Why money supply in Tanzania has risen in recent months

Arusha. Supply of money to fuel economic activities has improved significantly during the past few months, with the government attributing the trend to enhanced disbursement of development funds.

The Bank of Tanzania (BoT) says in its February 2022 Monthly Economic Review (MER) that extended broad money supply (M3) grew at an annual rate of 14.9 percent during the year ending January 2022.

Broad money is the most flexible method for measuring an economy’s money supply, accounting for cash and other assets that are easily converted into currency, including large time deposits, institutional money market funds, short-term repurchase agreements and larger liquid funds among others.

According to the BoT, the 14.9 percent growth rate was more than two-fold of the outturn in the corresponding period in 2021.

The epic growth signify that liquidity in the economy, which was growing at a lackluster speed during the past few years and reached its lowest level of only 3.3 percent during the year ending January 2019, was now once again promising.

Gracing a workshop for editors here yesterday, the Permanent Secretary in the Ministry of Finance and Planning, Mr Emmanuel Tutuba, said the growth was a result of the government’s enhanced and timely disbursement of funds for development projects.

“The growth in M3 reflects the fact that disbursement of funds – from domestic and foreign sources - to implement development activities was well on track,” he said noting that so far, there was not even a single development project that had stalled due to a lack of funds.

During the first eight months of the current financial year, said Mr Tutuba, the government has disbursed a total of Sh8.4 trillion in development financing.

This suggests that the government was on the right track to disbursing a good chunk of its about Sh13 trillion development financing for its Sh36 trillion budget for the 2021/22 financial year.

The smooth execution of the budget explains the fact that both local and foreign revenue sources were doing well.

For instance, Tanzania Revenue Authority (TRA) reported to have collected Sh11.11 trillion which is equivalent to 98 percent of Sh11.302 trillion forecasts between July and December 2021. This was a 20.2 percent or Sh1.87 trillion increase compared to Sh9.24 trillion that was collected during the same period of 2020/21 Financial Year.

Similarly, President Samia Suluhu Hassan’s recent trips and focus on economic diplomacy has helped to unlock Tanzania’s development funds from development partners and concessional loans during the past few months.

According to Mr Tutuba, the flow of money from the government and from other sources has resulted into inclusivity in the conduct of economic activities.

“It could be from government to government; from government to the private sector; from private to private and from private to public but ultimately, when that money gets into commercial banks, they will have enough money to lend to individuals and to the productive sector. That is how money gets into circulation,” he said.

His views concurs with that of the BoT which says that the growth in money supply – which was consistent with the target of 10 percent for the whole of 2021/22 - was due to accommodative monetary policy and recovery of private sector credit growth, occasioned by improving business conditions from the adverse impact of the Covid-19 pandemic.

Private sector credit growth was quoted at an annual rate of 10 percent during the year ending January 2022.