Bank of Tanzania (BoT) Governor Benno Ndulu told The Citizen that the US dollar has strengthened against all major currencies, largely because the US economy has shown exceptional rapid growth while Europe is struggling.
Dar es Salaam. The global appreciation of the United States dollar--fuelled by exceptionally rapid growth in the world’s largest economy amid challenges in the Euro Zone--is sending shock waves across East Africa, holding the region’s currencies captive, The Citizen has learnt.
The Kenyan, Ugandan and Tanzanian shillings have continuously depreciated against the vehicle currency in the past 10 months, turning East Africans into mere spectators as the world enjoys massive reductions in oil prices.
The Tanzanian shilling shed six per cent in the past 10 months to trade at an average of Sh1,676 against the US dollar as of Tuesday this week. In December 2013, $1 was equivalent to an average of Sh1,581.
The Kenyan shilling, which has always been resilient against major currencies, has not been spared either. It has depreciated by 4.3 per cent in the past 10 months. You need an average of Ksh89.41 now to get $1 as opposed to an average of Ksh85.71 10 months ago.
“The US dollar has strengthened against all major currencies, largely because the US economy has shown exceptional rapid growth while Europe is struggling,” Bank of Tanzania (BoT) Governor Benno Ndulu told The Citizen on Wednesday. BoT is monitoring the developments in exchange rates closely and will take appropriate measures at the right time.
According to Prof Ndulu, the former Lead Sector Specialist at the Macroeconomic Division for Eastern Africa at the World Bank, the changes in exchange rates come after almost three years of small movements--hence the need to monitor them closely.
“Some of these changes may be corrective to support exporters, including farmers, who receive more money for their exports as the shilling depreciates,” he said. “But we remain vigilant.”
Import factor
In Kenya, the blame goes to a growing trade deficit which stood at Ksh578.3 billion in the first seven months of this year, compared to Ksh510.6 billion over the same period in 2013, according to the latest international trading data from the Kenya National Bureau of Statistics (KNBS).
Kenya has seen a growth in imports, especially equipment and machinery, tied to the stepped up rollout of Vision 2030 infrastructure projects.
At the same time, lower income from key exports such as tea, coffee and horticulture--coupled with a decline in tourism earnings due to rising insecurity--have led to the widening of the balance of payments. This has weakened the shilling against major international currencies.
More imports also play a role in the depreciation of the Tanzanian shilling as the country’s bill for importing petroleum products rises in the wake of natural gas exploration activities amid dwindling foreign currency earnings from gold and poor disbursement of budget funds from donors.
According to the BoT’s September 2014 Monthly Economic Review, Tanzania’s spending on importing petroleum products rose by 7.7 per cent during the year that ended in August compared to a similar period last year.
The country spent a total of $4.26 billion up to August importing petroleum products, up from $3.96 billion recorded in the same period a year before. The country’s imports rose 7.2 per cent to reach $11.3 billion during the year to August 2014 against the $8.9 billion value of export of goods and services during the same period.
No impact
Analysts say the depreciation of the Tanzanian shilling against the vehicle currency means locals cannot benefit from a drop in petroleum prices on the world market.
“This simply means that ongoing decreases in prices of petroleum products will have no impact on East Africans as the drop in prices is suffocated by a loss in the purchasing power of local currencies against the currency in which fuel is imported--the US dollar,” the head of treasury at Commercial Bank of Africa Limited (CBA), Mr Hamisi Mwakibete, told The Citizen.
Globally, oil prices fell to a three-year low earlier this week as Saudi Arabia cut prices of crude exported to the US.
A barrel of US crude fell as low as $75.84 on Tuesday before rebounding to $77.19 on that same day--the lowest closing price since October 4, 2011.
But prices of petroleum products indicate mixed trends in Tanzania since the beginning of 2014, with motorists experiencing regular price rises compared to diesel and kerosene consumers.
In January 2014, motorists in Dar es Salaam bought a litre of petrol at Sh2,126 while their counterparts in Uvinza Kigoma bought the same at Sh2,369. The price of petrol now stands at Sh2,178 in Dar es Salaam and Sh2,421 in Uvinza.
“If you analyse prices of petroleum products on the world market, you will realise that prices have gone down,” Mr Mwakibete said. “But due to weakening of our currencies, we don’t see any significant impact on the price of petroleum products.”
IPTL factor
Analysts say the flow of US dollars dollar into the country may also have been affected by a decision by development partners to restrain budget support as they wait for the CAG’s report on the IPTL deal.
The donor funds ($558 million) would have boosted the supply of dollars in the country.
The Citizen
No comments:
Post a Comment