State of fiat

Bank of Tanzania admits to dollar shortages but claims it's not a crisis

Foreign exchange reserves had decreased to $4.9 billion by May 2023 from $5.5 billion in May 2022.

Design by Ifeoluwa Awowoye for Mariblock

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Editor’s note: This story is part of Mariblock’s “State of Fiat” coverage. Digital assets such as bitcoin are seen as competitors to central bank money. Therefore, we consider informing our audience of the state of their local currencies worthwhile.

The Bank of Tanzania has acknowledged that its foreign exchange reserves decreased to $4.9 billion in May 2023, from $5.5 billion in May 2022. However, the Bank claims the situation is not critical.

Key Quote

Suleiman Misango, Bank of Tanzania's economic research and policy director said:

“I first of all admit that there is a shortage of foreign exchange, but this has been caused by external factors, which are beyond the control of many countries … The central bank is aware of the decrease in the supply of dollars and is taking measures to address and mitigate the situation. There is no need to panic as we have not reached the level of calling it a crisis,”

Quick facts

According to The Citizen, the current reserves are deemed sufficient to meet the country's benchmark requirement of at least four months of imports.
He further explained that the decline in foreign exchange reserves can be attributed to various global factors, such as the Covid-19 pandemic, the Russia-Ukraine conflict, the increase in U.S. interest rates and climate change.
These global challenges disrupted supply chains, leading to higher commodity prices in the world market. This means that more dollars are needed to import the same quantity of items than was the case previously, Misango said.
According to Misango, the central bank usually engages in the purchase of dollars. However, in recent months, the bank has shifted to selling dollars to boost liquidity in the market. From January 2022 to May 2023, $376 million was sold by the central bank through the Inter-Bank Foreign Exchange Market (IFEM).

Of note

Misango noted that Tanzania's decrease in dollar supply is comparatively minor and will soon normalize. He further highlighted that the upcoming peak tourist season and cash crop harvest are expected to bring about an improvement in foreign exchange availability.
He mentioned that certain imports are currently experiencing a decline in prices, consequently easing the pressure on foreign exchange reserves. He expressed the expectation that foreign exchange reserves will improve in the next few months.
The Bank bought six tons of gold worth $280 million to beef up foreign exchange reserves.
It also issued new directives with the objective of enhancing dollar availability.
Among these directives is the banning of unlicensed international foreign-currency brokers and a requirement that all forex transactions exceeding $1 million in the retail market be traded within the interbank foreign-exchange market at the prevailing rate, the Bank of Tanzania said in new directives.