The Bank of Mozambique (BM) considers that the rapid spread of Covid-19 since the beginning of the year, the prolongation of military conflicts and the occurrence of natural disasters will continue to require a greater financial effort by the state, thus increasing concerns about the fiscal stance in 2021.
Since the Monetary Policy Committee (CPMO) of the BM last December, domestic public debt, excluding loan and lease contracts and outstanding liabilities, has increased from 182,325 million meticais to 183,819 million meticais.
In a press release, the central bank also said that after ending 2020 with net purchases of US$72.4 million, the banking system registered exchange rate pressure at the beginning of 2021, having made net sales of US$16 million.
“Over the period, the Metical continued to depreciate, reflecting the high risks and uncertainties prevailing in the domestic economy and the strengthening of the US dollar in the international market. Meanwhile, the balance of gross international reserves rose to USD 4,086 million by 22 January, allowing more than 6 months of imports of goods and services to be covered”, the World Bank noted.
It should be noted that the Central Bank recently announced that the short and medium term prospects point to a significant rise in inflation.
“Annual inflation increased for the fourth consecutive month, from 2.98% in September to 3.52% in December 2020. Underlying inflation, which excludes the prices of administered goods and services, fruit and vegetables, increased over the same period from 2.92% to 5.10%, with prospects of worsening in the coming quarters,” he stressed.
From a source perspective, general inflation is expected to accelerate over the medium term, reflecting the effects of the Metical’s depreciation on domestic prices, the expiry of part of the government’s price containment measures under Covid-19 and climate shocks”.
In recent times, some risks have materialised and uncertainties have increased, notably the rapid spread of Covid-19 and the occurrence of natural disasters, in addition to military instability in the central and northern regions of the country.
“Externally, new waves of infections and strains of the new coronavirus have emerged, despite ongoing vaccinations, as well as volatility in the prices of major commodities and the strengthening of the US dollar. These risks are expected to prevail in the short and medium term”, the BM notes.
