According to a recent report by the Daily News, the governor of the Bank of Tanzania (BoT), Prof. Benno Ndulu, has said that the country’s foreign reserves as a whole, and the foreign reserves of the local Tanzania banking system in particular, currently stand at a level that should guarantee the financial stability of the country and should also ensure the confidence of investors in the country’s economy.
In order to help alleviate some of the effects of the global economic crisis, Prof. Ndulu also indicated that reliable macroeconomic management should be readily employed in addition to extreme financial discipline while implementing the government’s budget plans.
Current estimates indicate that there overall there is USD 2.8 billion available in the country’s foreign reserves and that the local reserves available in the local banks amount to USD 600 million.
Based on the fact that 31 of the country’s 34 commercial banks currently have a capital adequacy of 17 percent, which is more than the required 10 percent, Prof. Ndulu concluded that the country’s overall financial system is currently stable.
In addition, Prof. Ndulu also told Members of Parliament last week that the average of the liquidity ratio was 42 percent, which is also more than the required level of 20 percent.
At the same time, deposits currently stand at 68 percent against a limit of 80 percent.
Prof. Ndulu went on to say that there was also a need to encourage the collection of domestic revenue from both taxable and non-taxable products, which would help to reduce the income gap with foreign direct investments.
In addition, the sale of shares in Initial Public Offerings (IPO), local loan syndication and local currency sovereign bonds could be used to help encourage domestic savings.
According to Prof. Ndulu, the possibility of acquiring loans through sovereign bond issuance and through sovereign wealth funds could also be used to reduce the stress of the current credit crunch.
Prof. Ndulu went on to suggest the possibility of a currency swap with China, who currently has very large foreign reserves as well as a stable and thriving economy.
In spite of a belief that the prices of traditional exports will drop by approximately 29 percent this year compared to 2008, particularly with regard to cotton as a number of cotton buyers in the international markets have postponed their contracts for buying Tanzania cotton, Prof. Ndulu indicated that the BoT will continue to pay attention to the world and local markets for a sign of any shortfalls.