US$15 million saved in Mozambique’s debt servicing pardon will be used to combat Covid-19

17 April 2020

The recent debt servicing pardon granted to Mozambique by the International Monetary Fund (IMF) and worth approximately US$15 million will be directed to combating Covid-19, but the high needs of the economy may lead to greater pressure on public spending, said the Bank of Mozambique.

In a statement on the decisions made at a meeting of the Monetary Policy Commission on 16 April, the European central bank added that this increased pressure on public spending is based on the high needs of the economy, against a backdrop of sharp contraction of public revenue.

“Since the Commission’s session held in February, internal public debt, excluding mutual contracts and leases and outstanding liabilities, increased from 155.256 billion to 160.756 billion meticais (US$2.368 billion), essentially based on the issue of treasury bonds,” said the statement.

The document mentions that the outlook for economic growth in 2020 have deteriorated, and the economic consequences of Covid-19 are expected to be severe, in a situation in which the Mozambican economy is already weakened due to the effects of cyclones Idai and Kenneth and military instability in the areas north and centre of the country.

The combination of these factors implies contractions in the extractive industries and manufacturing, as well as in the sectors of transport, trade and services, hospitality and catering, representing approximately 58% of the country’s Gross Domestic Product (GDP).

The prospects of a good performance in the agriculture sector, with an average weight of 25% in GDP, may not be enough to cushion the negative effects on other sectors of the economy, said the Mozambican central bank.

Governor Rogério Zandamela said in the statement that monetary policy has room to continue to support the policies of the country in mitigating the effects of Covid-19, and the inflation outlook continues to improve and Mozambique’s international reserves, in the amount of approximately US$3.9 billion are at comfortable levels to cover more than six months of imports.

During the meeting, the Monetary Policy Commission decided to reduce the monetary policy interest rate, the MIMO rate, by 150 basis points (bp), to 11.25%, a decision supported by a significant downward review of inflation prospects for the medium term, in a context of greater decline in aggregate demand as a result of the impact of the pandemic on the domestic and international economy.

The Commission also decided to reduce the Permanent Deposit and the Marginal Lending facilities by 150 pb to 8.25% and 14.25%, respectively, and keep the compulsory reserve ratios for liabilities in national currency and in foreign currency unchanged at 11.50% and 34.50%, respectively. (macauhub)