The challenges that face Tutuba as Bank of Tanzania governor

The appointment of a new Bank of Tanzania (BoT) governor was welcomed with optimism over the future of the financial sector and the economy which is recovering from the COVID-19 pandemic.

Mr Emmanuel Tutuba, who was permanent secretary in the ministry of Finance and Planning, replaced Prof Florens Luoga whose term ended.

Mr. Tutuba is taking the central bank officials in the midst of the global shocks caused by the Russia-Ukraine war and the Covid-19 pandemic, which have disrupted the global supply chain and sent volatility in the financial markets and food and energy prices.

As the new governor, Mr. Tutuba will head the Monetary Policy Committee (MPC) which is responsible for setting the direction of the monetary strategy in accordance with the broader macroeconomic policy objectives of the government.

Analysts expect no big surprise in the local financial markets which are considered stable.

“Historically, the central bank is a robust institution, which is why we do not expect any shocks in the market. That is also influenced by the caliber of Mr. Tutuba as an experienced economist,” said Dr. Donath Olomi, the chief executive officer of the Institute of Management and Entrepreneurship Development.

“We anticipate prolonged stability, and based on his background, I am confident he will be able to protect the country’s economic interests in the face of ongoing inflationary pressures,” said Dr. Olomi.

He said apart from the exchange rates and banking sector performance, the new governor must strategize on ensuring easy access to capital for the micro, small and medium-sized enterprises (MSMEs).

“A lot has been done in improving financing and access to credits, but there are still some challenges that need to be addressed in that sector,” he said.

Money supply

Mr. Tutuba has taken the office of the governor when the money supply significantly improved.

For instance, the private sector credit growth was strong at 22.6 percent in the year to November 2022, almost tripling from 7.8 percent registered in November 2021.

The trend reflects improving economic activities and the impact of monetary and fiscal policies executed to limit adverse spillover effects of global supply shocks. Almost all the major economic activities recorded an increase in credit, according to the central bank.

Mr. Tutuba will be required to sustain the gains in an attempt to accelerate the financing of the economic activities.

Foreign reserve

The external sector economy was also hit by the global economic shocks resulting in the decline of the stock of foreign reserves to $4.54 billion at the end of November 2022, compared to $6.55 billion recorded in a similar period in 2021.

According to the central bank, the current reserves remain adequate to cover about 4.11 months of imports, adding that it is in line with the country’s benchmark of getting not less than four months.

However, that is below the East African Community (EAC) and Southern African Development Community (Sadc) benchmark which targets at least 4.5 and 6 months, respectively.

Banking industry

The banking sector is well recovering from the Covid-19 pandemic and remained liquid, capitalized, and profitable in the last two years.

According to BoT, the banking sector had also reduced the non-performing loans (NPLs) ratio to 7.2 percent in October 2022, down from 8.3 percent in the corresponding period in 2021.

However, the level is still higher than the regulatory cap of five percent.

Mr. Tutuba will be tasked to accelerate the recovery and reduce the NPLS to below five percent and ultimately enhance the stability of the financial sector.

Mr Tutuba will also face a regulatory challenge from the Yetu Microfinance Bank, which was put under the statutory administration of the central bank for three months, on allegations of failing to meet the liquidity and capital requirements.

Interest rates

According to the central bank, the overall lending rates were around 16 percent in the year to November 2022 while the deposit interest rate increased to 7.28 percent, compared with 6.80 percent in November 2021.

Since the introduction of the measures from the BoT in July 2021, the interest rates slightly reduced from 17 percent at the time.

Financial markets

Tanzanian shilling remained stable last year with analysts demanding the new governor accelerate the gains.

According to the BoT data, by the end of the third quarter of last year, the shilling remained relatively stable, trading at an average of Sh2,316.73 per dollar, compared with Sh2,311.81 per dollar in the previous quarter.

To cater to central government budgetary operations and liquidity management, the BoT has also auctioned Treasury bonds of all maturities worth Sh1.07 trillion and short-term Treasury bills auctions worth Sh612.4 billion.

This trading has influenced the development of the financial market last year.

Inflation

The annual headline inflation rate for the month of November 2022 stagnated at 4.9 percent, according to the National Bureau of Statistics (NBS).

Though the rate is consistent with the target of 5.4 percent for the 2022/23 fiscal year, the MPC decided to adopt a contractionary monetary policy to curb the rising inflation.

Bankers welcome

On the other hand, the bankers welcomed the appointment of Mr. Tutuba whom they expressed optimism to work. Tanzania Bankers Association (TBA) chairman and NBC Bank’s managing director Theobald Sabi said Mr. Tutuba’s strong economic, financial, and policy-making record ideally positions him to lead the BoT to new heights.

“TBA had the privilege of governor Tutuba’s leadership while serving as the permanent secretary for the Ministry of Finance and Planning, where he spearheaded financial policy reforms and acceleration of the national financial inclusion agenda,” he said.

“TBA wishes governor Tutuba success in his new role and remains convinced that we will continue working together, with the same dynamism, for our country’s economic prosperity,” said Mr. Sabi.

Managing director of CRDB Bank Plc Abdulmajid Nsekela said that while Mr. Tutuba was among key partners in the current monetary policy setting as permanent secretary in the ministry of Finance and Planning, he will be tasked to maintain the efforts that will ensure sustainable growth.

“Mr. Tutuba showed good cooperation with bankers throughout his tenure, which contributed to the success of the financial sector. Hence, we are confident that his appointment will lead to further development within the financial sector,” said Mr. Nsekela.

For her part, the chief executive officer of the NMB Bank Plc, Ms. Ruth Zaipuna, said Mr. Tutuba’s experience means he is particularly well placed to continue steering the Tanzania economy towards sustainable and inclusive growth.

‘We are very confident that under his leadership, the BoT will continue to make transformative progress in strengthening financial sector stability and further deepening financial intermediation’.

“We look forward to continuing our excellent relationship with the Bank of Tanzania under his stewardship,’’ said Ms. Zaipuna.