Deputy Minister for Finance, Janet Mbene

Upsets in the global financial market especially in the European continent has contributed significantly to the depreciation of the local currency, Parliament was told here yesterday.

Deputy Minister for Finance Janet Mbene made this observation in the question and answer session in response to a basic question by David Silinde (Mbozi West, Chadema).

The MP wanted to know why the government has failed to prevent inflation that is rated above 20 percent currently and why the local currency is depreciating against currencies of trading partners like   Kenya.

Mbene said most investors expected the euro to be a major competitor of US dollar commercially, but with the deterioration of European economies the euro is much weaker and investors opt for the dollar for safety.

Most investors started transferring their savings to the US financial market and therefore causing major demand for the dollar worldwide, she elaborated.

“This situation lead to the strengthening of the dollar value against other currencies and thus cause the value of many currencies to depreciate, including the Tanzanian currency,” she stated.

The deputy minister mentioned other factors as greater use of foreign currency compared to earnings from exports, inflation difference between countries with whom we trade, delayed release of funds pledged by donors, last year’s emergency purchase of power generation plants and payment of arrears of debts which increased the usage of foreign currency. “All this intensified the pressure and thus relative depreciation of the local currency,” she said.

In December 2011, food, transport and energy contributed 83 percent in inflation rise, with much of that pressure being outside the competence of fiscal policy to control, the deputy minister indicated.

Meanwhile, Dr William Mgimwa, the minister for Finance said the government can reserve gold instead of money if the stability of gold remains valuable and reliable since it is still used as an international reserve. Currently the country is using currency for its reserves, he said.

Dr Mgimwa was reacting to Mustapha Akunaay (Mbulu, Chadema) in a supplementary question who wanted to know why the government does not maintain reserves in precious metals like gold in order to reduce inflation, as the country is rich with gold.

Farida Bakari (Special Seats, CCM) in a supplementary question wanted to know what was the government’s strategy in eradicating excessive usage of foreign currency especially at the local level.

Dr Mgimwa said in order to check foreign currency use the government would need to place limitations in the law that permits Tanzanians to hold foreign currency accounts.