Tanzania’s foreign exchange reserves can now cover only 4.2 months of imports, the shortest period for five years.
The Bank of Tanzania has attributed this to the economic consequences of the war in Ukraine.
Russia’s invasion of Ukraine in February 2022 triggered rising energy costs, surges in commodities prices, and significant damage to the global value chains.
As a result, Tanzania’s foreign reserves dropped by 15.31% from $5.85 billion at the end of February 2022 to $4.96 billion at the end of September 2022.
Although the import cover is still within the country’s benchmark of four months, the 4.2 months are below the East African Community (EAC) and Southern African Development Community (SADC) convergence targets of at least 4.5 and 6 months, respectively.
The last time foreign exchange reserves fell to 4.2 months was at the end of February 2017 when gross official reserves were around $4.35 billion.
At $6.7 billion in October 2021, Tanzania had foreign exchange reserves that could cover imports for seven months, the highest figure in almost 17 years.
Foreign exchange reserves are assets held on reserve by a central bank in foreign currencies with the aim of meeting international financial obligations, including sovereign and commercial debts, and financing of imports.