Tanzania: Grappling With COVID-19 - BoT Slashes Discount Rate

THE Bank of Tanzania (BoT) yesterday took a number of measures, including reducing the discount rate to historical low, to boost financial activities and to offset Covid-19 effects on the economy.

The central bank lowered the discount rate from 7.0 per cent to 5.0 per cent from yesterday, in a bid to increase liquidity space in the financial sector.

The last time BoT lowered the rate was almost two years ago.

"This measure will provide additional space for bankers to borrow from Bank of Tanzania to lower costs, thus signalling lower lending rates by banks," BoT said in a statement.

However, some economists said the move will favour future and not past lenders who are facing the wrath of coronavirus contagious effect-like manufacturers.

On Monday, the Confederation of Tanzania Industries (CTI), issued a report that assessed the pandemic effects on the sector that showed almost 98 per cent of the respondents confirmed that their businesses had been affected by virus contagion - indicating dropping of sales revenue and production by over 50 per cent.

Also they envisaged cutting jobs by over 50 per cent.

The central bank's Monetary Policy Committee that met four days ago also cut statutory minimum reserve requirement from 7.0 per cent to 6.0 per cent.

"The measure expected to provide additional liquidity to banks," the statement said. However, the implementation starts early next month. The haircut for treasury bills is from 10 per cent to 5.0 per cent and for treasury bonds by half from 40 per cent to 20 per cent from yesterday.

This is anticipating to increase banks' borrowing from the central bank with less collateral than before. In another move to contain the economy from contracting, BoT is asking banks and other financial institutions to thoroughly assess borrowers' financial difficulties due to Covid-19 towards restructuring loan repayments.

"[BoT] will provide regulatory flexibility to banks and other financial institutions that will carry out loan restructuring in a transparent and impartial manner," the statement said.

And in a bid to woo the community from using digital payment channels, the central bank has uplifted the daily withdrawal ceiling from 3.0m/- to 5.0m/- and double daily balance to 10m/-.

"This measure," according to BoT, "will encourage use of digital payment platforms" for transactions and reducing bank halls congestions.

Dr Hildebrand Shayo, an economist cum banker, earlier said he would welcome a firm action from the central bank to support liquidity and financing conditions to businesses and banks, which will help to preserve the smooth provision of credit to the economy.

"BoT's measures, if designed well, will support all sectors of the economy to benefit from supportive financing conditions that enable them to absorb the Covid-19 shock," he said.

According to International Monetary Fund (IMF) tracker on policy responses to Covid-19 by governments across the globe issued recently, the Tanzanian government, while giving priority to affected SMEs, dished out 376m US dollars (about 869.5bn/-) over the past two months.

Last month, the government through the Ministry of Finance, announced formation of a special taskforce for evaluating the impact of Covid-19 in the economy and other areas so that the mitigation and rescue measures could be taken as soon as possible.

Finance and Planning Minister Dr Philip Mpango mentioned some of the sectors that have been affected already as the tourism sector, air transportation, industrial sector, revenues from different businesses in and outside the country, horticulture sector and many others.

The global monetary body announced earlier that the world economy was heading to a recession while the United Nations projected the collapse of the economy of the developing countries by 2.3 per cent.

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