African Reserves Loans

Why the Tanzanian shilling held up against the US dollar in 2021


By Rosemary Mirondo

Dar es Salaam. The Tanzanian shilling ended the year with a strong performance against the US dollar, thanks to a steady flow of greenbacks from the recovery in tourism, exports and funds from development partners.

The local currency started the year with an average exchange rate of Sh 2,298.46 per dollar and strengthened to an average of Sh 2,297.73 per dollar yesterday.

Within nine months, Tanzania secured concessional loans of at least $ 3 billion from international lending agencies – the World Bank (WB), the International Monetary Fund (IMF) and the African Development Bank (AfDB).

It also comes in the wake of improved performance of the tourism sector recovering from the impact of Covid-19.

Experts predict that the performance could even be better in the coming months due to the good outlook in the external sectors.

University of Dar es Salaam economist Dr Abel Kinyondo told the Citizen that the shilling has remained stable this year thanks to funds from the IMF, World Bank and AfDB.

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“When there are sufficient dollar reserves, the shilling does not chase the dollar, so it gains stability and its value increases,” he said.

He noted that the country’s exports also increased significantly from 2020, when a majority of countries were stranded.

The appreciation of the shilling against the dollar – a currency in which international purchases are mainly made – means that the local prices of imported goods, including petroleum products, capital goods, clothing, and cooking oil. , among others, would not be adversely affected by the value of the local currency.

The Bank of Tanzania (BoT) expects the shilling to remain stable over the next few months, saying appreciation actually started in July this year.

The director of economic research and policy at the central bank, Dr Suleiman Missango, recently told the Citizen that the appreciation means that importers and exporters have been able to make sound business decisions.

He said that since July of this year, there has been an increase in foreign exchange inflows, coming from a number of areas, including exports and from development partners, in particular, IMF funds.

On September 7, 2021, the IMF approved $ 567 million in emergency loans for Tanzania’s health system and economic recovery efforts after President Samia Suluhu Hassan changed the nation’s approach to the fight against the coronavirus pandemic.

Of this, $ 189 million was to be released under the Quick Credit Facility, while $ 378 million was to be released under the Quick Finance Instrument.

The resources are intended to cover Tanzania’s “urgent balance of payments needs” due to the coronavirus, the IMF said, noting that the Covid-19 outbreak had led to the collapse of the tourism sector – and, by therefore, the need for significant funding. .

According to Dr Missango, however, some exports have also performed quite well in recent months, as tourism receipts have improved since the global economic recovery from the Covid-19 pandemic began to be felt.

The BoT’s Monthly Economic Review (MER) also shows that Tanzania earned $ 2.94 billion from gold exports in the year through August 2021, a significant improvement from $ 2.735 billion in the past. during a similar period last year.

“This was largely boosted by the relatively high prices in the world market,” the BoT said.

Tanzania also recorded a 33.2% increase in exports of manufactures as of August 31, 2021.

The commodities – mainly ceramics, cosmetics, plastics, iron and steel – brought in a total of $ 1.125 billion in the year ended Aug.31, 2021.

“Most of the manufactured goods were destined for the DRC, Zambia, Uganda, Rwanda, Burundi and Malawi,” says BoT.

A massive increase in edible vegetable exports – including peas, green beans, onions and tomatoes – saw Tanzania’s horticultural exports reach $ 370.8 million in the year through August 31 2021, up from $ 181.8 million in the same period last year.

Exports of oilseeds, grains, cocoa, raw hides and skins, and wood products earned Tanzania $ 1.277 billion as of August 31, 2021, up 71.5 percent from $ 744.4 million. dollars earned as of August 31, 2020..

“Exports are doing better than last year when the Covid-19 pandemic was at its peak,” said Dr Missango.

The BoT said that although from year to year there was a reduction in the number of tourists and hence in tourism revenue, the situation was gradually improving if measured on a monthly basis.

“In August 2021 for example, service revenues increased to $ 262.8 million from $ 150.6 million in August 2020, due to an increase in travel receipts, suggesting a gradual resumption of tourism activities by compared to last year, “said the BoT.