Mozambique in meetings with IMF, World Bank and 'hidden debt' negotiators
The Bank of Mozambique on Friday cut its benchmark interest rates by 150 base points.
A statement from the Bank’s Monetary Policy Committee (CPMO), which met in Maputo in the morning for its last meeting of the year, said that the new interest rate, introduced in April, the Interbank Money Market Rate (MIMO), falls from 21 to 19.5 per cent. The central bank’s interventions on the interbank money market to regulate liquidity are based on this rate.
The Standing Lending Facility (the interest rate paid by the commercial banks to the central bank for money borrowed on the Interbank Money Market) falls from 22 to 20.5 per cent, and the Standing Deposit Facility (the rate paid by the central bank to the commercial banks on money they deposit with it) falls from 15.5 to 14 per cent. The Compulsory Reserves Coefficient – the amount of money that the commercial banks must deposit with the Bank of Mozambique – remains unchanged at 14 per cent.
The Committee says it reduced the rates because of the fall in the inflation rate. The annual inflation rate hit almost 27 per cent in November 2016, but, according to the National Statistics Institute (INE), based on the consumer price indices of the three largest cities (Maputo, Nampula and Beira), inflation from January to November this year was only 7.15 per cent. The projection for 2018 is that there will be single digit inflation (i.e. less than 10 per cent) in the year.
The slowdown in inflation, said the CPMO, “is taking place in an environment where the Mozambican economy is performing moderately”. The annual GDP growth rate in the third quarter of this year was only 2.9 per cent, well below the average of seven per cent observed in the eight years prior to the crisis of 2016.
Faced with this scenario, the CPMO, “thought it adequate to slacken, prudently, the restrictive nature of monetary policy, in a context in which the government has announced measures to rationalise public expenditure in 2018”.
The release noted that the national currency, the metical, has continued to appreciate slowly against the US dollar. On 20 December, the metical was quoted at 59.36 to the dollar, compared with 61 to the dollar on 26 October.
But the metical has depreciated against the South African rand. Over the same two month period – 26 October to 20 December – the metical fell by five per cent, from 4.47 to 4.64 meticais to the rand. This was part of a general improvement in the value of the rand against other currencies, as markets heaved a sigh of relief at the election of Cyril Ramaphosa as President of the ruling African National Congress (ANC), and the likely end to the corruption-riddled era of Jacob Zuma.
Mozambique’s net international reserves have continued to grow, said the CPMO, and on 20 December stood at 3.167 billion dollars, enough to cover seven months imports of goods and non-factor services (excluding the imports of the foreign investment mega-projects).
There was also a considerable improvement in the current account, caused largely by a sharp rise in Mozambican exports, as the value of imports remained fairly stable. In the third quarters, exports were 1.1 billon dollars greater than in the same period of 2016. This was due largely to improvements in the international prices of coal and of aluminium. The deficit on the current account fell by 1.74 billion dollars.
Although the prospects for inflation have improved, the statement added, “there remain considerable fiscal risks, in a context where foreign aid to the state budget has been suspended”.
When the true extent of Mozambique’s “hidden debts” became clear, in April 2016, all 14 donors who used to provide direct budget support suspended future disbursements. To date this form of aid has not resumed.
The “hidden debts” are the government-guaranteed loans of over two billion dollars that three security-related companies, Ematum (Mozambique Tuna Company), Proindicus and MAM (Mozambique Asset Management) took from European banks (Credit Suisse and VTB of Russia) in 2013 and 2014. Donors have made it clear that they will not resume financial aid until there is a full explanation of what happened to the two billion dollars.
To fill the gap left by the suspension of aid, the government has resorted to domestic indebtedness, issuing high interest bearing treasury bills and bonds. But the total domestic debt has fallen slightly, from 102.263 billion meticais in November to 101,121 billion now.
The CPMO warned of other risk factors, which Mozambican can do little or nothing about. These include extreme climatic events, the volatility of international commodity prices, and the political environment in neighbouring countries. These could have an unpredictable impact on prices, and hence on inflation.Source: AIM
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