Though it sustained slight depreciation (0.02) the Tanzanian shilling has started the year 2019 considerably stable.
This has been attributed to the sustained and growing international trade, the Tanzanian shilling ended the year 2018 with a positive note to start 2019, stable and strong.
The Tanzanian shilling closed the year trading at 2,268/2,291 as of Thursday last week, this according to the Bank of Tanzania (BoT) indicative rates.
The country’s Balance of Payment played a major role in keeping the shilling stable owing to increased importation of capital goods.
Capital goods refer to imports, that are used for production and in the case of Tanzania, the country is importing increasingly more machinery as the government roles out more infrastructure projects ranging from real estate to transportation infrastructure including road and rail construction.
According to the Tanzania central bank monthly economic review, deficit for the country’s Balance of Payment is down. The BoT monthly report at the close of the year 2018 showed that the deficit dropped from USD 276.4 million in September to USD 171.6 million in October.
In that same period, thanks to infrastructure development, there was also an increase of intermediate goods, in fact, all import categories recorded an increase that sent the aggregate value of imports up to USD 8,143.3 million. This marks a considerable increase from the USD 7,528.5 million that was recorded in the same period the previous year.
There was also a slight edging upwards of the recorded import bills moving up from the USD 10,323.7 million for the period up from ending September USD 10,357.4 million recorded in October; an increase of 8.8 percent that is also attributed to the ongoing infrastructure development projects across the country.
“A notable increase was observed in capital and intermediate goods that is much associated with the ongoing infrastructural development projects, including construction of standard gauge railway, roads and bridges, airports, and ports,” stated the report.
Opportunity Cost: Decrease Foreign Currency Reserve to Stabilize Domestic Currency
To stabilize the Tanzanian shilling, the country’s Central Bank ideally sold off a reasonable amount of its foreign currency reserves.
As a result, foreign currency reserves fell from USD 5,437.1 million in September to USD 5,277.8 million in October.
Worth noting here is the considerable reduction in inflow of foreign currency as well. Among other things, the drop of incoming foreign currency is attributed to reduced exports and notably, a fall in sale of cashew nuts abroad.
Though efforts by the BoT helped to keep the Tanzanian shilling considerably stable, there was a slight depreciation of 0.02 percent, the Central Bank report revealed. The Tanzanian shilling traded at an average exchange rate of USD 2,291.37 compared to USD 2,290.88 in the previous week.
