Inflation in Mozambique to reach 10% – Standard Bank

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Inflation in Mozambique to reach 10% – Standard Bank

11:04 CAT | 08 Feb 2016

Lusa

The chief economist at Standard Bank in Mozambique believes that inflation in the country will “very likely” reach double digits by the end of the year, almost the double the 5.6 percent goal set by the government, Lusa reports.

“We expect annual inflation will fall to single figures temporarily at the beginning of 2016, reflecting the appreciation of the metical against the rand, but will most likely close the year in double digits, above the government’s target of 5.6 percent,” writes Fáusio Mussa in the investors’ Monthly Economic Bulletin.

He adds that “the volatility of the currency, with prospects of depreciation, the need to continue to adjust administratively fixed prices and the effects of climate change on agricultural production and the price of foods are the main inflationary risks in 2016”.

The rise in inflation due to a devaluation of the metical is not, however, the only problem that President Nyusi’s government has to face this year. The increased balance of payments current account deficit, which rose 7.1 percent last year “at a time when the main source of financing, foreign direct investment, slowed by 16.8 percent to US$3,890 million and forced the country to rely on funding from the IMF of about US$282.9 million” is also a factor.

Mussa also points out that last year Mozambique received foreign exchange in the form of taxes from large multinational projects of the Rovuma Basin, totalling US$624 million in 2013 and US$520 million the following year, “which also contributed to a lower availability of foreign currency, a year in which the state began the capital repayments of the Ematum loan”.

In a final note, the chief economist of one of the largest banks in Africa says that predicting an increase of almost 10 percent in state revenues becomes a challenge, “unless there is a substantial increase in the tax base, considering the slowdown in economic activity and income tax and rates and on goods and services remaining unchanged”.

Source: Club of Mozambique