Economist highlights Mozambique’s increasing domestic debt

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Economist highlights Mozambique’s increasing domestic debt

1:54 CAT | 13 Apr 2017

O País / Constantino Marrengula

Economics professor Constantino Marrengula has highlighted the growth of indebtedness following on from the Bank of Mozambique’s decision to tighten the country’s monetary system rules.

According to Professor Marrengula monetary tightening causes debt to grow. “There are movements in two opposing signs that may not give the desired results. If the objective is to control inflation, the adjustment should also be of fiscal policy and the scenario shows that the appetite for fiscal indebtedness continues,” he says.

Looking at the decision to reduce the Standing Lending Facility, Marrengula says that it is a relief to the financial system, since its reduction makes credit relatively cheaper. And those who access credit after the decision can take comfort.

The increase in minimum capital requirements responds to the fall in the metical’s value. “It’s a way of securing support in the new economy. It was necessary to adjust the rates so that the banking sector would adapt to the new situation,” said Marrengula.

Another decision taken by the Bank of Mozambique is the increase in solvency rates. For Professor Marrengula, “This implies that the banks are being pressured to become more vigorous. Consequently there will occur a certain monetary tightening from the point of view of credit availability in the economy. Naturally, credit [interest] rates may undergo some adjustment. This may mean the voiding of the change in the standing lending facility, because we are changing the conditions under which banks must provide credit to the economy,” Marrengula warns.

While the data point to an increase in debt, GDP and inflation are looked at positively. Projected economic growth for 2017 is 5.5 percent and the inflation rate, 12.2 percent.

Source: O País