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Economic and Financial Research
Contacts: +351 21 310 11 86 | Fax: 21 353 56 94 | E-mail: deef@bancobpi.pt
Mozambique
October 2016
Mozambique - (Temporary?) deviation from the previous path
Mozambique faces significant challenges in the short to medium term, as evidenced by the decrease in GDP growth, which fell
to a 15-year minimum, the depreciation of the metical (which lost 80% of its value against the dollar since early January),
the inflation rate, the trajectory of the major ratings and the halt of multiple international grants, which only 4 years prior
amounted to 6.3% of GDP and are now expected to drop to 2.6% in the current year. Meanwhile, the amount of foreign direct
investment is no longer enough to cover the current account deficit, which confirms a process of ongoing debt accumulation.
Economic activity decelerated to 6.6% in 2015 (7.4% in 2014), a result for which the services sector was the main contributor.
Likewise, delays on final deliberations for projects related to the Rovuma basin and the occurrence of political/military unrest
in some regions also contributed to this result. Additionally, the depreciation of the metical had a significant effect on the
economy, as did the deceleration of domestic demand for imported goods and the drop in foreign direct investment. Inversely,
the public sector increased its contribution to economic growth in Mozambique.
Improvements to the economic outlook are not likely to be observed until the end of the year. The economy recorded a 4.5%
increase during 1H16, down from the 6.2% increase recorded during the same period of 2015. Beyond the mentioned factors,
which were also present in the previous year, the depreciation of the domestic currency and the scarcity of foreign reserves
places restrictions on the import activity for intermediate and capital goods, both necessary for current consumption and in-
vestment, which includes the development of megaprojects.
Under this adverse outlook, the Executive adjusted the forecasts included in its Amended State Budget for the current year
(OGER, original acronym). State revenue was adjusted down, as a result of lower taxes collected on goods & services. While
the need to consolidate the public accounts appears unavoidable, the OGER signals only a narrow reduction of expenditure. On
this point, we note an expected increase in the debt burden, resulting from the devaluation of the domestic currency, as well
as from a concentration of loan maturity dates. As such, the budget deficit is expected to increase further than forecasted in
the original budget, with the latest estimate pointing to 8.7% of GDP after grants (-11.3% of GDP excluding grants).
Following the disclosure of additional external public debt amounting to USD 1.4 billion, and the subsequent freeze in financial
aid by international partners (including IMF and World Bank), the Executive now expects a lower result for grants, which is set
to place an additional strain on public finances. Indeed, the public debt ratio now surpasses the limit of sustainability, placed
by the IMF at 70% of GDP. The large weight of external debt on total public debt underlines the country’s economic vulnera-
bility, a scenario that is further exacerbated by the possibility of further domestic currency depreciation, which makes both the
resumption of flows related to international donations and the implementation of major projects related to natural gas even
more crucial.
The depreciation of the domestic currency, the scarcity of foreign reserves, the adverse weather conditions and supply con-
straints related to political-military tensions running in some regions, all hindered the normal flow of goods and services and
are major factors behind the inflationary pressures which have dominated Mozambique’s monetary and financial environment
since late 2015. This scenario has forced the Central Bank of Mozambique to adopt a tighter monetary policy, in order to contain
the pressures affecting prices. By year’s end, average inflation is likely to surpass the official forecast (16%, according to the
Amended State Budget).
The external accounts deteriorated throughout 2015 and the early months of the current year, as a result of the performance
of megaprojects and the decrease in foreign direct investment. A major concern is the ongoing period of low commodity prices,
which not only calls into question the profitability of investment projects both ongoing and prospective, but also erodes confidence Paula Gonçalves Carvalho
paula.goncalves.carvalho@bancobpi.pt
among international investors, in the face of the string of internal governance problems and the fragility of the institutions. Agostinho Leal Alves
Such perceptions must be addressed on the short term, in order to establish a process of infrastructural development and agostinho.leal.alves@bancobpi.pt
sustainable growth, which will unavoidably involve megaprojects related to coal and natural gas extraction in the North of the Vânia Patrícia Duarte
country. Only by reinforcing the strength of the institutions will the country be able to reap the full benefits from the eventual vania.patricia.duarte@bancobpi.pt
turn of the cycle in commodity prices.INDEX Pag.
Mozambique
Economic Activity 03
Public Finances 06
Assessment by the main rating agencies 10
Projects and Investments under development
or near completion 11
Financial and Monetary Policy 13
External Sector 16
Developments in the international
commodities markets 18
Database 21
Economic and Financial Research
Paula Gonçalves Carvalho Chief Economist
Teresa Gil Pinheiro
Daniel Filipe Belo
José Miguel Cerdeira
Vânia Patrícia Duarte
Technical Analysis
Agostinho Leal Alves
Tel.: 351 21 310 11 86 Fax: 351 21 353 56 94
Email: deef@bancobpi.pt http://www.bancobpi.pt
http://www.bpiinvestimentos.pt/ResearchE.E.F. - Mozambique * October 2016
Economic Activity
Regional and Global Economic Scenario
The global economy is expected to continue a process World Economic Growth vs Sub-Saharan Africa
of gradual recovery throughout the year and we expect
to see slight improvements in 2017. A weaker economic
(real GDP growth rate, %)
and financial environment is expected to be compensated
by gradual improvements among the major commodity- 8.0
producing emergent economies. As such, forecasts by the major 7.0
international organizations place global economic growth at 6.0
around 3.0% for the current year, with a slight improvement 5.0
being expected for 2017. According to the OECD, the 4.0
global economy appears to be stuck in a low-growth 3.0
trap. Indeed, forecasted growth rates for both the current 2.0
and following year have seen multiple reviews by several 1.0
international organizations, which weighs down on growth 0.0
-1.0
expectations and feeds into the already weak performance of
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016F
2017F
international trade, investment, productivity and wages. As
such, we expect to see further downward adjustments to global
economic growth forecasts. World Sub-Saharan Africa Source: IMF
The challenges that defined the economic environment for Sub-Saharan Africa in 2015 are likely to remain
unchanged during the current year, as a result of the ongoing adjustment process to the scenario of lower revenues
from raw materials and several factors intrinsic to the region. With this in mind, the IMF adjusted its growth forecasts
for the region down by 1.6 p.p. in 2016 and 1.1 p.p. in 2017 in the last October's World Economic Outlook publication, in
comparison to April’s WEO, now calling for 1.4% and 2.9% growth rates, respectively. The slower growth rate for the region
results from the impact of the lower commodity prices, a more restrictive financial environment (which results in lower capital
flows entering the region), adverse weather conditions and the ongoing adjustment of the Chinese economic growth model.
