Tanzania’s Forex Pressure Eases Amid BoT’s Intervention
Dar es Salaam - The Bank of Tanzania (BoT) has reduced its interventions in the foreign exchange market, leading to a easing of forex pressure on the country’s economy.
Relief from IMF
According to the International Monetary Fund (IMF), discussions with authorities and market participants indicate that the pressure has been easing lately. The BoT has also reduced the pace of its interventions in the market.
Liquidity Mop-Up Operation
The central bank launched a liquidity mop-up operation in August 2022 to address inflationary pressures and rapid growth of credit to the private sector. Despite significant contraction of net foreign assets and continued repos, the financial system remained liquid in FY2022/23.
However, reserve money growth and banks’ holding of excess reserves have declined significantly since July as the BoT reduced its net claims against the government.
Financial Sector Remains Stable
The financial sector remains broadly stable, with pockets of vulnerabilities persisting in some areas. The banking sector is well-capitalized, profitable, and liquid, although performance is uneven across banks.
- Credit risk has continued to improve, with non-performing loans decreasing to 5.2 percent in September 2023 from 7.3 percent a year earlier.
- However, rapid credit growth, high credit concentration, financial dollarization, and loss of correspondent banking remain key vulnerabilities.
Economic Recovery Stalls
The country’s economic recovery is stalling due to the impact of global factors and shortfalls in rainfall. Inflation has moderated, but the fiscal deficit has widened due to lower-than-expected non-tax revenues. The current account deficit has also widened, reflecting deteriorations in the trade balance.
International Reserves Increase
The level of international reserves increased modestly while the exchange rate depreciated recently. Private sector credit growth has moderately moderated but remains high.
Program Performance on Track
Program performance at end-June 2023 was broadly on track. The continuous performance criteria were met, except for the quarterly performance criterion on net domestic assets, which was missed when adjusted for excess budget support vis-à-vis program projections.
- The indicative target on newly disbursed external non-concessional borrowing was also missed due to delays in disbursement of external grants and concessional loans earmarked for health sector projects.