Yes, Tanzania’s Domestic Gold Purchase Programme “can directly reduce the need for external borrowing”, and here’s why and how it works:
Current position in local gold purchases.
Minister for Finance, Dr. Mwigulu Nchemba, has announced that the signing of gold purchase and refining agreements between the Bank of Tanzania (BoT), mining companies, and the Geita Gold Refinery (GGR) will provide the central bank with reliable sources to implement its Domestic Gold Purchase Programme.
Speaking during the signing ceremony, Dr. Nchemba said the move will also support local gold refining industries in achieving international accreditation, particularly from the London Bullion Market Association (LBMA).
“This gold purchase programme reflects the government’s commitment, under the leadership of President Samia Suluhu Hassan, to build sufficient foreign exchange reserves, increase the contribution of minerals to the national economy, and enhance value addition in the mining sector,” Dr. Nchemba stated.
Launched in the 2022/23 fiscal year, the Domestic Gold Purchase Programme provides an opportunity for gold sellers to sell directly to the central bank at competitive international market prices. The goal is to increase the share of gold in the country’s foreign exchange reserves and enhance their sustainability.
Bank of Tanzania Governor Emmanuel Tutuba emphasised that the programme is part of a broader national strategy to reduce reliance on external borrowing as the primary source of foreign reserves and to strengthen financial independence using the country’s natural resources.
“As of June 13, 2025, the central bank has purchased 5,022.85 kilograms of pure gold, valued at approximately USD 554.28 million, surpassing its annual target of adding USD 350 million in foreign reserves for the 2024/25 fiscal year,” said Governor Tutuba.
He said between October 1, 2024, and June 13, 2025, the central bank purchased gold through local refineries based on principles of transparency, competitive pricing, and efficiency, while ensuring the gold meets international standards.
How does local gold purchases dampens foreign borrowing?
1. Boosting Foreign Exchange Reserves:
The central bank buys gold from domestic miners using Tanzanian Shillings (TZS). This gold is then added to the country’s “official foreign exchange reserves” as an asset.
2. Gold as a Reserve Asset:
Gold is a universally recognised liquid asset. While held as a physical bar, its value is denominated in US Dollars (or other major currencies) based on the international market price. Therefore, adding gold “increases the total value of Tanzania’s foreign reserves.”
3. Reduced Need to Borrow for Reserves:
Countries often borrow externally (issue sovereign bonds, take loans from the IMF/World Bank/other countries) specifically to “build up or replenish their foreign exchange reserves”.
Reserves are crucial for:
* Paying for essential imports (oil, medicine, machinery).
* Servicing foreign currency-denominated debt.
* Stabilizing the national currency exchange rate.
* Providing confidence to international investors.
4. The Direct Substitution Effect:
By successfully adding significant value to its reserves through domestic gold purchases ($554 million in the example, surpassing the $350m target), Tanzania “directly reduces the amount of new foreign borrowing it would otherwise need” to achieve the same level of reserve adequacy. Instead of going to international markets to borrow dollars, it has “generated” dollar-equivalent value internally by monetizing its own natural resources.
Governor Tutuba’s Explanation in Context:*
When Governor Tutuba states the goal is to “reduce reliance on external borrowing as the primary source of foreign reserves,” he is highlighting this exact mechanism:
Traditional Path:
Borrow foreign currency externally -> Add USD/etc to reserves.
New Strategy (Gold Programme):
Use TZS to buy domestic gold -> Add gold (valued in USD) to reserves -> “Reduces the need to borrow USD externally” to build those same reserves.
Additional Benefits Supporting Reduced Borrowing:
Improved Reserve Sustainability & Quality:
Diversifying reserves with gold can make them less vulnerable to fluctuations in specific currencies or the conditions attached to borrowed reserves. Stronger, more sustainable reserves mean less frequent need to borrow just to maintain reserve levels.
Potential for Better Borrowing Terms:
If the programme significantly strengthens Tanzania’s overall reserve position and economic stability, it could lead to improved credit ratings. This would mean that if Tanzania does need to borrow externally in the future, it could potentially do so at lower interest rates and better terms.
Internal Resource Mobilization:
The programme effectively mobilizes domestic natural resources (gold) to generate national financial strength, reducing dependence on external financial resources (borrowing).
In essence:
The gold purchased isn’t just a shiny bar in a vault; it’s a financial asset that increases the country’s ability to meet its international obligations *without* having to take on new debt from foreign lenders. By building reserves through domestic gold purchases, Tanzania is substituting internal resource wealth for external debt.