On the other hand, the World Bank has a more positive outlook, despite also expressing the need for caution.
Indeed, the institution considers that while commodity prices have recorded a degree of recovery, these still remain highly
subdued and will contribute to an average growth rate of 2.5% in 2016. Also contributing negatively to this scenario are factors
such as the devaluation of local currencies, inflationary pressures and subsequent reduction of purchasing power, high levels
of unemployment, restrictive monetary policies and a limiting external financial environment. Economic activity may also be
hindered by a set of external factors, among which are further drops in commodity prices, anaemic growth among the developed
economies and restrictive financial conditions in international markets. On the domestic front, we highlight the possibility that
delays in the adjustment process to external shocks may breed political uncertainty and impact the sentiment among investors
and local agents, with consequences to the economic recovery; also, adverse weather conditions, as well as terrorist threats
or political disturbance, would equally have negative consequences to economic sentiment.
Despite these challenges, the medium-term outlook for Sub-Saharan Africa remains favourable. Indeed, although
certain countries have faced difficulties and required policy adjustments, the outlook for the region remains mostly favourable.
The IMF calls attention to the need to adopt measures aimed at strengthening the regional economies and increase their
resilience, even if such a goal may create a degree of economic slowdown in the short term.
Economic Activity in Mozambique and Outlook for 2016
The Mozambican economy decelerated in 2015, a result driven by a set of factors that hindered economic dynamism.
According to data published by INE, GDP recorded a 6.6% increase in 2015, down from 7.4% during the preceding year and
below the 7.0% increase forecasted by the Government. In terms of sectors of activity, we conclude that the deceleration was
primarily driven by the services sector, which represents over half of the GDP. One possible explanation rests in the delays
on final deliberations regarding projects in the Rovuma basin, which in turn delayed the implementation of support services
related to these projects. The tertiary sector was also affected by political-military instability, which hindered tourism during
the closing months of 2015. The primary sector, despite accounting for only 26% of GDP, continues to employ around 80%
of the workforce. Growth in this sector was similar to the preceding year (3.2%), but fell short of Government expectations
(6.5%), with agriculture being hindered by adverse weather in early 2015. Lastly, the secondary sector, with a weight of 14%
on GDP, recorded a very favourable growth rate of 9.6%, with manufacturing (8.5%) and water & electricity (11.6%) showing
particularly good performances in the second half of the year.
Considering GDP from an expenditure approach, the domestic currency depreciation, the deceleration of domestic
demand for imported goods and the drop in foreign direct investment, all had an impact in the economic activity.
Indeed, in 2015, investment recorded a 13.2% contraction, a result unheard since 2003. Similarly, low commodity prices had
an observable impact on exports (-4.9%) as did the depreciation of the domestic currency and the lower demand for imported
goods (-11.8%). As such, net exports contributed with 9 p.p. to economic growth, a rather high result according to the historical
series published by INE. Lastly, over the past year, we noted a larger impact from contributions to economic growth from the
public sector, contrary to the trend observed in 2014 (2.7 p.p. in 2015, against a 1.0 p.p. contribution in 2014).
3E.E.F. - Mozambique * October 2016
Economic Activity (cont.)
Contribution for GDP growth Weight of each sector in GDP (2015)
(percentage points; real growth rate, %) (% of GDP in constant prices)
0.4 0.08
22% 23%
0.3
0.06
0.2
0.1 0.04
9%
0
0.02 26%
-0.1 11%
-0.2 0
2011 2012 2013 2014 2015 9%
Private Consumption Public Consumption
Agricult. & Fishing Manufacturing
Investment Net Exports
Commerce Transp.&Comm.
GDP (RHS)
Source: INE; BPI calc.
Other Serv. Other
Source: INE; BPI calc.
Despite the pace of economic growth during the preceding year, both domestic and external signs point to a new
period of slowdown. Indeed, over the past decade, average growth rates stood at 7.4%, well above the 2015 result. On
the domestic front, we highlight the adverse weather conditions, the delays in approving the State Budget for 2015, the drop
in foreign direct investment, the devaluation of the domestic currency (especially during the second half of the year) and the
fiscal consolidation, which inhibited investment and expenditure. On the external front, we note multiple factors, such as the
low commodity prices in the international markets and tamer economic growth among the major trade partners.
The challenges that hindered economic growth in 2015 are likely to continue to weigh down the Mozambican
economic outlook. Economic growth for the first half of 2016 continues to show a trajectory of slowing activity (4.5% in the
1H2016, down from 6.2% in the 1H2015), a trend exacerbated by new and adverse developments. Bad weather conditions
(floods and droughts in opposite sides of the country) harmed the agricultural activity, while the political-military instability
restricted the normal flow of goods and services. The official disclosure of additional external sovereign debt, amounting to
USD 1.4 billion, and the subsequent freeze in external financial assistance, along with the drop in FDI and the low commodity
prices in international markets, all added pressure on the Balance of Payments and drove the Metical to historical highs.
GDP growth, by quarter Economic Growth, by sector
(yoy%; annual rate) (yoy%)
10% 16%
9% 14%
7.20% 7.14% 7.40%
8% 12%
6.60%
7% 10%
6% 8%
5% 6%
4% 4%
3% 2%
2% 0%
1% -2%
0% -4%
I II III IV I II III IV I II III IV I II
II
IV
II
IV
II
IV
II
IV
II
I
III
I
III
I
III
I
III
I
2012 2013 2014 2015 2016 2013 2014 2015 2016
yoy% Annual Growth Primary Sector Secondary Sector Tertiary Sector
Source: INE Source: INE
The previously mentioned factors are likely to continue to play an important part on Mozambique’s economic
performance for the remainder of the year. The ongoing depreciation of the metical against the dollar, as well as the
scarcity of foreign reserves, is likely to limit the country’s ability to import the capital and intermediate goods necessary for
the development of the multiple megaprojects, which have also suffered delays. Moreover, pursuing a tighter tax policy aimed
at promoting exchange rate stability and combat the inflation, will also hurt the private sector and thus limit economic growth
even further. Concerning taxation, new developments related to the trajectory of sovereign debt will force new adjustments,
which will also impact the economic outlook and confidence levels. For 2017, the outlook is rather uncertain (between 4.2%
and 6.8%), with a slight acceleration of economic growth being largely expected. The EIU (Economist Intelligence Unit) is the
most pessimistic institution when forecasting the coming year, pointing that despite some improvements in the macroeconomic
outlook and a slight recovery in agriculture and fisheries, persistent weak productivity in agriculture and low commodity prices
will remain key headwinds. While most institutions agree on a more favourable outlook for 2017, the disclosure of additional
amounts of public debt casts a shadow over such evaluations, as does the volatile political environment and the possibility of
additional delays related to LNG projects.
