Reasons for depreciation of the Tanzania shilling stated
Written by Yakobe Chiwambo
Friday, 08 July 2011 05:28
ECONOMISTS say there are many reasons why the Tanzania shilling has
been depreciating relentlessly over the past four years as indicated
in recent Delloitte&Touche report on the East African
economies.According to economists who spoke to Business Times at the
35th Dar es Salaam International Trade Fair (DITF) at the Mwalimu
Nyerere show grounds this week, one of the main reasons for the
depreciating national currency is an unfavourable balance of
trade.Beginning with the proclamation of the Arusha Declaration on
Socialism and Self-reliance in 1967,Tanzania has been importing goods
valued more than the value of its exports down the years!
“Generally, the depreciation implies that the country is importing a
lot more than it is exporting,” said Economist Adam Msumule. “This is
dangerous for the economy, as some of our trading partners may in the
foreseeable future refuse to accept the shilling if its fl uctuation
trend
continues.”
According to Msumule, what is happening in Tanzania today is that
businessmen are importing almost everything from other countries, for
which they pay in hard currency,including especially the US dollars.
Inevitably, this translates into a high demand for foreign currency at
the money markets – leading to infl ation.
A quick survey of the famous Kariakoo shopping area in Dar es Salaam
showed that imported goods,ranging from sweets, toys, clothes, plastic
bags and shoes to electronic goods, foodstuffs and construction
materials dominated the domestic market at the expense of
locallymanufactured ones!
What goods are produced in Dar es Salaam region – and exported,? the
source queried!Apparently, the same is the case in upcountry regions
“When infl ation is high, people become afraid of taking payment in
the local currency – just as is the case in Zimbabwe – because the
value of the
local currency changes for the worse as a matter of course. People
prefer to be paid in the US dollar instead,” Msumule stressed.
For long now, the trend whereby traders prefer payment in hard
currency has taken hold at major hotels and shops all over Tanzania.
If they can’t get paid in dollars, they at least price their goods and
services in the US currency – and then convert the amounts into the
local currency at the prevailing exchange rates!
It is also a great pity that the Tanzania shilling has been
depreciating faster against the world’s hard currencies than the
currencies of the other East African Community member states.
Commenting on this, the principal economist of the Directorate of
Financial Markets at the central Bank of Tanzania (BoT), Genes Dos
Kimaro, said the infl ation in Tanzania has also been a result of a
poor market system.“Take, for example, maize. It is illegal to export
maize from Tanzania. But unscrupulous traders routinely smuggle lots
of it to Kenya and other neighbouring countries where they are sold
for
Tanzania shillings instead of US dollars. Why can’t the Government,
working in collaboration with the private sector, come up with a
market system that would see farmers exporting their goods, and are
paid in foreign currency?” Kimaro stated. Kimaro identifi ed one of
the challenges facing exportation of foodstuffs as the fact that
Tanzania does not have enough food reserves, and some areas are
already hard-hit by serious shortages. Reportedly, this is attributed
to persistent drought. This is because of the country’s continued
reliance on rain-fed agriculture which is unpredictable, unreliable.
Kimaro said Tanzania could produce lots of food if it embarked on
irrigation farming. This way, it would get enough food – and surpluses
which would see the country exporting and, at the same
time, reducing infl ation that is biting into the
economy.
Asked to give a forecast of the value of the
shilling in months to come, he said it is possible for
the shilling to gain to somewhere around Tsh1500-
a-dollar. This is partly because the tourism season
is around the corner!
Kimaro nevertheless said one of the main solutions to tame the wild
infl ation is by exporting more.“We need to produce more exportable
and consumable goods if we are to control the infl ation;otherwise,
too much importation makes matters worse,” said the senior
economist.This view is also shared by Economist Msumule who insisted
that Tanzania has to come up with new measures of exporting more than
it imports