21 December 2007
Maputo — The governor of the Bank of Mozambique, Ernesto Gove, has admitted that the government will not meet its target for a 2007 inflation rate of no more than 6.4 per cent.
Giving the central bank's review of the year, Gove said "Our perspectives point to an inflation rate higher than the target set for the end of the year. However, we are encouraged by the fact that average annual inflation throughout the year dropped from 13 per cent at the end of 2006 to eight per cent in November 2007".
From the point of view of economic fundamentals, Gove thought there was no reason for any significant price rises in the final weeks of the year (experience, however, indicates that there are a good number of shopkeepers who use the festive season as an excuse to hike their prices).
Gove was convinced that, although the specific target might be missed, inflation by the end of the year would still be below ten per cent.
He added that throughout the year the Mozambican currency, the metical, had been stable on the domestic exchange market, which had led to greater trust by economic agents in the national currency.
Gove said that by September the current account balance had improved by 11.5 per cent, when compared with the first nine months of 2006. However, this was entirely due to a handful of mega-projects. Remove the mega-projects and the figures show a deterioration in the current account of 10 per cent.
He blamed this on a drop in the production of some of Mozambique's traditional exports, and deterioration in their terms of trade. This is the case, for instance, with prawns, which were once Mozambique's most important export. Not only have world prices for prawns fallen, but the prawn catch has fallen, thanks mainly to over-exploitation of the main fishing grounds.
The improvement in the current account, plus the entry of foreign aid, meant that by November Mozambique had accumulated net international reserves of 1.47 billion US dollars, enough to cover 5.3 months imports of goods and services.
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