4E.E.F. - Mozambique * October 2016
Economic Activity (cont.)
While most forecasts identify signs of a slowdown
Outlook for economic growth and inflation rate in
over the short term, the medium-long term Mozambique
scenario remains favourable. Considering the
expectations of future gains related to the development Real GDP growth rate Inflation rate
(%) (aop, %)
of natural gas extraction projects in the Rovuma Basin,
as well as the country’s agricultural potential and the 2015 2016 2017 2015 2016 2017
abundance of other natural resources (including coal), Government 6.6 4.5 - 3.6 16.7 -
growth prospects for the medium to long term remain IMF 6.6 3.7 5.5 2.4 16.7 15.5
favourable, though deteriorated according to the IMF.
Moody's* 6.5 4.4 5.1 11.1 13.2 9.8
Previously, the institution had forecasted a 39% growth
Standard & Poor's 6.6 4.0 6.0 3.6 15 5.5
rate in 2021, in line with the start of the country’s
LNG-related operations. However, in the last WEO, the EIU 6.3 3.6 4.2 3.6 17.8 17.2
IMF pointed to a 6.8% expansion rate. Still, the mining Focus Economics 6.6 4.6 5.9 3.6 18.4 13.8
sector face a set of restrictions that may delay such Source: DNO, IMF, Moody's, S&P e EIU.
projects, namely high volatility in commodity prices Note: * Inflation rate at the end of period.
and the urgent need for infrastructural improvement
(namely in transportation), which is being held back
by the need for fiscal consolidation.
Economic Sentiment Indicator
The Economic Sentiment Indicator (ICE, original Economic Climate Indicator
acronym), which gathers the confidence levels of
businessmen across multiple sectors of activity, has (index)
observed a decreasing trajectory since late 2015. The
latest reading (August) is the lowest within the historical 115
series (93.6), which reflects dwindling optimism related to
110
the job market and outlook for demand. Regarding demand,
the registered reading is among the lowest in the historical 105
series, in line with tumbling optimism across all sectors (except
100
accommodation & restaurants and transports). Also note that
weak demand has been often-cited as a major hindrance 95
to economic growth, on par with competition. Meanwhile,
90
developments in the employment sector remain highly Aug-14 Feb-15 Aug-15 Feb-16 Aug-16
unfavourable across all sectors of activity with only trade,
housing and restaurants recording a more favourable scenario. Employment Expectations
Demand Expectations
Prices Expectations
Source: INE
Economic Climate
Constraints for the activity, by sector (August)
Sector Main constraints % of firms which pointed constaints
Hotels and Restaurants Lower demand 44%
High operational costs
Transports Lower demand 58%
Competition
Competition
Industrial Production 46%
Shortage of raw materials
Lower demand
Construction 49%
Lack of Credit
Competition
Commerce Lower demand 40%
Lack of Credit
Competition
Other Services Lack of Credit 29%
Lower demand
Source: INE
Vânia Patrícia Duarte
5E.E.F. - Mozambique * October 2016
Public Finances
Amended State Budget for 2016
Considering both the internal and external challenges Fiscal Budget Evolution
that Mozambique faces, the Government revised its
State Budget forecasts downwards for the current
(% of GDP)
year, with the document being already approved by
50 -14
Parliament. On the international front, we note the tamer
growth reported for the global economy, the deceleration of 40
-12
investment and international trade, the downward trend in -10
major export commodity prices and the smaller capital flows 30 -8
towards developing countries. On the domestic front, the signs
-6
of economic slowdown are laid bare, as well as the deterioration 20
of the external accounts, lower purchasing power and the low -4
10
levels of foreign reserves. As such, the Executive revised the -2
macroeconomic assumptions used as the basis for its State
0 0
Budget, in order to anticipate a reduction of public expenditure, 2014 2015 SB 2016 ASB 2016
lower financial support from international partners, an increased Revenues
burden related to debt servicing, and an increase in domestic Expenditure
financing to cover the budget deficit. Government Balance (RHS) Source: DNO
Total revenue was adjusted down, reflecting an expected decrease in taxes collected on goods & services. Total
revenue was adjusted down by 6.2%, compared to the original budget, which is explained by a 9.2% reduction in taxes on goods
& services. Still, compared to the 2015 implementation, total revenue is expected to record a 6% increase. Conversely, the
Government noted more optimism related to taxes collected on income, which were adjusted upwards by nearly 4 percentage
points. Considering the expected amounts, both accounts are expected to total around 84% of total revenue for the year.
Domestic Receipts expected in Initial Budget vs External Receipts expected in Initial Budget vs
Amending (2016) Amending (2016)
(% of total domestic receipts) (% of total external receipts)
Initial Budget ASB Initial Budget ASB
4% 12%
32%
11% 40%
14%
82% 60%
77% 68%
Taxes Other Revenue Domestic Financing Grants External Financing
Source: DNO; BPI calc. Source: DNO; BPI calc.
Despite the unavoidable need to consolidate the Expenditure by type
government accounts and the substantial drop in
total revenue, the Amended State Budget (OGER, (% of total expenditure)
original acronym) points to only a narrow reduction in
expenditure. As such, government expenditure is expected 100.0%
to drop 1.1% against the original budget, which represents a
80.0%
21.4% increase from the 2015 budget implementation. Under
the new budget, current expenditure is expected to increase 60.0%
5.3% from the original budget. Debt servicing expenditure was
also adjusted upwards against the original document (21%) due 40.0%
to the effects of the currency depreciation and a concentration 20.0%
of maturity dates. Additionally, investment expenditure was
adjusted down by 9.4%, with the Executive anticipating the 0.0%
cancelling of new projects where work is yet to begin, as well 2014 2015 ASB 2016
Staff costs Goods & Serv.
as cuts in a few infrastructural projects. Such developments Debt Payments Current Transfers
hinder economic growth in the long term. Other current expend. Investment expend.
Other expend. Source: DNO; BPI calc.
6E.E.F. - Mozambique * October 2016
Public Finances (cont.)
The amount of grants has dropped substantially. The Evolution of grants
downward adjustment for the current year includes a 27%
adjustment in general budgetary support, which relates to the (million Meticals)
freeze in financial support by international partners, including
the IMF, triggered by the disclosure of an additional USD 1.4 35,000.0
billion in external public debt. As such, we note a gradual 30,000.0
decrease in donations as a percentage of GDP, from 6.3% in
25,000.0
2012 to 2.6% in the current year.
