29 January 2018

Mozambique: Inflation Brought Under Control

Inflation has been brought under control and the exchange rate of the Mozambican currency, the metical, has stabilised, declared the governor of the Bank of Mozambique, Rogerio Zandamela, on 24 January.

Speaking in the northern city of Lichinga, at a meeting of the Consultative Council of the Bank, Zandamela recalled that a year ago, the economy faced "an environment of risk and uncertainty", and it was feared that inflation in 2017 would be around 14 per cent, after reaching 25 per cent in 2016.

He attributed the dramatic improvement in the economic outlook since January 2017 to the vigorous measures taken by the central bank. The final figure for inflation in 2017 was just 5.65 per cent, and the average 12 monthly inflation rate over the year was 15.1 per cent.

The metical was now stable in relation to the main foreign currencies. After reaching a peak of 80 meticais to the US dollar in September 2016, the metical recovered to 58.8 to the dollar by the end of December.

The balance of payments had improved significantly, said the governor, with the deficit on the current account falling by US$1.74 billion. The country's net foreign reserves now stood at US$3.3 billion, enough to cover seven months of imports of goods and non-factor services, excluding the transactions of the foreign investment mega-projects. At the end of 2016, the reserves had covered only three months of imports.

After the central bank's intervention in two commercial banks in late 2016 (including the liquidation of the hopelessly insolvent Nosso Banco), the banking system was now "more solid and robust" said Zandamela. The solvency ratio of the system, had improved from less than eight per cent in the fourth quarter of 2016 to about 20 per cent at the end of 2017.

He added that among the reforms made in 2017 was the abolition of the requirement that 50 per cent of export earnings be converted into local currency, and decentralisation of some capital operations to the commercial banks themselves "which contributes to an improvement in the business environment".

To ensure that all banks are properly capitalised, the Bank of Mozambique had also raised the obligatory solvency and liquidity ratios and increased the minimum share capital required for any bank to operate.

Banks are also now obliged to publish regular information about their solvency and liquidity situation. Zandamela promised that the Bank of Mozambique will publish the names of any banks that are penalised for any financial offences "in order to promote the transparency, competitiveness, stability and solidity of our financial system".


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