Mozambique 22 July: Perverse policy-making
Good afternoon. It’s tricky to tell exactly which country the Bank of Mozambique’s monetary policy committee has in mind when it’s making its decisions, but it doesn’t appear to be Mozambique.
Governor Ernesto Gove yesterday explained to journalists that interest rates have to rise to incentivise saving, without which there can be no investment – and to stop investors from borrowing to make frivolous and unproductive investments. Meanwhile, anyone who hasn’t yet taken their savings out of Mozambique is seeing their value tumble in line with the metical, while the private sector has been facing interest rates of over 20%, even before the current tightening cycle began.
Gove said it was important for monetary policy to be aligned with the government’s austere fiscal stance – but the reality is that the government is seeking to borrow more, not less from domestic banks to cover its shortfall in external funding. Higher funding costs for the government is just one perverse result we can expect from yesterday’s decisions, economists told Zitamar today.
SEE: Bank of Mozambique rate hike will worsen crisis, economists warn
The long-awaited entry of the world’s largest oil and gas company, ExxonMobil, into the Rovuma Basin offshore gas projects seems close to becoming reality after a meeting this week between the company’s chief executive and President Filipe Nyusi – who also received top executives from Eni and Anadarko on the same day.
SEE: Exxon, Eni heads meet Mozambique president as Rovuma gas sale nears
Talks, however, don’t necessarily equal progress – as evidenced at the Hotel Avenida, where negotiations are now taking place on a daily basis between the government and Renamo, in the presence of a host of mediators.
SEE: Mozambique negotiators start talks on Renamo’s demand to rule half the country
Italian diplomat Mario Raffaelli, a veteran of the 1992 Rome Accord, said today the talks were taking place in a “climate of understanding” – but Renamo’s leaders are returning to their bellicose rhetoric of some months ago, threatening force if they don’t get their way.
SEE: Renamo maintains hard line as Mozambique mediators hail ‘climate of understanding’
Peace is a key precondition of Mozambique’s economy developing far enough to bring its rural population out of poverty – and business leaders warned this week that a new World Bank-financed initiative could founder thanks to the climate of instability.
SEE: World Bank-funded SME programme should start disbursing next month
But in terms of economic policy-making it is hard to escape the conclusion that it’s the central bank that is the real weak link in the chain. Yes, Mozambique has been hit by the drought, instability, and falling commodity prices – but the Bank of Mozambique is responding in entirely the wrong way, as guest columnist Lars Christensen argues today. His column is free for non-subscribers to read.
FREE TO READ: Opinion: Tighter monetary policy can’t change the fact that Mozambique has become poorer
Have a great weekend.
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