20,000.0
The budget deficit is expected to worsen in comparison to 15,000.0
the original budget, with revenue expected to decrease
at a faster pace than expenditure. It is expected that 10,000.0
the deficit, as a percentage of GDP, will reach 11.3% before 5,000.0
donations and -8.7% after. Compared to the execution in the 0.0
previous year, we also note a worsening of the public accounts, 2012 2013 2014 2015 ASB 2016
to a degree similar to the 2014 result, when grants recorded a
20% decrease. Following the IMF review of Mozambique, the Source: DNO
organization considered that the fiscal policy for 2015 and the
early half of the current year was too expansionary, stressing
the need to adopt a tighter fiscal stance. In its latest Regional
Economic Outlook, dated April, the IMF estimated that the Fiscal budget financing, by source
country’s budget deficit, excluding and including grants, is
expected to amount to 8.6% and 4.0% of GDP, respectively. (million Meticals)
90,000.0
In order to cover its deficit, the Executive plans to 80,000.0
use domestic funding, given the increased difficulties 70,000.0
in accessing the international lending markets. Tax 60,000.0
revenues are expected to support most Governmental funding 50,000.0
needs throughout 2016 (59%), but we note the strong growth 40,000.0
in domestic loans, which nearly tripled against the original 30,000.0
forecasts. However, considering the state of low liquidity 20,000.0
observed in the domestic market, we may see a situation of 10,000.0
scarcity in lending, a situation exacerbated by delays in State 0.0
repayments. External funding is expected to drop 9.7% in 2012 2013 2014 2015 ASB 2016
comparison to the initial forecasts, as a result of the lower
amount of donations. External Financing Other Domestic Financing
Source: DNO
Risks in the execution the 2016 State Budget
Volatility in commodity prices
External
International financial conditions
Lower economic growth
Depreciation of the domestic currency
Adverse weather conditions
Eventual rating downgrade by the main international agencies
Domestic
Difficulty of getting financing in both domestic and external market
Problems related to state-owned enterprises, PPPs or Government guarantees
Failure in the improvement of fiscal transparency, extended suspension of grants
Worsening of political and military tensions
Source: BPI.
Budget Implementation in the first half of 2016
Taking into consideration the data released by the National Budget Directorate, we note an execution rate of 44% on total
revenue. We highlight non-tax revenue which, following the first half of the year, reached an execution rate of 68%. Inversely,
taxes on goods and services recorded a lower implementation (38% of the budgeted amount in the OGER), on par with capital
revenue (33%). On the side of expenditure, the degree of implementation is clearly inferior (35% of total budgeted expenditure),
which reflects a weak performance in investment expenditure. The deficit rose, according to the published data, to a total
of MT 13.4 billion before grants and MT 7.8 billion including grants. As a closing note, the low degree of implementation in
donations relates, according to the Executive, to decreases and delays in payments by some international partners, considering
the economic outlook experienced in their respective domestic markets.
7E.E.F. - Mozambique * October 2016
Public Finances (cont.)
The report on budget implementation for the first 6 months of the year points to a set of factors, both internal
and external, as the sources for the limited execution. Weather conditions forced the Government to relocate resources,
in order to support the affected population and repair damaged infrastructures. Also, the climate of uncertainty, following the
political-military instability, placed restrictions on the regular movement of goods and persons, thus hindering the economic
activity and revenue collection. Similarly, lower prices for export commodities, the drop in foreign direct investment and the
economic deceleration all hindered the normal activity of the Mozambican economy and revenue collection.
Amended State Budget for 2016 and Budget Execution in the first half of 2016
(Million Meticals)
2015 2016 % GDP
Change
2014 SB Exec. Jan- SB ASB Exec. Exec. Exec. SB 2016 ASB 2016 2016/2015
Dec. Jan-Jun 2014 2015
Current Revenues 153,449.1 157,520.4 152,796.4 173,221.8 162,353.5 71,277.5 28.9 25.8 25.2 23.6 6%
Tax Revenues 135,084.8 133,009.3 129,657.1 151,433.4 144,450.3 67,072.5 25.4 21.9 22.1 21.0 11%
Income Tax 63,097.2 51,411.1 57,919.1 62,262.1 64,595.9 28,760.3 11.9 9.8 9.1 9.4 12%
Tax on Goods & Services 67,846.0 75,178.9 67,036.1 82,055.7 74,466.5 28,014.2 12.8 11.3 11.9 10.8 11%
Other Tax Revenues 4,141.6 6,419.3 4,701.9 7,115.6 5,387.9 2,466.4 0.8 0.8 1.0 0.8 15%
Non-tax Revenues 9,665.8 11,360.2 11,981.5 10,239.8 9,869.2 6,753.8 1.8 2.0 1.5 1.4 -18%
Allocated Revenues 8,698.4 13,150.9 11,157.8 11,548.5 8,034.0 5,096.9 1.6 1.9 1.7 1.2 -28%
Capital Revenues 2,887.0 3,187.4 3,096.6 3,187.4 3,187.4 1,039.8 0.5 0.5 0.5 0.5 3%
Total Revenues 156,336.1 160,707.8 155,893.0 176,409.2 165,540.9 72,317.3 29.4 26.3 25.7 24.1 6%
Current Expenditures 118,212.0 118,759.6 117,435.6 135,686.6 142,938.6 72,743.4 22.2 19.8 19.8 20.8 22%
Staff Costs 59,831.2 64,484.8 64,299.3 71,308.2 70,089.1 38,628.0 11.3 10.9 10.4 10.2 9%
Goods & Services 26,037.6 23,403.3 22,512.0 28,966.1 24,804.2 11,796.5 4.9 3.8 4.2 3.6 10%
Debt Payments 5,192.9 7,577.4 7,621.9 12,500.0 15,122.3 7,275.1 1.0 1.3 1.8 2.2 98%
Current Transfers 18,332.8 20,016.9 19,860.1 19,297.3 21,346.4 14,052.4 3.5 3.4 2.8 3.1 7%
Subsidies 2,671.3 2,277.3 2,213.4 2,120.6 942.1 879.4 0.5 0.4 0.3 0.1 -57%
Other Current Expenditures 5,813.2 781.8 770.8 1,283.6 10,543.9 111.3 1.1 0.1 0.2 1.5 1268%
Capital Expenditures 257.9 513.2 400.3 472.8 472.8 65.9 0.0 0.1 - 0.1 18%
Investment Expenditures 87,036.2 83,179.5 64,077.8 83,865.4 76,014.9 7,016.5 16.4 10.8 12.2 11.1 19%
Domestically Financed 45,374.5 44,881.3 42,677.4 41,338.9 28,870.3 5,084.7 8.5 7.2 6.0 4.2 -32%
Externally Financed 41,661.7 38,298.2 21,400.4 42,526.6 47,144.5 1,913.7 7.8 3.6 6.2 6.9 120%
Financial Operations 21,543.1 23,972.7 18,577.1 26,045.6 23,931.8 5,883.5 4.1 3.1 3.8 3.5 29%
Active 16,513.9 10,351.0 3,729.8 8,200.0 8,100.0 1,480.2 3.1 0.6 1.2 1.2 117%
Passive 5,029.2 13,621.7 14,847.4 17,845.6 15,831.8 4,403.3 0.9 2.5 2.6 2.3 7%
Total Expenditures 227,049.2 226,425.0 200,490.8 246,070.4 243,358.1 85,709.3 42.7 33.9 35.8 35.4 21.4%
0.0
Fiscal Balance (before grants) -70,713.1 -65,717.2 -44,597.8 -69,661.2 -77,817.2 -13,392.0 -13.3 -7.5 -10.1 -11.3 74%
Fiscal Balance (after grants) -46,606.7 -45,253.5 -25,920.4 -44,861.2 -59,624.5 -7,831.2 -8.8 -4.4 -6.5 -8.7 130%
Deficit Financing 58,763.7 65,717.2 44,648.1 69,661.3 77,811.1 - 11.1 7.5 10.1 11.3 74%
Domestic Financing 5,715.1 9,182.6 9,182.6 7,619.7 21,768.0 - 1.1 1.6 1.1 3.2 137%
External Financing 28,942.2 36,070.9 30,999.7 37,241.6 37,850.4 23,711.1 5.4 5.2 5.4 5.5 22%
Grants 24,106.4 20,463.7 18,677.4 24,800.0 18,192.7 5,560.8 4.5 3.2 3.6 2.6 -3%
Source: DNO.
