Tanzania agreed $800 million of loans from Rand Merchant Bank and China Development Bank Corp. to bolster its foreign-exchange reserves, as the country shores up a weakening currency, and plugs the budget deficit.
Talks with Johannesburg-based Rand Merchant Bank to raise as much as $600 million and $200 million from China Development Bank are being completed, said Joseph Masawe, the Bank of Tanzania’s head of economic research and policy. RMB will raise the money through a private placement, while CBD will finance the loan from its own balance sheet, he said.
“We are expecting about $800 million and we think before the end of this month we should be able to receive from both banks,” Masawe said in a phone interview Monday from Dodoma, the capital. “We have finalized the details and we are hoping this will improve the supply of foreign currency.”
The budget deficit is expected to widen to 4.2 percent of gross domestic product this year from 4 percent last year, according to Paarl, South Africa-based NKC African Economics. The government is reducing its reliance on budget support to 3 percent of total revenue in the fiscal year that begins on July, from 7 percent in the current year, NKC said in an e-mailed research note.
Tanzania’s central bank sold $339 million to lenders from January to April to support the shilling, it said on May 4. A 13 percent slump in gold shipments to $1.4 billion in the year through to March and the government’s “external obligations” contributed to the shilling’s decline, Masawe said.
While the central bank says it has enough resources to defend the currency, it has “scaled down sales” of foreign currency to banks.
“About 65 percent of the currency depreciation is due to strengthening of U.S. dollar and 35 percent is attributed to internal factors and speculation by banks,” Masawe said.
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