19 February 2013

Tanzania: Dar es Salaam Moves to Mitigate Poor Exports, Market Uncertainty

TANZANIA has informed the International Monetary Fund (IMF) of its intention to draw 114.2 million US dollars to cushion against the poor export and uncertainty in the global economy.

The fund is available through the 225 million US dollar Standby Credit Facility (SCF) arrangement for Precautionary Arrangement. IMF said the precautionary SCF Arrangement was "designed to provide Tanzania with a financial cushion to withstand deterioration in external demand and access to global market financing."

Last July when the 18-month facility was approved, IMF said the country was not facing any immediate balance of payment needs. The economy was projected to grow between 6.5 and seven per cent. "As Tanzania strengthens its macroeconomic buffers, it remains vulnerable to a renewed global downturn. "Its fiscal deficit, public debt and inflation levels are higher than at the time of the 2008-09 global recession, while gross reserve cover is low," IMF said then.

IMF said it "considers the decision to be an integral part of their (Tanzania) response to heightened external sector vulnerabilities. "(Also) emerging balances of payments pressures and expect this step to boost market confidence." Bank of Tanzania (BoT) Monthly Economic Review for January shows that at the end of last December, the current account deficit stood at 3,438.0 million US dollars compared to 3,977.1 million US dollars recorded in 2011.

"The performance was largely driven by an increase in exports volumes for most of the traditional cash crops..." BoT said in its economic review. BoT said the overall balance of payments recorded a surplus of 327.3 million US dollars compared with a deficit of 202.0 million US dollars recorded in 2011.

This, the central bank said, "reflects a continued net increase in inflows in the form of capital grants, foreign direct investments and foreign borrowing." Also BoT said in its Monetary Policy Statement (MPS) issued this month that the current account deficit was narrowed down, thanks to improved industrial production associated with stability in power supply, and increase in international tourist arrivals.

Nevertheless, at the end of last December, gross official reserves stood at 4.1 billion US dollars sufficient to cover about four months of imports of goods and services. However a recent study shows that Dar es Salaam was most exposed to Eurozone crisis and slower growth in China than among East African states.

The report titled, 'Shock Watch Bulletin: Monitoring the impact of the Eurozone crisis, China/India Slowdown, and energy price shocks on lower-income countries,' was published by the London-based Overseas Development Institute. The risks associated with exports of precious metals like gold and diamond to European markets and high revenues from tourism are a big contributor to Tanzania's economy but could harm its growth prospects at a time of economic decline in Europe.

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