Public Debt
The recent disclosure of an additional amount of public Weight of interest payments in total revenues
debt has increased pressure on the country’s debt
sustainability. According to the IMF, the stock of public debt (% of total revenues; average of exchange rate - yoy%)
is expected to have reached 86% of GDP over the previous
year, this after last April, when an additional amount of external 10.0% 50.0%
public debt totalling USD 1.4 billion was uncovered. This degree 8.0% 40.0%
of indebtedness brings a serious risk of defaulting, according
30.0%
to the Fund, which places its standard sustainability limit at 6.0%
70% of GDP. 20.0%
4.0%
10.0%
Considering that EMATUM remains incapable of 2.0% 0.0%
performing payments, and as a way to reduce the weight
of debt servicing on the public accounts, the Government 0.0% -10.0%
2012 2013 2014 2015 ASB 2016
proceeded with a restructuring of the company’s debt.
The state-owned EMATUM (Tuna Industries of Mozambique) Interests/Revenues
issued debt bonds in 2013, maturing in 2020, with a yield of Exchange Rate MT/USD - yoy (RHS)
6.305% and guaranteed by the Government up to USD 850 Source: DNO; Bloomberg; BPI calc.
million (6% of GDP). In September 2015, the Government
issued the first payment related to these bonds, totalling USD
104 million (USD 77 million in debt repayment and USD 27
million in interest). Before repaying the second tranche, which
was due on the 11th of March 2016, and in order to reduce the
8E.E.F. - Mozambique * October 2016
Public Finances (cont.)
weight of debt servicing on the public accounts, the Executive Gross Public Debt of Countries with Caa3 rating,
proposed changes to the initial terms of the bonds. As such, the assigned by Moody's
remaining USD 697 million in outstanding debt was exchanged (% GDP)
for new bonds, totalling USD 726.5 million, a January 2023
maturity and a coupon rate of 10.5%. 180.0
160.0
In April, Mozambique acknowledged the existence of 140.0
additional amounts of external public debt amounting to
120.0
USD 1.4 billion, resulting from loans granted by foreign
100.0
banks to two state-owned companies (Proindicus and
80.0
Mozambique Asset Management) and guaranteed by
60.0
the State. Such a scenario paints a picture of institutional
40.0
fragility and governance problems, with the major international
20.0
organizations noting the lack of transparency as a serious issue
0.0
for Mozambique. This event also led the main international GRE MOZ UKR VENEZ SSA
donors to suspend financial aid, a decision also taken by financial
institutions such as the World Bank and the IMF (under the Source: IMF; Moody's
terms of the loan facility requested in December 2015, which
totals USD 283 million, the Fund has frozen the final tranche
of USD 165 million). The solution for the country’s unsustainable amount of debt may be a process of debt restructuring for
the two state-owned companies, as was the case with EMATUM. Indeed, a debt repayment by MAM due May of 2016 did not
take place (approximately USD 42 million in interest and USD 134 million in equity, according to Moody’s), which triggered
the beginning of negotiations aimed at a solution (and eventually, a restructuring). Regarding Proindicus, all payments have
been honoured (totalling USD 28 million in interest and USD 25 million in equity), but the larger part of total payments will
take place between 2017 and 2022. Moody’s considers this case to be similar to other state-owned companies and deems the
chances of a new default as likely. Such causes of uncertainty are noteworthy, and further clarification is key, in order to allow
for a decrease in the risk premium on sovereign debt and/or the decrease of devaluating pressures on the domestic currency.
Government indebtedness levels in Mozambique are high and further increases are expected in the near term,
considering the likelihood that the current trajectory of domestic currency depreciation will remain in place.
Mozambique has higher levels of debt than countries with a similar rating, as evaluated by Moody’s (Caa3), which include
Venezuela and Ukraine. The worries related to Mozambique’s sovereign debt are further exacerbated by the fact that a substantial
amount is denominated in foreign currency (around 86%), which further exposes the country to the depreciation of its domestic
currency, as we’ve seen over the past few years. With the devaluating pressures, affecting the exchange rate since late 2015,
unlikely to ease over the short term, Moody’s expects public indebtedness to surpass 100% of GDP in the current year.
Vânia Patrícia Duarte
9E.E.F. - Mozambique * October 2016
Public Finances (cont.)
