Africa's new sovereign debt crisis
Noticias (File photo) / Rogério Zandamela
The Bank of Mozambique has announced a massive increase in the capital requirements for commercial banks operating in the country.
Speaking at a Maputo press conference on Monday night, the governor of the central bank, Rogerio Zandamela, said the minimum share capital required for a commercial bank has increased from 70 million meticais (about 1.05 million US dollars) to 1.7 billion meticais (25.6 million dollars).
This is an increase of 2,328 per cent. Existing commercial banks are given three years to raise their share capital to this level.
The central bank also increased the minimum solvency ratio for a commercial bank from eight per cent to 12 per cent. Again, the banks have three years to reach this ratio.
Zandamela said the central bank’s Monetary Policy Committee, meeting earlier on Monday, decided to reduce one of the Bank of Mozambique’s own benchmark interest rates.
The Standing Lending Facility (the interest rate paid by the commercial banks to the central bank for money borrowed on the Interbank Money Market) has been cut by 50 base points, from 23.25 per cent, to 22.75 per cent. However, the Standing Deposit Facility (the rate paid by the central bank to the commercial banks on money they deposit with it) remains at 16.25 per cent. Likewise, the Compulsory Reserves Coefficient – the amount of money that the commercial banks must deposit with the Bank of Mozambique – also remains unchanged, at 15.5 per cent.
But, as Zandamela promised in February, the central bank has also introduced a new interest rate, known as the Interbank Money Market Rate (MIMO), which is set at 21.75 per cent. The Bank’s interventions on the interbank money market to regulate liquidity will be based on this new rate.
The introduction of the new rate, Zandamela said, “it is intended to strengthen the mechanism for forming interest rates in the economy, making it more transparent and in line with good international practices”
Macroeconomic indicators pointing in the right direction
Macroeconomic indicators were pointing in the right direction, the governor said. Inflation has fallen sharply. Inflation in March, as measured by the consumer price indices in the three largest cities (Maputo, Nampula, and Beira) was only 0.88 per cent, compared with 1.25 per cent in February and 2.15 per cent in January.
Accumulated inflation, since the start of the year, is 4.3 per cent. The annual inflation rate (1 April 2016 to 31 March 2017) was 21.57 per cent. This compares with inflation of 25.27 per cent for all of 2016. Zandamela expected inflation in 2017 to reach 12.2 per cent.
The Mozambican currency, the metical, has continued to gain ground against the dollar. It appreciated by 6.65 per cent against the dollar between 31 January and 6 April. At the height of the depreciation of the metical in mid-2016, it was quoted at around 80 to the dollar. The Bank of Mozambique’s reference exchange rate on Tuesday was 66.51 meticais to the dollar. In some of the commercial banks, the rate has fallen to 65.4 to the dollar.
Since the end of January, the metical has also gained 4.1 per cent against the South African rand. Appreciation against the rand should make the large amounts of food and drink imported from South Africa cheaper. The rand has been tumbling in value since President Jacob Zuma sacked his well respected Finance Minister, Pravin Gordhan, on 30 March. In early March there had been about 5.3 meticais to the rand – the rate quoted on Tuesday by the main commercial bank, the Millennium-BIM, is 4.75 meticais to the rand.
The balance of trade improved in the first quarter of 2017, with the value of exports rising and that of imports declining. From January to March, Mozambique’s exports amounted to 938.7 million dollars, which compares with 696.9 million dollars in the same period of 2016. Comparing the two quarters, imports fell from 1.238 billion to 1.017 billion dollars.
Zandamela said that some of this improvement was due to price increases for key Mozambican exports (eight per cent for aluminium, and three per cent for natural gas), but also the truce declared by the rebel movement Renamo has allowed great improvement in transport conditions.
Mozambique’s net international reserves have risen from 1.787 billion dollars at the end of December to 2.068 billion on 6 April. This is enough to cover 5.3 months of imports of goods and non-factor services (excluding the foreign investment based mega-projects).
Despite an overall improvement, there remain “risks and uncertainties”, said Zandamela. Some of these arise from the increase in the prices of goods controlled by the government (such as fuel and electricity), from excess liquidity in the banking system, and from the continued suspension of direct budget support by foreign donors.
All 14 donors and funding agencies who used to support the state budget suspended their disbursements after the discovery, in April 2016, of over 1.1 billion dollars in undisclosed government-guaranteed loans (to the security-related companies Proindicus and Mozambique Asset Management, MAM).
It is not known if or when budget support will resume – but certainly not before the independent audit of the hidden debts, by the US company Kroll, is complete, or before the government has managed to reschedule the public debt, bringing in to sustainable levels.