Will Tanzania’s gold reserve boost its trade within BRICS through barter trade?
Tanzania’s growing gold reserves “could indirectly support and potentially boost its trade with BRICS nations”, but “direct barter trade (e.g., swapping gold for oil/goods) is highly unlikely and impractical on a significant scale.” Here’s a breakdown:
1. Gold Reserves Enhance Credibility & Stability:
* Holding substantial gold reserves strengthens Tanzania’s overall balance of payments position and signals financial stability.
* This makes Tanzania a more credible trading partner for BRICS nations, potentially leading to better trade terms, larger credit lines, or increased investment.
2. Gold Facilitates Trade Settlement (Not Direct Barter):
* Mechanism:
BRICS is actively developing alternative payment systems (like the BRICS Bridge platform) to reduce reliance on the US dollar. Gold reserves can play a crucial role *backing* these systems or providing liquidity.
* Tanzania’s Role:
Tanzania’s gold holdings could give it a stronger voice and more favourable access within these emerging BRICS financial infrastructures. It could potentially use its gold *collaterally* to facilitate smoother trade settlement in local currencies (e.g., Tanzanian Shillings for Chinese Yuan, Indian Rupees, or Russian Rubles), reducing transaction costs and forex risks. This is fundamentally different from direct barter.
3. Why Direct Barter Trade is Unlikely:
* Complexity & Scale:
Modern international trade involves complex supply chains, contracts, and massive volumes. Directly bartering physical gold for specific goods (e.g., gold for wheat, oil, or machinery) is logistically cumbersome, inefficient, and difficult to scale to meaningful levels.
* Valuation & Price Fluctuation:
Gold prices fluctuate daily. Agreeing on a fixed exchange rate for gold vs. goods over the duration of a trade contract is highly problematic and exposes both parties to significant risk.
* Liquidity Preference:
Both Tanzania and its BRICS partners (like major importers China and India) value gold’s *liquidity*. Holding gold allows flexibility – Tanzania can sell it on the open market for any currency needed to buy goods from “anywhere”, not just BRICS. Locking it into a specific barter deal eliminates this flexibility.
* Existing Mechanisms:
Well-established financial markets and payment systems (even new BRICS ones) are far more efficient than barter for facilitating trade.
4. How Gold Reserves Could Specifically Boost BRICS Trade:
* Strengthening Local Currency Settlement:
Robust reserves (including gold) give Tanzania confidence to accept payment in BRICS currencies (CNY, INR, RUB) and pay exporters in those currencies, reducing dollar dependency – a key BRICS goal.
* Access to BRICS Financial Facilities:
Gold-backed reserves could improve Tanzania’s standing within BRICS financial initiatives like the Contingent Reserve Arrangement (CRA), potentially providing access to liquidity during balance of payments crises, indirectly supporting continued trade flows.
* Negotiating Leverage:
Stronger reserves provide Tanzania with more leverage in trade negotiations with BRICS partners, potentially securing better prices or terms for its exports (agricultural goods, minerals) or imports (energy, manufactured goods).
* Attracting Investment:
Stability signalled by significant gold reserves could attract more investment from BRICS nations into Tanzania’s mining, agriculture, or infrastructure sectors, fostering deeper economic ties.
5. Tanzania’s Position vis-à-vis BRICS:
* Tanzania is “not a BRICS member”. It is part of the “Global South” and engages with BRICS as an external partner. Its gold reserves make it a potentially more attractive partner within this framework.
* Key BRICS members like “China” and “India” are major global gold consumers and importers. Tanzania’s role as a gold producer and holder of reserves aligns with their interests in securing gold supplies and promoting alternative financial systems.
In Conclusion:
While Tanzania won’t be **bartering** sacks of gold for trainloads of goods with BRICS partners, its “strategically accumulated gold reserves are a significant asset that can:”
* “Enhance its financial credibility and stability” in the eyes of the BRICS nations.
* “Facilitate its participation” in BRICS-driven de-dollarization efforts and local currency settlement systems.
* “Provide greater flexibility and resilience” in managing its international trade and payments.
* “Potentially improve its terms of trade and attract investment” from BRICS countries.
Therefore, the gold reserve program “significantly strengthens Tanzania’s position and potential for increased trade with BRICS”, but through modern financial mechanisms and enhanced credibility, not through a return to primitive barter.
Read more analysis by Rutashubanyuma Nestory
