Tanzanian authorities confirmed yesterday through various channels that the country is facing a dollar shortage, a crisis that has been affecting several nations in Africa.
During the budget presentation by Minister of Energy, January Makamba, the Ministry acknowledged that the nation has been struggling with a shortage of dollars, which has, at times, put the country at risk of fuel scarcity.
“Global oil trade has been significantly impacted by the reduction of Russian oil supplies in the global market,” said Minister Makamba as he was tabling his Sh. 3 trillion budget for the financial year 2023/24.
Makamba explained that because of the cut of the Russian oil in the global supply, oil prices have continued to surge causing nations to face huge import bills.
“Moreover, many countries in Africa including Tanzania and other nations in the world are facing the US dollar shortage problem, currency required for the importation of oil” added Makamba.
Minister Makamba explained that the government has taken short-term and medium-term measures which have made the country not face fuel scarcity challenges.
On a separate occasion the Minister of Finance and Planning, Dr Mwingulu Nchemba tasked economy experts from his ministry to devise strategies to mitigate the effects of the dollar shortage on the economy.
“We have been recovering from the Covid-19 crisis and the Russia-Ukraine war but the dollar shortage is affecting the economy to the largest extent” underscored Dr.Nchemba in his meeting with officials from his Ministry and IMF officials who were in the country to assess the IMF loan facility extended to Tanzania.
The main driver of the dollar shortage in Tanzania and other African economies is the rising costs of imports and borrowing in the global market.
Due to disruptions in the global oil supply and other essential commodities such as fertilizers, Tanzania is faced with a substantial import bill compared to its foreign currency earnings from exports.
According to the latest data from the Bank of Tanzania, the current account deficit for the year ending April 2023 has increased to USD 5.29 billion, compared to the deficit of USD 2.9 billion recorded in April 2022.
The deteriorated balance of payment is also eroding the shilling value, meaning Tanzania’s debt will also increase because of currency issues.
In a move that seems to respond to some of the challenges in the market, On May 31, 2023, the Bank of Tanzania released a directive on foreign exchange operations in the country.
The directive requires transactions exceeding USD 1,000,000 must be conducted through banks at prevailing market prices. Transactions by a single customer in a day will be aggregated to determine this amount.
The directive also prohibits trading with unregistered international currency traders and requires currency dealers to follow procedures for recording customer information. Additionally, all Letters of Credit (LCs) for transit cargoes must be funded using foreign exchange obtained from the respective destination countries
The move seems to ensure there is no rapid appreciation of dollars as traders search for the scarce currency, the interbank market is closely monitored. The directive also seeks to curtail the unwarranted outflow of dollars from the economy.
According to the report by the International Monetary Fund (April 2023) titled Managing Exchange Rate Pressures in Sub-Saharan Africa, economies in Sub-Saharan Africa risk having higher public debts and deteriorated trade balance due to external pressure.
About 68 percent of Tanzania’s external debt is denominated in dollars meaning any depreciation of the shilling will greatly affect Tanzania’s bottom line.
The country is also running several strategic projects such as the Julius Nyerere Hydropower project and the Standard Gauge Railway which all require foreign currencies in their implementation.
While Gold, other minerals such as coal, tourism, and several loan disbursements have provided relief to foreign exchange pressure, more caution is needed as the global economy remains uncertain.