Shilling breaches experts’ prediction

THE shilling is trading well below the analysts’ forecast value for this year against the US dollar.

Deloitte Tanzania forecasted that the shilling will depreciate to around 2,314/- against the greenback this year, buoyed by adequate reserves.

However, the central bank Sunday’s foreign exchange daily report showed that the shilling mean exchange rate was 2,324/23, overtaking analysts’ predictions.

Deloitte Tanzania projected in its 2023 Budget Bite: Pivoting for Inclusive Growth that the shilling rapid depreciation resulted mainly from a downward drift in foreign exchange reserves since mid-2021 and a stronger demand for the dollar.

“The shilling is projected to depreciate to 2,314/- against the dollar in 2023 but will be buoyed by adequate foreign reserve stocks,” the report had predicted.

Bank of Tanzania (BoT) May’s Monthly Economic Review said the local currency traded at an average rate of 2,324/07 per US dollar in April compared to 2,322/16 per US dollar in the preceding month.

“The shilling stayed stable against currencies of major trading partners, consistent with the low inflation rate and adequate reserves,” the central bank report said.

On an annual basis, BoT said, the shilling depreciated by 0.5 per cent from 2,310/14 per US dollar last April.

Correspondingly, the stock of foreign exchange reserves declined to 4.88 billion US dollars at the end of April from 5.46 billion US dollars in a similar period last year.

“Despite the decline,” the BoT report said, “reserves remained adequate, covering 4.4 months of projected imports of goods and services.” The country benchmark is at least four months.

Additionally, the current account deficit widened to 5.296 billion US dollars in the year ending April from 2.98 billion US dollars last April due to high import bills.

“The country’s external sector continued to be affected by cumulative effects of global shocks, particularly the war in Ukraine, which largely impacted the global commodity prices,” BoT said.

Similarly, the balance of payments recorded a deficit of 585.4 million US dollars compared to a surplus of 679.7 million US dollars in the year last April.

The report shows that mining is the leading earner in foreign exchange because it attracts significant investment with a positive outlook with new mining projects in gold, nickel and graphite.

“Mining remains the top foreign exchange earner. It continues to attract significant investment with a positive outlook in the medium term given the number of signed framework agreements and new mining licences.

“The new mining projects include gold, graphite, nickel and rare piles of earth whose development is imminent,” states the Deloitte report.

Tourism is the second largest contributor of foreign currency earnings, contributing 25 per cent to foreign currency collections and 17.5 per cent of the GDP.

“All this comes to work after recovery from the global Covid-19 pandemic that leads to tourism activities being activated in the country and through foreign exchange earned during the year ending in April,” MER report said.

Also, the World Bank said recently that global growth was slowing sharply in the face of elevated inflation, higher interest rates, reduced investment, and disruptions caused by Russia’s invasion of Ukraine.

Almost a week ago, BoT ordered business entities to stop transacting in US dollars and insisted all prices be given in shillings.

The central bank’s decision is designed to further strengthen control of foreign currency flows which are seriously dominating real estate, health, transport, logistics and education transactions.

Related Articles

Back to top button