The stability also means the purchasing power of even ordinary people has improved although the achieved gains are not readily reflected by market realities. Rarely do macroeconomic figures tell real life stories in most poor economies like Tanzania.
Businesses are keeping their fingers crossed hoping that the exchange rate remains this way throughout the year. Entrepreneurs, who have been in the game for many years, told The Banker recently that the weakening of the unit in 2015 was its biggest devaluation in 30 years.
“I pray it (the shilling) stays where it is today because a repeat of last year’s situation would not augur well for the economy,” said a member of the American Chamber of Commerce – Tanzania (AmCham-Tanzania) at its breakfast meeting on the current business climate in Dar es Salaam on April.
Speaking on condition anonymity in order to comment freely, he noted that the actions being taken by the fifth phase government in putting its house in order are sending unnecessary fear among the business fraternity. However, since the budget is around the corner, it will bring more clarity to the direction the government will be taking in fulfilling the ruling party’s manifesto, he added.
On Thursday last week, Reuters reported that the shilling was being seen trading in a tight band, helped by healthy inflows. Commercial banks quoted it at 2,185/2,195 to the dollar, stronger than 2,195/2,205 a week ago.
On the same day, the Bank of Tanzania (BoT)’s indicative price of the unit for sellers was 2,172.8/- for every greenback and 2,194.6 for buyers. The week closed with buyers fetching 2,189.7/- and those selling it in money markets getting 2,168/-.
"The shilling is expected to remain stable for the time being due to end-of-month inflows," said currency trader Moses Kawicheat of CRDB Bank.
Despite the shilling’s battering in 2015, the BoT managed to contain the cost of living within single digit limits with an average inflation rate of 5.6 per cent.
The World Bank says that was possible because the money authority responded to the pressures on the local currency by letting it freefall. A similar strategy was applied in Uganda and Mozambique where it also paid off well.
The global financier said in its April Africa’s Pulse report, an analysis of issues shaping Africa’s economic future, that deterioration in the current account deficit led to falling reserves and substantial currency depreciations across sub-Saharan Africa economies.
“Monetary authorities in countries with a flexible exchange rate regime responded to the pressures on exchange rates by letting currencies depreciate more (Mozambique, Tanzania, and Uganda), and by tightening monetary policy through an increase in reserve requirements and policy rates (South Africa and Uganda) to contain inflationary pressures,” the report reads.
BoT says most of the shilling’s troubles in 2015 emanated from the strengthening of the US dollar in the wake of growth prospects, delays in budgetary foreign inflows, and excessive speculative tendencies.
In the Economic Bulletin for the Quarter Ending December, 2015, the central bank says that the shilling experienced relative stability against the US dollar during the three months compared with the preceding three quarters.
The shilling was traded at an average rate of 2,163.57/- per US dollar during the quarter ending December 2015 compared with 1,706.32/- recorded in the corresponding quarter of 2014. Its quotations in the third, second and first quarters of the year were 2,137.6/-, 1,951.7/- and1, 775.2/- respectively.
Ten years ago, the exchange rate to the dollar was 1,252/-. In 2011, it was 1,571/-.
“The exchange rate stabilised since January 2016 following significant depreciation of approximately 25 per cent in the period between January 2015 and December 2015,” PwC Partner Rishit Shah told The AmCham Tanzania meeting.
Business and market intelligence firm BMI Research, says the shilling will experience a much less rapid pace of depreciation in 2016 than in 2015 as it benefits from a weaker US dollar, positive balance of payments dynamics and improved local sentiment.
The British company says in its April 1 Tanzania Country Risk Report that the average depreciation for this year will be below eight per cent. The IMF has it that while the depreciation largely reflected the global strength of the dollar, domestic factors also contributed to the volatility.
These were the loosening of monetary policy in late 2014, seasonal patterns in foreign exchange inflows as well as delays in mobilizing external financing and uncertainty in the run up to the General Elections in October.
“Inflation is expected to remain at single digits level anchored by low energy prices and stability of the shilling exchange rate and coupled with tight monetary policy, improved expenditure management and enhanced revenue mobilization by the government,” BoT notes in the February Monetary Policy Statement.
“The current account is projected to improve further driven by the impact of increasing receipts from tourism and transportation services, manufactured exports and lower global oil prices,” it adds.