Assessment by the main rating agencies
Regarding the evaluation of Mozambique’s sovereign
debt, we note a degree of stability, even a very slight Rating for long-term sovereign debt
improvement, stemming from successive decreases in
credit ratings by the international agencies. Recently, S&P Moody's Fitch
S&P removed its Credit Watch Negative label CCC Caa3 CC
and kept the rating on long-term sovereign debt
denominated in foreign currency at “CCC”. S&P
had decided to downgrade this rating from “B-“ to “CCC”, also placing it in Credit Watch Negative, in late
May (27th of May). This development had resulted from a combination of a weak macroeconomic environment, and
lack of support from the IMF and other financial institutions. Nevertheless, removing the Credit Watch Negative label
did not end the negative outlook hovering over the sovereign debt rating for Mozambique, which includes the possibility
of a downgrade to levels of selective default. Such a scenario is possible if:
• Regardless of the foreign debt being guaranteed by the State, either through Mozambique Assets Management (MAM)
or Proindicus, the Government failed to honour its obligations in a timely manner.
• Restructuring of debt guaranteed by the State, in which investors would lose a large part of their assets worth in
abnormal market conditions (a distressed exchange).
On the other hand, a rating increase would likely require the following developments:
• Avoiding a process of selective default, while keeping the trajectory of debt servicing on a stable course would likely
cause the outlook to improve to “stable”.
• The rating would likely be adjusted to a “positive” outlook if the preceding developments took place and, additionally,
if Mozambique restored its relation with the IMF and the remaining official creditors.
On the same note, Moody’s lowered its rating for Mozambique’s sovereign debt from “Caa1” (resulting
from a downgrade in April) to “Caa3”, also with a negative outlook. The agency justified this downgrade due to:
• Ongoing negotiations related to the restructuring of external debt guaranteed by the State, falling under one of
Moody’s definitions for a scenario in which creditors are likely to incur losses.
• Ongoing liquidity pressures, even should the restructuring take place.
Fitch on the other hand kept its rating unchanged at “CC”, with a stable outlook (the next review is scheduled
for October 2016).
Nevertheless, concerns remain that the environment Yield of new EMATUM issue is around 15%
as a whole may deteriorate with the pile up of negative
information, namely if the Mozambican government (%)
announces a default or a debt restructuring that includes
losses for creditors. Additional negative pressure on the 25
country’s sovereign debt ratings may also come from
significant delays on investment plans for the natural 20
gas sector, as well as factors such as deteriorating
economic outlook, worsening of the tax implementation 15
or the continuation of the strong devaluating pressures
affecting the metical. 10
5
0
Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16
Source: Bloomberg
Agostinho Leal Alves
10E.E.F. - Mozambique * October 2016
Projects and investments under development or near completion
4Japan recently donated 10.9 million euros for the construction of 13 bridges, although a climate of financial
distrust was cast over Mozambique, after the disclosure of an additional amount of sovereign debt, which
partially froze the flow in international aid. For the time being, Japan has confirmed that it will continue its non-
refundable financial cooperation with Mozambique. In 2013, Japan donated 34.5 million euros for the reconstruction of
bridges damaged by the floods (Zambezia and Niassa). In 2014, the two countries signed a bilateral agreement towards
the rehabilitation of the Nacala port, the construction of the Institute for Social and Healthcare Sciences of Nacala and
Maputo, the laboratory for the analysis of plants and soil in the Nampula province (inserted into the Prosavana agricultural
program), the institute for the training of elementary school teachers in Monape and the fish market in Maputo.
4Starting in 2018, coal transported through the Moatize-Nacala railway (which runs across an extension of
1000 kilometres, passing through Malawi territory) will expand from 8 million tons per year to 22 million,
as a result of the signing of 3 addenda to the contracts for the Logistics Corridor of the North (CLN, original
acronym) and the Development Corridor of the North (CDN, original acronym). The agreement was struck
between the Mozambican Government and the companies Vale and Ports and Railways of Mozambique, aiming to improve
the transportation capabilities of the North while ensuring the viability of investment projects already underway, totalling
over USD 3 billion. Under this agreement, the Brazilian company Vale attains exclusivity in the process of securing funding.
4The Italian multinational oil company ENI is expected to be awarded the rights to the construction of
a Floating LNG (FLNG) platform to supply natural gas extracted from Area 4 of the Rovuma Basin (Cabo
Delgado province) for international distribution. Note that ENI operates in Area 4, which contains an estimated 85
trillion cubic feet of natural gas. ENI owns a 50% indirect participation in Area 4 (of the remainder, 20% is owned by the
Chinese company CNPC while the Korean Kogas, the Portuguese GALP Energia and the National Hydrocarbon Industries
of Mozambique each possess 10%) through its subsidiary ENI East-Africa Oriental, which owns 70% of the concession.
In February, the Mozambican Government approved the Plan for the Development of the FLNG Project in Coral Sul. As
such, ENI is expected to come to a final decision regarding its investment plans for Coral Sul before the end of the year.
4The Mozambican Government awarded the concession for the expansion project of the coal terminal port
in Beira to the New Coal Terminal Beira (NCTB) company. This expansion will increase transport capacity through
the Sena railways from 6.5 to 20 million tons per year, connecting Moatize, Tete, the port of Beira and the Sofala province
(575 kilometres total). The project is expected to be concluded by the end of the year. NTCB is a partnership between
the state-owned Ports and Railways of Mozambique (30%) and the Indian group Essar Ports Ltd (70%).
4The South African oil company Sasol intends to significantly increase its electricity supply to Mozambique
by processing new natural gas reserves in the Inhambane province, an investment worth 1.4 billion dollars
(EUR 1.2 billion). The first wells have already been drilled and the company expects to produce 400 megawatts of
power in its Temane plant, in the Inhassoro district, all destined to the Mozambican market. This investment is considered
crucial, given that the country has an electricity deficit of 80 megawatts/year.
4Sixteen Chinese businessmen intend to invest USD 50 million in a granite processing and export project
in the Sussundenga district, in the Manica province. Presently, 32 million were applied towards the construction
of the plant and the acquisition of necessary equipment, as well as the stone-cutting and polishing activity itself. The
factory is expected to reach maximum production capacity before the closing of the year.
4The dredging of the access channel to the port of Maputo started in May, with the goal of opening the
port to ships of up to 80.000 gross tonnage. The 10-months operation carries a cost of USD 100 million. The
contract includes the Partnership for the Development of the Port of Maputo and Jan de Nul Middle East FZE, a company
located in Dubai, UAE and part of the Jan de Nul group, whose financial headquarters are located in Luxembourg. The
dredging process will deepen the canal from its current 11 meters to 14 meters, opening the port to larger ships and
increasing its competitiveness. Previous dredging operations opened the port to ships of up to 65.000 gross tonnage,
which contributed to the expansion of the iron-chrome and container terminals, a new grains terminal and the recovery
of piers 3, 4 and 5. The Partnership for the Development of the Port of Maputo is a private enterprise, comprised of the
state-owned Ports and Railways of Mozambique and Portus Indic, which consists of the South African Grindrod, Emirati
DP World and the Mozambican Mozambique Gestores.
