Mozambique: International reserves falling, still well above recommended level

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Mozambique: International reserves falling, still well above recommended level

4:22 CAT | 14 Jul 2023

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File photo: Teixeira Duarte Construção

Mozambique’s international reserves have been falling since 2021 but still cover 4.3 months of estimated import needs, above the recommended value, the International Monetary Fund (IMF) said on Friday.

“Gross international reserves are at nearly 4.3 months of import coverage, which is above the minimum buffer commonly recommended for LICs,” reads the IMF report on the final approval of the revision to the Extended Financing Program (ECF) for Mozambique.

It adds that these international reserves of Mozambique have “have been falling since early 2021,” and stood at US$2,900 million (€2,580 million) at the end of last year, “covering 4.3 months of projected non-megaproject imports of goods and services in 2023”.

The IMF states that “higher fuel import costs in 2022 drained reserves, since the Bank of Mozambique provided FX to the main fuel importers”.

“At the same time, non-megaproject imports have significantly increased over the past couple of years, further decreasing import coverage of reserves,” the document notes.

Last January, the Bank of Mozambique increased the ratio of mandatory reserves for foreign demand deposits from 11.5% to 28%, and in April it reduced the supply of foreign currency to fuel importers from 100% to 60%, the IMF recalls in the report released today.

The announcement of approval of this revision to the ECF by the IMF was made on July 6, guaranteeing a disbursement of US$60.6 million (€54 million euros) to Mozambique, confirmed today in the institution’s report.

In the note accompanying the announcement of the approval of the second revision of the program approved in May 2022, which raises the total amount already received by Mozambique to US$212.09 million (€194 million), out of a total of US$456 million (€418 million), the IMF says it allowed two criteria not to be observed: the primary budget balance at the end of last year and the accumulation of external debts by the public sector.

In the macroeconomic forecasts for this year, the IMF foresees an acceleration of GDP growth in Mozambique from 4.2% in 2022 to 7% this year, anticipating that at the end of the year inflation will have dropped from 10.3% to 6.7% – the same as in 2021, but still almost double the previous two years.

The debt-to-GDP ratio should continue on a downward path, reaching 89.7% at the end of this year, an improvement compared to the 95.5% of GDP recorded last year.

Source: Lusa