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Bank of Mozambique ponders ‘adjustment measures’ following revelations of new loans
5:42 CAT | 22 Apr 2016
The Bank of Mozambique admitted yesterday that the revelation of previously undisclosed state-guaranteed loans may require “adjustment measures” to ensure debt sustainability and macroeconomic stability, and announced a rise in benchmark interest rates.
Following the meeting on Wednesday of the Monetary Policy Committee, the Mozambique central bank stated that it noted the “expected impact on the performance of the external sector resulting from the possible execution of guarantees issued by the State”.
As a result of deliberations in the meeting, the Bank of Mozambique will intervene in the inter-bank markets to ensure the estimated forecast of 71 billion meticais (EUR1.2 billion) for this month is met, and has increased benchmark interest rates by two percentage points to 12.75 percent for loans and 1.5 percentage points to 5.75 percent for deposits.
This is the fifth increase in benchmark interest rates in seven months, and comes at a time when the Mozambican economy continues to suffer the effects of low raw material prices and a decline in exports, accompanied by a sharp devaluation of the metical against the dollar, rising inflation and decreased foreign aid and foreign investment.
The Bank of Mozambique has also decided to change the mandatory reserve system, differentiating the reserve base in domestic and foreign currency by fixing a new coefficient in the foreign currency reserve for liabilities by 15 percent in dollars, with effect from 7 June.
The Monetary Policy Committee meeting took place as government representatives in Washington were explaining to the International Monetary Fund (IMF) and World Bank the existence of previously undisclosed state-guaranteed loans associated with the Mozambican Tuna Company (Ematum).
In his only public statement about state liabilities that could substantially worsen Mozambique’s public debt profile, Central Bank governor Ernesto Gove said two weeks ago that he was unaware of the loans in question.
Also according to the Monetary Policy Committee statement, average annual inflation increased to 9.14 percent in March, with prices in Beira and Nampula affected by the political and military crisis in central Mozambique, and the business confidence indicator continued to deteriorate.
Provisional data points to a 2015 balance of payments deficit amounting to 6.1 billion meticais (EUR5.4 billion), or 40.7 percent of GDP, an increase of 6.2 percent over the previous year.
Excluding large projects, the current account deficit deteriorated by 21.8 percent to US$5.2 billion dollars (EUR4.6 billion).
In contrast, the balance of net international reserves increased to US$1.8 billion (EUR1.6 billion), with gross international reserves covering 2.31 months of imports, including major projects.
Source: Lusa
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