4India and Mozambique reached a bilateral flight agreement, which aims to promote flight connections
between the two countries. The agreement includes a list of airline companies cleared to fly in and out of both countries
and open support offices, as well as which routes and airports to use, security clauses, commercial opportunities, etc.
11E.E.F. - Mozambique * October 2016
Projects and investments under development or near completion (cont.)
Note that India is one of Mozambique’s major commercial partners.
4The Mozambican Government is set to invest USD 22 million in the construction of multiple centres for
agricultural dynamism, which aim to increase both the yield and income of 23 thousand small farmers. Six
“Farmer Empowerment Hubs” have already been inaugurated in the Manica province. Such centres will facilitate the
development of competencies among farming communities and function as drop and distribution hubs for harvests and
farming supplies.
4The European Investment Bank opened a line of credit worth EUR 30 million, to Mozambican companies.
This line of credit will fund 50% of the total cost of each business project submitted by micro, small and medium
companies, both private and state-owned.
Source: Câmara de Comércio Portugal-Moçambique
Agostinho Leal Alves
12E.E.F. - Mozambique * October 2016
Financial and monetary policy
Monetary Policy and Inflation
The Monetary Policy Committee (MPC) of the Bank of Mozambique gathered on the 21st of July for its seventh
regular session, with the goal of taking crucial decisions regarding reference interest rates and the reserve
requirements. The MPC noted that, given the atypical behaviour of the main economic indicators for the country, inflation
and exchange rates foremost (given the rising inflation rate and the strong depreciation of the metical), correcting this
trajectory is key. As such, the MPC reinforced its anti-cyclical stance for its monetary policy through a 300
percentage points (p.p.) increase to its marginal lending facility and deposit facility, to 17.25% and 10.25%,
respectively. Reserve requirements in domestic currency were also adjusted by 250 points, to 13.0%, effective
from the period of reserve build-up started on the 22nd of August.
Following its evaluation of the international economy, the MPC referred to forecasts predicting food price increases in South
Africa, with possible impacts for the prices in neighbouring countries, as a risk, as is likewise the general uncertainty lingering
over the global economy. It is worth reminding that most developing economies have only recorded timid recoveries of their
economic activity and that commodity prices remain highly volatile in the international markets.
Internally, the MPC recognizes the trajectory of lower GDP growth and ongoing pressure on the inflation and exchange rate
that result from an adverse external scenario and unexpected natural shocks (periods of both flooding and droughts). Also
contributing to this trajectory are the suspension of international aid, weaker supply of foreign exchanges due to the long
period of subdued export activity, the rating downgrades by the main international rating agencies and the lingering political-
military tension still felt in some regions of the country.
Similar to the monetary policy reference rates, interest rates on the placing of Treasury Bills (TB) recorded
increases in all three maturities traded in the Interbank Money Market (IMM), according to the data for July. As
such, in comparison to the preceding month, we observed risk premium increases of 95, 84 and 75 basis points to 13.25%,
13.60% and 13.50%, respectively to the maturities of 91, 182 and 364 days. According to data by the Bank of Mozambique,
in the trade of liquidity positions among credit institutions, the average interest rate by the end of July stood at 15.12%,
1.8 p.p. above the figure for the preceding month.
Concerning the developments in consumer prices, the Inflationary pressures intensify
monthly inflation rate in September stood at 1.27% (up
from 1.27% in August), with accrued inflation between
(%)
January and September reaching 14.78% (according
to data collected in Maputo, Beira and Nampula). The 30 24.9
Food and Non-Alcoholic Beverages category was the main 25 22.0
20.7
contributor to this result, with a 2.90% increase which 19.7
20 17.3 18.3
contributed 1.45 p.p. to growth. Breaking down by product,
13.6
we note that the major increases were recorded in cooking 15 12.2
10.6 11.3
oil (8.2%), rice (3.8%), peanut (10.4%), powder detergent 10
(21.3%), soap (13.1%), cornflour (2.3%) and live chicken 6.3
4.7
(8.0%). In total, the mentioned products contributed with 5
1.10 p.p. to the monthly inflation growth. 0
Sep-16
Dec-15
Mar-16
Apr-16
Aug-16
Oct-15
Jun-16
Jul-16
Nov-15
Jan-16
Feb-16
May-16
Regarding year-on-year inflation, prices increased
24.92% (21.96% in August), a January 2008 high,
which continues a period of particularly expressive Source: INE
price increases (inflation has remained above the 10%
waterline for ten months straight). The Food and Non-Alcoholic Beverages category recorded a 40.04% inflation
rate.
Mozambique has had trouble in keeping its inflation rate in check, given that it is almost wholly dominated by food prices, a
category known for wide variations caused by hard to control variables such as weather conditions both in the country and
among suppliers. Only between 2012 and 2014 has the country been able to keep inflation below double digits for several
years. As such, inflation pressure is not unexpected following several months-long drought, which severely impacted the
agricultural sector. On the other hand, the ongoing depreciation of the metical continues to be preponderant for Mozambican
price inflation. Indeed, 2016 has seen a steep trajectory of depreciation for the domestic currency.
Exchange Rate Policy
Officially and repeatedly, Mozambican authorities have reiterated their commitment to a flexible exchange
policy. However, direct interventions in the exchange market has become regular, aiming at softening the most
excessive periodic volatilities and promoting increased exchange liquidity. As such, the current exchange policy
is a managed float regime. Indeed, over the past few years, the Central Bank has adopted different stances according
to the economic situation at the time and the country’s primary needs. In the past, the metical has been kept artificially
13E.E.F. - Mozambique * October 2016
Financial and monetary policy (cont.)
high by the Central Bank, as a way to contain costs of import. This policy lead to a shortage of dollars and loss of export
competitiveness. More recently, the Central Bank has intervened in order to contain the trajectory of currency depreciation,
aiming to bring stability to its currency and stop the bleeding of foreign reserves. The Bank of Mozambique itself admitted
that the metical exchange rate needs to freely adjust to the developments in the international market and financial flows.
However, one can’t disregard the trajectory of the effective exchange rate against a wide array of currencies, in order to
ensure external competitiveness and a manageable level of international reserves.
Against the dollar (USD/MZN), the metical has observed Metical depreciated against dollar, euro and rand
a steep process of currency depreciation throughout
2016 (so far). For the past 9 months and starting from (x Mzn per Eur and USD ; x Mzn per Zar)
January, the metical lost 80% of its value against the dollar.
