Exchange rate fluctuations cut Tanzania’s external debt by $726 million

Dar es Salaam. Tanzania’s external debt was $725.8 million lower at the end of August 2023 as the dollar remained strong against other currencies in the debt portfolio, according to new Bank of Tanzania (BoT) figures.

The central bank says in its Monthly Economic Review (MER) for September 2023 that the country’s external debt stock at the end of August 2023 was $28.61 billion, down marginally from $29.52 billion that was recorded at the end of July 2023.

BoT attributes this change to exchange rate fluctuations, especially with regard to the dollar, which has been appreciating in recent months.

The dollar makes up 67.6 percent of Tanzania’s external debt, followed by the euro at 16 percent, the Chinese yuan at 5.6 percent, with other currencies completing the stock at 10.1 percent.

“The external debt stock composition by the creditor remained the same as in the previous month and corresponding month in 2022, with debt owed to multilateral institutions accounting for the largest share, followed by commercial creditors,” BoT says in the report.

“Much of the disbursed outstanding debt was allocated to transportation and telecommunications economic activities, followed by social welfare and education, and energy and mining.”

Commenting on the report, Dr Thobias Swai of the University of Dar es Salaam told The Citizen that what some may see as a relief was not nascent.

He said the change cannot be felt immediately because the total debt is composed of various debts with different maturities.

In other words, the drop would have been felt if the country paid his debts at this particular moment, but considering that repayments are staggered, future calculations can result in different outcomes.

Indeed, the euro has started to climb again, gaining 0.4 percent on Monday and traded at $1.0554, up from $1.0448 on October 3, 2023, which was the lowest since December 2022.

“The dollar’s appreciation against other currencies also means that foreign debts are now even more expensive. Thus, if we borrow now, it means we will incur a more costly debt.

“This means that it is currently attractive to lenders to issue loans in dollars for the simple reason that it ensures good returns,” Dr Swai said.

Commenting on the forex fluctuations, the head of research and financial analytics at Alpha Capital, Mr Imani Muhingo, said it has implicated the country’s economy especially in rising import bills and affecting investment.

“We have seen, especially in the capital markets, foreign investors have remained reluctant because of the exchange risks,” he said, adding that on the other side the government has done a good effort in attracting foreign direct investment (FDI) through ventures in its economic diplomacy agenda.

Mr Muhingo said the projections in the financial markets is that this trend might continue at least until next year considering the ongoing geo-political tensions across the world.