How has Tanzania’s external sector been impacted by global shocks in March 2023?

Tanzania’s foreign currency reserves have decreased from $5.581 billion in March 2022 to $5.012 billion in March 2023. This decline can be attributed to various factors, such as the ongoing war in Ukraine and the effects of the COVID-19 pandemic, which have significantly impacted global commodity prices.

In addition, the country’s current account deficit has widened significantly due to a high import bill. The balance of payments also recorded a deficit of $874.2 million, compared to a surplus of $990 million in the year to March 2022.

Despite these challenges, the Bank of Tanzania (BoT) has assured the public that the reserves remain adequate, covering 4.5 months of projected imports of goods and services, in line with the country and the East African Community (EAC) benchmarks of at least 4 and 4.5 months, respectively.

BoT’s Senior Economist, Dr. Ulrick Mumburi, has also dismissed claims of a shortage of foreign exchange, particularly the US dollar, stating that Tanzania has sufficient foreign reserves to keep the country economically stable. “We have a fair share of foreign-currency reserves, including US dollars. It is above the reserve margin by about 4.8 percent,” Dr. Mumburi said.

Despite the decline in foreign currency reserves, the Tanzanian shilling has remained stable against the currencies of major trading partners due to moderate inflation rates and adequate reserves. According to available data from BoT, the shilling traded at an average rate of 2,322.16/- per US dollar in March 2023, compared to 2,321.13/- per US dollar in the preceding month. On an annual basis, the shilling depreciated by 0.5 percent from 2,309.90/- per US dollar in March 2022.