From 44.80 USD/MZN since January, the metical reached a 100 6
high of 81.0 at the beginning of October, currently hovering 90 Metical depreciated
around 70. This apparent stabilization may have an impact 80 80% against USD 5
since the beginning
on the monetary authority’s policy of discreet intervention. 70 of this year
60 4
The EUR/MZN and ZAR/MZN trajectories have also reported 50
high volatility and a general trend of currency depreciation 40 3
for the metical. Over the past 9 months, the metical reported
30
losses of 79.8% and 97.0% against the euro and the South
20 2
African rand, respectively. Recently, the EUR/MZN and
Apr-15
Apr-16
Jul-15
Oct-15
Jul-16
Oct-16
Jan-15
Jan-16
ZAR/MZN both reached historical highs of 90.8 and 5.91,
respectively.
EUR/MZN USD/MZN ZAR/MZN
Source: Reuters
In July, and according to the Bank of Mozambique, the real effective exchange rate index (REERI) lost 26.5% of
its value on a year-on-year basis, reflecting the 38.8% depreciation reported by the nominal effective exchange
rate (NEEI). The impact of the depreciation in both the REERI AND NEEI was softened by the price differential between
Mozambique and the average among the country’s main trade partners (16.2%), which reflects the price increases recorded
in Mozambique during the period.
Over the past few years, Mozambique has been capable of accruing international reserves under a favourable context of
foreign direct investment and grants, as well as a successful performance by the export activity (mainly aluminium, electricity
and natural gas). However, this trend has become less pronounced as of late, following the decrease of capital
flows entering the country, as well as lower export revenue, which have complicated the task of maintaining
a strong currency (the currency depreciation is both the cause and consequence of the current economical-
financial imbalances).
Indeed, for 2016, a decline of accrued international reserves is expected, a trajectory driven by the fewer
capital flows related to megaprojects entering the country and the anaemic growth of exports, particularly in
the coal industry. More so, the development of the natural gas industry will continue to require significant imports of goods
and services, which places additional strain on the country’s coverage of imports. NKC African Economics estimates that
Mozambican foreign reserves have dropped below USD 3 billion in 2014, standing at USD 2.88. This trajectory is expected
to have brought the figure to USD 2.2 billion by late 2015. In the future, we are likely to witness renewed drops, followed
by a recovery. As such, the forecast for 2016 calls for a 35% drop to USD 1.9 billion, followed by an 18.3% recovery to
USD 2.3 billion in 2017. The Economist Intelligence Unit (EIU) expects to see even lower results (except for 2015) and no
recovery, calling for USD 2.6 billion in 2015; USD 1.5 billion in 2016 and USD 1.4 billion in 2017.
According to the latest (preliminary) data released by the Bank of Mozambique, the balance of net international
reserves lost USD 77 million in August, to a balance of USD 1,769 million. The following factors were reported to
have a negative impact: (i) amortization of sovereign external debt worth USD 16.3 million; (ii) net sales by the Bank of
Mozambique in the exchange market worth USD 51.1 million; (iii) multiple payments by the State worth USD 5.6 million; (iv)
potential foreign exchange losses USD 11.9 million; (v) several payments abroad ordered by the State. Inversely, several
operations reported earnings: (i) financial remittances from miners workers - USD 4.8 million; (ii) net interest applications
of assets abroad - USD 2.5 million; (iii) purchases from FDI companies - USD 2.2 million.
14E.E.F. - Mozambique * October 2016
Financial and monetary policy (cont.)
The preliminary balance for gross reserves in August Gross International Reserves in months of imports of
amounts to 3.13 months of coverage for imports of Goods and Services
goods and services, excluding megaprojects. When (months of imports)
including megaproject imports, this figure drops to 2.48
months. According to NKC African Economics, the coverage 4.76
5.0
rate of imports by reserves may become less expressive, 4.12 4.06
4.0 3.69
should there be a softer growth of the import activity. However, 3.09 3.13
2.85 2.99
following a decrease of 2.8 months of coverage by the end 3.0
2.72
2.48
of 2017, followed by an estimation of 2.7 months in 2015,
the current forecasts for 2016 and 2017 stand at 2.6 and 2.5 2.0
months, respectively. The International Monetary Fund (IMF) 1.0
calls for largely similar results: 3.1 months in 2015; 2.6 months
in 2016 and 2.3 months in 2017. 0.0
2013 2014 2015 ago-15 ago-16
Months of imports of G&S
Months of imports of G&S (excl. Megaproj.)
Source: Bank of Mozambique; BPI calc.
Credit, deposits and interest rates
According to the latest data by the Bank of Mozambique, Credit to the economy and deposits
cumulative credit to the economy expanded by MZN
3.691 million (+1.51%) between June and July. This (million MZN)
compares to the MZN 41.083 million (+19.9%) increase 350,000.0
reported for the same period of 2015. For July, the cumulative
total stood at MZN 247.878 million which, at the average 300,000.0
exchange rate for the month, amounts to USD 3.8 billion or
42% of GDP. 250,000.0
The component of credit denominated in foreign 200,000.0
currency stood at MZN 61.445 million in July (25% of
150,000.0
the total). The variation between June and July was MZN
1.516 million which, converted to USD, amounts to a decrease
100,000.0
by USD 47 million (due to the impact of the exchange rate). Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16
Credit to the economy
Deposits increased 2.6% between June and July to a Total Deposits
Source: Bank of Mozambique
cumulative reading of MZN 328.613 million. Of these,
210.070 million are on sight (64% of total). Among on sight
deposits, 57% are denominated in domestic currency while Bank of Mozambique and 3M-Mibor rates
the remaining 43% are denominated in foreign currency. The
remaining 36% are time deposits.
(%)
20
18
16
Interest Rate on Banks (1 year)
14
12
average, %
10
Dec.15 Mar.16 May 16 Jun.16 Jul.16 8
Lending Rates 19.10% 19.14% 19.93% 21.33% 22.70% 6
Prime Rate 16.27% 17.33% 19.07% 19.86% 21.36% 4
2
Deposits Rate 9.37% 10.14% 10.45% 10.63% 10.93%
0
Source: Bank of Mozambique
Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16
repo BoM depo. BoM Mibor 3M
Source: Bank of Mozambique
Interest rates have worsened over the past year, keeping pace with the inflation rate increases and the climbing
reference rates by the Mozambican Central Bank. Similarly, spreads between lending and deposit rates have widened –
in June the spread stood at 10.70%, a figure which stood at 9.39% one-year prior – shoring up the financial margin, which
presents a favourable situation for the financial sector.
Agostinho Leal Alves
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