The governor of the Bank of Mozambique said yesterday in Inhambane, at the opening of the 48th consultative council, that the current slowdown in inflation was the result of the "restrictive monetary policy stance" adopted in recent months by the central bank, but stressed that "high uncertainties prevail".

Cited by Lusa, Rogério Lucas Zandamela pointed out that underlying inflation, which does not take into account energy or unprocessed food prices, has even "increased in the last three months, but although it is not at alarming levels, we are closely monitoring its evolution".

Also in his opening speech, Zandamela pointed out that annual inflation has even "been decelerating" since the beginning of the year, standing at 4.6% in September, "after having reached a peak of 12.9% in August 2022": "This deceleration trajectory essentially reflects the combined effect of exchange rate stability and the restrictive stance of monetary policy, as well as the fall in food and fuel prices on the international market."

The governor added that in transactions with foreign countries, Mozambique recorded "an improvement in the current account deficit of 78.3%" in the first six months of 2023, "favored by the reduction in imports from major projects".

"The country has enough gross international reserves to cover around four months of imports of goods and services, excluding imports from major projects," he said.

Domestically, the governor of the Bank of Mozambique acknowledged "the strong pressure on public spending" in the country, "in a context of weak revenue collection and limited sources of external financing", which "is contributing to an increase in fiscal risk and domestic indebtedness".

"The increase in spending is mainly due to the implementation of the salary reform and spending related to the electoral cycle," he warned.

As an "example", he pointed out that the stock of domestic public debt, which in 2022 stood at 275 billion meticais, "increased by around 19% in the last 10 months of the year", to 327 billion meticais.

Also according to the governor of the Mozambican central bank, "high uncertainty prevails as to the magnitude of the impact of current risks", particularly from abroad, "amplified by the volatility in the financial markets, which has required increasingly prudent monetary policy action".

"This is why monetary policy has remained restrictive, with the policy interest rate - MIMO rate - set at 17.25%. In addition, and in order to deal with the excess liquidity in the banking system, we decided to increase the reserve requirement ratios for domestic and foreign currency liabilities by 28.5 and 28 percentage points to 39.0 and 39.5% respectively," he recalled.

"It's important to note that the excess liquidity in the banking system was exacerbated by the sudden increase in public spending resulting from the implementation of the Wage Scale," he stressed.

Rogério Zandamela pointed out that "the risks and uncertainties in the global and domestic environment are likely to worsen" in 2024, an outlook that "will continue to condition domestic economic activity and the policy measures that will be taken".

"With regard to economic activity, it is expected that the current pattern, dominated by the extractive industry, in particular the execution of the Liquefied Natural Gas projects in the Rovuma basin, will continue to be the biggest driver of Gross Domestic Product [GDP] growth," he said.

Nevertheless, he warned: "The increase in the weight of the extractive industry in GDP that we have seen in recent years should not distract us from continuing to implement important reforms that will enable the other sectors of the economy to be leveraged."

He said that it was still necessary to "continue with reforms aimed at fighting corruption and improving the business environment, making it more competitive", giving as an example the need to create the Mozambique Sovereign Fund to "accumulate savings in order to respond to future shocks".