How Tanzania is responding to dollar scarcity

Tanzania, like many other countries in the sub-Saharan region, is grappling with the challenge of dollar scarcity, leading to economic uncertainty and financial instability. To tackle this issue, Tanzania's central bank has put in place a series of restrictions on foreign-currency transactions to address the shortage of dollars and ensure the stability of the financial system. Fortius Rutabingwa, Head of Research & Market Development at Orbit Securities, shed light on the situation and the measures being taken by the government to mitigate the impact. Rutabingwa explained that the central bank has begun intervening in the foreign exchange market to boost the supply of foreign currency, particularly dollars, in order to meet the rising demand. This intervention has seen a significant increase in the volume of dollars supplied to the market, with efforts aimed at supporting businesses, especially those involved in energy imports, to prevent disruptions. He further emphasized that the central bank reassured the public of an adequate foreign exchange reserve to address the current shortage of dollars. Despite these efforts, the shortage of dollars has reverberated across various sectors, most notably affecting the capital market and foreign direct investment. Foreign investors have become cautious about entering the market due to uncertainties surrounding exchange rates, leading to a slowdown in foreign portfolio inflows and impacting the overall economy. Additionally, industries such as manufacturing, tourism, and banking have been adversely affected by the shortage of dollars, exacerbated by long-term economic projects that rely on imports for infrastructure development. Rutabingwa acknowledged the government's efforts to engage with regional and international partners to find solutions and secure support for enhancing dollar liquidity. While commending these efforts, he suggested the need for additional short-term measures, such as currency swap agreements with other countries, to address the immediate challenges posed by the dollar shortage. He also highlighted the importance of international cooperation in tackling the global dynamics contributing to the scarcity of dollars. The recent circular issued by the government to regulate foreign currency businesses and align them with the foreign reserves of importing countries aims to stabilize the situation. Moreover, the discussion on de-dollarization has gained traction, prompting Tanzania to sign bilateral agreements with countries like India to facilitate trade in local currencies. This move, alongside boosting gold exports, is seen as a step in the right direction to alleviate the dollar scarcity problem and bolster foreign exchange reserves. Despite the late implementation of some measures, Rutabingwa emphasized the importance of a comprehensive approach to address the root causes of the dollar shortage and ensure long-term economic stability.