19 December 2017

Mozambique: Growth Requires Fiscal Discipline, Says Zandamela

Maputo — The resumption of high levels of economic growth “continues to demand reforms, fiscal discipline and selfless work from all Mozambicans”, declared the governor of the Bank of Mozambique, Rogerio Zandamela, on Monday.

Giving his end of year address on the economic situation, Zandamela put economic growth for 2017, up to the end of the third quarter, at only three per cent - considerably lower than the government's estimate of 5.5 per cent.

“Despite the efforts made in tax collection, state revenue remains below what is needed to finance expenditure”, he said. He had no doubt that this was primarily due to the suspension of financial aid by those donors who have traditionally provided direct support to the Mozambican state budget.

The suspension began in April 2016, following the discovery of the true state of Mozambique's foreign debt. Three loans for over two billion US dollars, taken out by quasi-public, security related companies from European banks (Credit Suisse and VTB of Russia), guaranteed illicitly by the previous government, headed by President Armando Guebuza, added 20 per cent to the foreign debt, and pushed it beyond the limits of sustainability.

A basic condition for the resumption of normal relations with the donor community was an independent audit of the three companies. But this audit, undertaken by the company Kroll, was sabotaged by the management of the three companies which refused to release key information, alleging reasons of “national security”.

Zandamela promised that monetary policy in 2018 “will be aimed at a low and controlled inflation rate, of less than 10 per cent”. If this was successful, he hoped that “the private sector of the economy will be the main beneficiary of the few financial resources our system has”.

He stressed the successes achieved by a tight monetary policy in 2017. He believed the measures taken by the Bank of Mozambique (such as a dramatic hike in its benchmark interest rates) had played a major role in restoring macro-economic stability.

Annual inflation had hit about 27 per cent in November 2016. But this year, inflation from January to November was only 7.15 per cent. The exchange rate of the national currency, the metical, had stabilised. By November 2016, the rate had soared to around 80 meticais to the US dollars, but a year later it had fallen to 60 to the dollar.

Zandamela revealed that capital gains tax of 352 million dollars has entered the country, raising the country's foreign reserves to more than three billion dollars, enough to cover imports of goods and non-factor services (excluding the imports of the foreign investment mega-projects) for seven months. At the end of 2016, the reserves had covered less than three months worth of imports.

The capital gains tax mentioned by the Governor was paid by the Italian energy company ENI, on completing the sale of half its holding in the natural gas rich Area Four of the Rovuma Basin (off the coast of the northern province of Cabo Delgado) to the American oil and gas giant ExxonMobil.

Zandamela recalled that in 2016, the Bank of Mozambique intervened in one commercial bank (Moza Banco) and liquidated another (Nosso Banco) “because of the serious solvency problems they faced”.

But today, he added, “our financial system is more solid and capitalised to deal with shocks. The solvency ratio of the system as a whole is around 20 per cent, well above the eight per cent laid down in the Basil I and II Accords”. (These are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision).

Zandamela promised that, in the coming year “we shall strengthen macro-prudential surveillance, in order to monitor the potential risks that might affect it, as well as micro-prudential surveillance so that all banks observe good international practices and comply rigorously with the central bank's regulations and norms”.

He added that the Bank of Mozambique will undertake “regulatory reforms seeking to mitigate the risk arising from the growing exposure of Mozambican financial institutions to operations with the outside world”.


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