per cent on the close of business.

"In a move to try putting a cap on overnight rates, BoT broadcasted its Lombard rate applicable today at 34.14 per cent, which is below the highest traded rate (Thursday)," said the report.

According to stock exchange analyst, Joel Nkya the rate on average climbed almost by 10 per cent to reach 30 per cent last Thursday. National Microfinance Bank (NMB) attributed the high increase of the overnight rates to the tight money circulation stance that is geared to drive exchange rate to equilibrium.

"Liquidity squeeze continued pushing the dollar further down with banks offloading their hard currency positions, driving the overnight rates to 30 per cent," NMB said in its Daily Market report.

However, economists said the central bank's intervention was only a short-term solution as supplying foreign currency in the market and tightening money supply are not sustainable measures to control inflation and stabilise the shilling.

Mzumbe University's Dar es Salaam Business School Senior Lecturer, Dr Honest Ngowi said high inflation and a weak shilling are double economic evils that Tanzania is struggling with.

These two issues will be among the major economic issues of the year 2012.

...Wasiwasi wangu ni kuwa, this will lead to increased unemployment, as manufacturing slows and some investments put on hold. Hamna mtu anataka kufanya biashara yenye gharama kubwa ya kurudisha mkopo, na hivyo kuwa katika hatari ya kupata hasara.

...Sidhani kama tumefahamu na kuchukulia hatua vya kutosha chanzo cha hii inflation.

...Farmers should be genuinely encourage to produce more through various incentives, and as distribution channels made more efficient. Speculation on grain trade should be minimized, by among other things, registering grain traders and auditing them. We need to encourage more investments in grain mills, the big ones.

...We also need to seriously look at our liquid fuel consumption and all those fees and taxes attached to the price of a liter of liquid fuel.

It should have been well known that we are steamrolling toward a massive global debt meltdown, and at this point world leaders seem to be all out of solutions. We are on the verge of a massive global debt meltdown, and nobody is sure what is going to happen next. Let us hope for the best, but let us also prepare for the worst.

Reviewing over the last 30 years or so, the greatest debt bubble in the history of the planet has produced unprecedented prosperity in the western world. But now that debt bubble is starting to burst and the bills are coming due. Many believe that "ground zero" for the coming global debt meltdown will be in Europe. Unlike the U.S. and Japan, the nations of the EU can't just print more money to cover their debts. Nations such as Greece, Portugal and Italy must repay their debts in euros, and those nations are rapidly getting to the point where their debts are going to overwhelm them. Unfortunately, major banks all over Europe are very highly leveraged and are also very heavily invested in the sovereign debt of nations such as Greece, Portugal and Italy. If even one EU nation defaults it will start tipping over financial dominoes. If more than one EU nation defaults it could cause a cataclysmic wave of bank failures all over Europe.

The biggest potential problem, at least in the near-term, is Italy. Italy is the fourth largest economy in the EU, and lately the financial problems of the Italian government and Italian banks Have Been Making Headlines all over the globe. Italy is a far, far larger potential problem than Greece is. The EU can handle bailing out Greece, at least for now. If Italy gets to the point where it needs large bailouts, that is going to bring down the whole system. The EU simply does not have enough money to perform an extensive financial rescue of Italy. And if Italian debt goes bad, it is going to take down a whole bunch of banks.

Do not take your eyes off of Europe. This crisis is just getting started.

Not that there aren't huge debt problems around the rest of the globe as well.

Japan has a national debt that is now over 200 percent of GDP, and they are really struggling to recover from the recent disasters that devastated that nation. For now Japan is still able to borrow huge piles of money very, very cheaply but if that changes Japan could be wiped out very quickly.

Of course the nation with the biggest debt of all is the United States. At the moment, the U.S. National Debt is sitting at a grand total of$15,000,000,000 increasing for 1 to 2 trillion annually with the GDP of $14,000,000,000. The U.S. is also able to borrow massive amounts of money very, very cheaply right now. But when that changes it is going to be absolutely cataclysmic for the global economy all over.

Studies shows that the circumstance is getting worse in the following 2 to 5 years.

As individuals and as a nation, we need to get prepared for the worst to come and position ourselves to take the opportunities which will be brought out in the process. As a nation we need to put strategies and framework and infrastructure that can enable us to take advantage if the transfer to the new monetary system, we need to implement some urgent empowerment programs that can enable Tanzanians to be in the winning side. It is a very huge opportunity ahead us as more than ever now the wealth transfer is going to happen is the global scale, true wealth is stored in physical commodities which have utility value like traded precious metals (mostly silver and gold), real estate, fresh water, natural gas as they are needed to sustain life and growth in our planet. We need now than ever to invest in these sector, the importance of which can never be overemphasized as the world is running out of them and without which life on earth will be miserable if not impossible. So again there is another and foremost urgent need to invest in education to our people, youth and the coming generation, but the it should be a whole different kind of education that can enable our youth and the coming generation to contribute to the growth and development of our societies through entrepreneurial solutions and prepare leaders who will wake up each morning thing of how he is going to empower Tanzanians to be the best that they can be to benefit themselves and the society around them.

But as you can well guess already for all these to happen there is a catch, we need to decide and start the implementation very quickly in the speed of light.

Thank you for your very IMPORTANT message.

CCM na serikali yake hawaangalii mbele , wao wanagawana posho tu; thinking foolishly that if this economy collapses they will not be affected!! Hopefully, wapambe wao watasoma bandiko hili na kulielewa.