Prime
BoT on the spot for dollar exchange rate mix-up
Bank of Tanzania headquarters. PHOTO | FILE
Dar es Salaam. The official exchange rates, provided by the Bank of Tanzania (BoT), do not correspond with demand and supply, thus partly contributing to the scarcity of the United States dollar, as the parliament heard yesterday.
Presenting a statement in the House yesterday, the chairman of the Parliamentary Budget Committee, Mr Daniel Sillo, said yesterday that the disparity between the official exchange rate and what the market dictates calls for a review of the foreign exchange rate setting system.
That way, he said, the exchange rates will accurately reflect market conditions.
Though there was no immediate reaction from the BoT yesterday, the BoT Governor, Emmanuel Tutuba, is on record as having said recently that the dollar crisis is a global problem that has affected many countries differently.
“The dollar crisis is global. It has affected us, but we are a bit well off because we have come up with strategies including increasing tourism activities, reducing imports, and increasing exports, among others, to ensure dollar availability,” Mr Tutuba was quoted recently.
At that time, he was specifically responding to concerns in the market that illegal black market currency exchange transactions have become commonplace in the country as the dollar becomes a scarce commodity.
Some analysts and businesspeople even go as far as accusing financial institutions of taking advantage of the crisis to sell the currency illegally and at a rate higher than the price quoted on the boards.
But Mr Tutuba said the BoT has set procedures for selling and buying foreign currencies and conducting transactions outside the set procedures is not only illegal but could also lead to fake currency.
Building his argument in Parliament yesterday, Mr Sillo said that in the period from July to December 2023, a dollar was exchanged at an average of Sh2,466.28 compared to Sh2,318.33 during the same period in 2022, representing a depreciation of 6.4 percent.”
One of the reasons for the depreciation of the shilling is the increase in prices of goods imported from major trading partners, leading to significant demand for foreign currency,” he said.
On that note, following the challenge of a foreign currency shortage attributed to various factors, the Bunge budget committee yesterday advised the government to ensure that all payments made within the country are conducted in local currency.
These include fees for international schools, house rents, private sector employee salaries, hotel payments, and services rendered by local companies.
”Conducting an analysis to identify non-essential goods imported in large quantities from abroad and increasing their taxation to reduce their importation; and reviewing tax levies for the tourism sector to attract more tourists,” he said.
Additionally, expediting the process for the Central Bank to purchase and retain gold as foreign reserves; increasing value addition and exports for natural products; procuring raw materials for government projects locally; and resorting to importation only when they are unavailable domestically.
Head of Research and Financial Analytics at Alpha Capital, Mr Imani Muhingo, affirmed that there have indeed been concerns regarding the pricing of foreign currency.
He stated that the analysis shows a discrepancy between the prices set in the dealer market and those in the retail market.
”When the central bank sets the rate, it is often the one they use to sell to banks, so when banks come to sell in the retail market, they intend to make a profit, and so the price changes, and because it is a free market, they are allowed to do so,” he said.
Mr Muhingo emphasised the importance of ensuring that the displayed prices in the retail market are the ones being used, as there has been ‘backdoor’ trading where currencies are sold at even higher rates than what is on the boards due to the high demand available.
