Tanzania's foreign exchange reserves can only now, and for the first time in five years, cover 4.2 months of imports. This has been attributed by the Bank of Tanzania to the negative economic effects of the conflict in Ukraine.
Despite being below the East African Community (EAC) and Southern African Development Community (SADC) convergence requirements of at least 4.5 and six months, respectively, the import cover is still within the country's baseline of four months.
An international financial obligation, such as a sovereign or commercial debt, can be satisfied by using foreign exchange reserves, which are assets held in reserve by a central bank in foreign currencies. These reserves can also be used to finance imports.
When gross official reserves were around $4.35 billion at the end of February 2017, the last time foreign exchange reserves dropped below 4.2 months, it happened.
Tanzania has the largest level of foreign exchange reserves in nearly 17 years in October 2021, with $6.7 billion, enough to cover imports for seven months.
As a result of President Samia Suluhu Hassan's economic diplomacy efforts, funding from development partners, notably Special Drawing Rights (SDR) and an interest-free loan from the International Monetary Fund (IMF), were partially responsible for this milestone.
The Russian invasion of Ukraine in February 2022, which resulted in rising energy prices, sharp increases in commodity prices, and major harm to global value chains, however, brought about a tide of change at the beginning of 2022.
Tanzania's foreign reserves thus decreased by 15.31%, from $5.85 billion at the end of February 2022 to $4.96 billion at the end of September 2022.At its November 28, 2022 meeting,
Although the nation's foreign exchange reserves were constant, the BoT's Monetary Policy Committee (MPC) noted that rising import prices posed a significant obstacle.
Part of the statement from MPC states, "The external sector of the economy remained sustainable, but continued to be hampered by global supply-side shocks, including increased import costs and tightening financial conditions."
Generally, many countries have learned the value of independence and robust domestic manufacturing capacity as a result of the geopolitical crisis between Russia and Ukraine and its repercussions. The war has significantly impacted both foreign exchange and global trade.