Bank of Mozambique launches Real-time Gross Settlement Platform
File photo / entral Bank governor, Rogerio Zandamela
The main challenge facing Mozambique in 2017 is to ensure “peace and the free circulation of people and goods throughout the national territory”, declared the governor of the Bank of Mozambique, Rogerio Zandamela, on Monday.
Speaking at an end of year reception with the financial community, Zandamela stressed that peace would “allow economic activity to take place normally, and allow due use of the country’s potential in agriculture, tourism, energy, fisheries and transport”.
“In order to reduce fiscal risks”, he added, “it is also necessary to ensure the sustainability of the growth in public expenditure and to increase the government’s domestic revenue, since foreign aid disbursements are unpredictable”.
He pledged that the central bank “will continue to work in close partnership with Government institutions for a rapid resumption of the programme with the Bretton Woods Institutions”. This was a priority “to strengthen the confidence of investors and international markets, and to allow the resumption of capital flows to the country”.
The International Monetary Fund (IMF), the World Bank and other western partners cut off financial assistance to Mozambique in the wake of the discovery, in April, of well over a billion US dollars of government-guaranteed debt that had not previously been disclosed.
Zandamela said that 2016 has been a difficult year, marked by “severe climate shocks” and the “military instability”, caused by attacks by gunmen of the rebel movement Renamo in the centre of the country.
The suspension of the IMF’s programme with Mozambique and of direct support by donors to the State Budget because of the scandal of the undisclosed debt “deeply affected the credibility and confidence that the country used to enjoy internationally, and shook citizens’ trust in national institutions”.
The reduction in the flows of foreign direct investment “worsened the conditions for financing the economy and the availability of foreign exchange”.
For the first nine months of the year, said Zandamela, the main indicators of the economy all deteriorated. The economy only grew by about four per cent, compared with 6.8 per cent in the first nine months of 2015.
The Mozambican currency, the metical, depreciated rapidly, reaching 80 meticais to the US dollar, a devaluation of 66 per cent since the start of the year. Driven partly by the currency depreciation, annual inflation hit 28.1 per cent. Mozambique’s net international reserves fell from just under two billion dollars at the end of 2015, to 1.676 billion dollars in October, the lowest level in recent years.
Zandamela credited measures taken by the central bank in October for halting the decline. The bank raised its own reference interest rates by 600 base points, so that the Standing Lending Facility (the interest rate paid by the commercial banks to the central bank for money borrowed on the Interbank Money Market) became 23.25 per cent, and also raised the Compulsory Reserves Coefficient (the amount of money that the commercial banks must deposit with the Bank of Mozambique) to 15.5 per cent. This has had the effect of mopping up excess liquidity
The latest economic data was “encouraging”, said Zandamela, and the monetary adjustments “have begun to produce the desired effects”.
The exchange rate improved to 72 meticais to the dollar on 16 December, so that accumulated depreciation since the start of the year is now only 54 per cent. Inflation began to slow down, and Zandamela dropped his forecast for inflation at the end of the year from 30 to 27 per cent. He was confident that “this declining trend will continue in 2017”.
The international reserves were also recovering, thanks largely to the commercial banks selling foreign currency to the Bank of Mozambique. By December the reserves had risen to 1.76 billion dollars.
Zandamela said that the liquidation of a small, toxic bank, Nosso Banco (“Our Bank”), and the Central Bank’s intervention to rescue the struggling Moza Banco had “mitigated the risk of contagion”. The average solvency ratio in the Mozambican banking system was now 14.8 per cent, well above the eight per cent minimum required by law.
The Governor called on the commercial banks “to continue to observe the highest standards of rigour and professionalism in pondering the risks that financial activity involves, as well as the rules of corporate governance, so that may deserve the recognition and trust of their shareholders, clients and the public at large”.
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