Covid-19: CTA presents proposals to face a crisis with losses estimated at $355 million – Carta

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Covid-19: CTA presents proposals to face a crisis with losses estimated at $355 million – Carta

1:29 CAT | 30 Mar 2020

FILE - CTA chairman Agostiho Vuma. [File photo: Folha de Maputo]

The Confederation of Economic Associations of Mozambique (CTA) has carried out a study on the impact of Covid-19 on the Mozambican business sector, and proposes a drastic cut in the benchmark interest rate (monetary policy interest rate, MIMO) to 6.55%. The country’s largest business association further estimates that the Covid-19 pandemic crisis will cost US$355 million.

“Carta” learned on Sunday that the CTA study was handed over to Minister Carlos Mesquita (Industry and Commerce) last Thursday, and the government expected to comment on the document in the next few days.

CTA says that, according to current monetary policy indicators and combined with annual and monthly inflation rates, “there is considerable scope for reducing key interest rates, without affecting the real income of savers and without compromising inflation stability”.

“In face of this emergency situation, it is proposed that the Bank of Mozambique reduce the Permanent Deposit Facility (FPD) rate by 6.20pp, from the current 9.75% to 3.55%. As a consequence, the Permanent Lending Facility Rate (FPC) would also have to reduce by the same figure (6.20pp), from the current 15.75% to 12.20%. Therefore, as a result, the Monetary Policy Interest Rate (MIMO) would be induced to reduce from the current 12.75% to approximately 6.55%, which corresponds to a variation of 6.20 percentage points,” the report advises.

The employers’ association argues that the financial sector Prime Rate should fall from its current 18% to 11.80%. These reductions, CTA argues, in addition to the release of liquidity to the economy, would be the ideal cushion for the volume of losses that Covid-19 could cause in banking sector revenue and in private sector liabilities.

The sectors most affected by the Covid-19 pandemic are the Tourism (Hospitality and Catering), Transport (Civil Aviation and Road Transport) and Agriculture sectors, with estimated losses of 95%, 70% and 47%, respectively, the CTA says. The total value of losses in these sectors is estimated at US$355 million.

The package proposed for these sectors essentially comprises tax and labour measures. The tax measures consist of the postponement of the Payment on Account (PC) and Special Payment on Account (PEC) until December 2020, while the labour measures consist of the suspension of employment contracts (lay-offs) for six months.

Source: Carta de Moçambique