Tanzania’s foreign exchange reserves have increased by 3.1% in the third quarter of 2019, riding on the back of increased foreign income using December 2018 reserves as base. What was the reason for increase is still not known? In absolute terms, foreign exchange reserves have increased from US$ 5.044 billion in December 2018 to US$ 5.2 billion this August, 2019. The reserves are enough to import goods and services for 5 months and one week. It is far above the target of 4 months in December 2018
The current level of reserves compares favourably to levels in December 2018. That time, Tanzania had spent some of its foreign exchange to service foreign debt and to stabilize the local market through foreign currency sales.
Bank of Tanzania monthly reports showed in late 2018 that foreign reserves had shrunk from US$ 5.437 billion in September 2018, down to US$ 5.277 billion in October. The reserves further dipped to US$ 5.044 billion in December, 2018.
A country is considered economically stable in macro-economic terms if foreign exchange reserves are sufficient to purchase imports for three to six months. This means Tanzania was still ‘in the black’ last year. However, some economists have warned against the depleting reserves and the potential hardship it can create in the medium term, if proper measures are not taken to increase the inflow of foreign exchange resources.
