Declining foreign exchange reserves should not be a cause for alarm as it is still within the appropriate levels which will be boosted further by rising exports from the manufacturing sector, the Central Bank Governor has said.
Prof. Ndulu told the 'Daily News' in Dar es Salaam yesterday that the Central Bank had net foreign exchange reserve enough to cover 3.6 months of imports and gross foreign reserves which comprise of projects and commercial banks holdings as at the end of June this year, were sufficient to cover 3.94 months of imports at the end of last month.
The target, as per 2016/17 budget was to maintain gross official reserves sufficient to cover at least 4.0 months of projected imports of goods and services by June 2017, he said. Prof. Ndulu said also there were prospects of increased foreign exchange reserves with the surging of the manufacturing sector that has helped in diversifying the export portfolio.
BoT Governor Prof Benno Ndulu said the level was not a concern for the economy given that foreign earnings are surging after manufacturer sector climbed to second position in foreign exchange earnings after tourism.
"What we now see is structural substitution. The energy generation has mainly turned to natural gas thus lowering physical imports," he said. The governor said even before global oil price fall was factored in, the import bill was bound to fall.
On other hand the manufacture sector dominates the second slot for some three months in a raw. The sector exports increased from 1.34 billion US dollars at the end of April 2015 to 1.49 billion US dollars at end of April 2016.
BoT fresh data showed that the current account has narrowed by nearly a half to a deficit of 2.43 billion US dollars by the end of April as a result of an increase in exports and a decline in imports.
The reserves are enough to cover 3.94 months of imports as at the end of last month they have in recent months drastically gone down as power generations turned to local natural gas. International Monetary Fund (IMF) has encouraged the government to rebuild international reserves gradually to counter the risks from rising recourse to international capital markets.
Other risks are ongoing liberalization of the financial account, and volatility in global commodity prices and financial conditions.
"Strengthening buffers would also bring Tanzania closer to its commitments under the prospective East African Monetary Union," IMF said in Fourth PSI Review for Tanzania and Concludes 2016 Article IV Consultation report released on Wednesday. Prof Ndulu said the EAC bloc benchmark is six months of international reserve and the country would attain the level gradually in the coming days.
Source: Tanzania Daily News.