This Tuesday, 12 December, the Confederation of Economic Associations (CTA) held a business gala to take stock of the year 2023, in which it expressed concern about price stability in 2024 due to the application of 16% VAT on basic products.
“In terms of the outlook, we are aiming for a 2024 with price stability trends to allow monetary policy to relax, giving room for an inclusive recovery of the domestic economy. However, we are sceptical about the likelihood of this trend coming to fruition with the current monetary policy characterised by an interest rate (MIMO) set at 17.25%, permanent lending facilities (FPC) and deposit facilities (FPD) at 20.25% and 14.25% respectively, and the mandatory reserve ratio at 39%,” explained Agostinho Vuma, president of the CTA.
He also said that the measure proposed by the government in the State Budget for 2024 to apply a VAT rate of 16% to oils, soaps and sugar could further delay the objective of maintaining price stability, in a situation where consumers benefit from the cost of the basic food basket estimated at 3469 meticais compared to the 4059 meticais it would cost without the VAT exemption, which means an estimated saving of 589.79 meticais for the consumer.
Therefore, for the CTA, the impacts of removing the exemption are very high. “As far as we’re concerned, you can’t just look at how much the state budget loses or gains from VAT on sugar, soaps and oils. Rather, you have to take into account the huge impact these products have on inflation, considering that food producers contribute around 53% of total inflation, which, from the outset, presupposes that the addition of 16% VAT on food products will result in a galloping rise in their prices and, consequently, in inflation,” he points out.
The CTA reiterates that the impact doesn’t stop there, as the increase in inflation will induce the Bank of Mozambique to increase the reference interest rate, as a way of ensuring the stability of the metical, which could represent an additional stifle for small and medium-sized enterprises (SMEs), resulting in a reduction in the labour force, loss of income in the budget, among other aspects.
The organisation believes that the general monetary policy framework should be revised to take account of local specificities, as it believes that coordination between monetary and fiscal policy is important, but seems difficult at times, when the Central Bank’s objective is solely currency stability.
For the CTA, it is imperative that this monetary policy framework can enable an interest rate of 8% to 12% to be achieved for food production, processing and industrialisation.
Looking back to 2023
The Confederation of Economic Associations believes that “2023 was undoubtedly a year characterised by a very challenging environment for business activity, as a result of a Macroeconomic Environment Index that we believe stood at an average of 40.7% compared to 49% in 2022, a reduction of around 8 percentage points”.
The organisation explains that cost inflation was the main reason for the deterioration, which influenced monetary circulation to the point where it reached historically low levels. “As a result, business performance stagnated, reaching an average of 28.3 per cent, almost the same figure as in 2022, which is in line with the performance of the entire national economy,” said Agostinho Vuma.