Euro’s slide could affect European bloc’s financial support to Mozambique – O País

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Euro’s slide could affect European bloc’s financial support to Mozambique – O País

6:55 CAT | 14 Jul 2022

Photo: O País

Academic Silvano Langa says that the slide in the Euro could reduce the value of financial support from European bloc countries to Mozambique. The macro-economy specialist adds that the country needs to boost exports to achieve currency independence.

The war in Ukraine is among the main factors contributing to the Euro’s devaluation, with, according to Langa, sanctions imposed by the West on Russia at the heart of the slide.

“We know that the exchange rate is related to the supply and demand of currency for export and, in this case, the level of demand for the European currency for gas exports has dropped, due to the sanctions imposed on Russia,” the specialist in macroeconomics says.

Although the fall in the Euro brings some benefits to the national [Mozambican] economy, there are disadvantages, he notes.

“We can take advantage of this situation, because, instead of it taking more than 70 meticais to import [a Euros’-worth of goods], in February, it took only 64 meticais. But, as we well know, Mozambique is a country that depends a lot on international aid, not only humanitarian but also at the development level. Therefore, any external financial support coming from the European bloc is less money for the country,” he explained.

In his analysis, the Bank of Mozambique should change monetary policy to increase the supply of currency, and put more emphasis on exports, to insulate the country from exchange rate variations.

“We want to maintain parity in a generic way between the interest rate and the exchange rate, and as the latter is in trouble against the euro, we can change the former, which means increasing or reducing the money supply, but in this case, it would be to increase it. The other thing we can do is through trade policy, in the sense of making exports more dynamic,” he advanced.

On Tuesday, the Euro reached parity with the US dollar for the first time since 2002, the year in which it began to circulate. Yesterday, July 13, the Euro dropped below parity against the dollar .

READ: Euro falls below dollar parity for first time since 2002

First time Euro hits parity with Dollar in since 2003 💱

🇧🇷 Primeira vez que Euro bate paridade com o Dólar desde 2003💱#EuroDollar #Euro #Dollar pic.twitter.com/sScTpe1GrU

— Blox.Labs (@Blox_Labs) July 13, 2022