Three economists believe that as well as jeopardising international trade operations, the shortage of foreign currency is damaging families’ quality of life.
The perspective of the economists interviewed by E&M on the shortage of foreign currency does not differ much from that of the private sector. They associate the phenomenon with the restrictive exchange rate policies implemented by the Bank of Mozambique and add other arguments to the debate, calling for attention to be paid to the issue to prevent the situation from worsening and triggering an even more acute crisis.
Impact on investments
Economist Naima Nurein believes that the shortage of foreign currency, although partly due to the fall in foreign investment, is also determining an even sharper fall in this indicator. For investors, the difficulty in repatriating profits or carrying out international transactions is an obstacle that makes them more risk-averse. ‘This phenomenon could affect large-scale projects, especially in the natural resources and infrastructure sectors, which are essential for the country’s economic development,’ warns the economist, drawing attention to the risk of reducing the potential for job growth.
Economist Yuran Nhancale adds that the fall in Foreign Direct Investment (FDI) could make the country’s economic situation even worse. ‘If investors continue to lose confidence in Mozambique’s ability to manage its economy effectively, we will see an even greater decrease in the flow of foreign capital, which will be detrimental to economic growth,’ he said.
For investors, the difficulty in repatriating profits or carrying out international transactions is an obstacle that makes them more risk-averse.Large projects could be affected
Economist Egas Daniel added that another factor in the national context could influence the reduction in the potential for attracting foreign investment. ‘We’re in an election year and that brings uncertainty for investors. Many prefer to keep their deposits in foreign currency, avoiding converting them to meticals, until there is more clarity about the country’s political future. This reluctance to convert currency further limits its availability on the market, which exacerbates the crisis,’ he explained.
Impact on the economy
Economists also warn of the possibility of profound impacts on the economy as a whole. Naima Nurein highlights the difficulties companies face in paying international suppliers, which leads to stock-outs and production delays. And when this happens, it leaves room for at least one of two undesirable situations: either they cut back on their ability to import goods, or if they do manage to import, it will be at a higher cost. ‘The increased cost of imports is inevitably passed on to consumers, resulting in higher prices for basic products such as food and fuel, putting severe pressure on household budgets,’ the economist warned.
The economists emphasise that the burden is likely to fall on the family sector, also due to the possible devaluation of the metical, resulting from insufficient foreign currency. ‘The devaluation of the metical makes imported products more expensive, especially essential goods,’ said Nurein. ‘This phenomenon has a disproportionate impact on families, and is most severe for those on low incomes, who are the most vulnerable to price fluctuations,’ added Egas Daniel.
Yuran Nhancale emphasises the risks for large projects that depend on imports, particularly in the energy sector. ‘The accumulation of fuel import bills is a real problem. If this situation persists, some major projects could suffer significant delays, which could jeopardise the country’s credibility with its international partners,’ he said.
Is there a shortage of foreign currency or not?
During the economic briefing held by the private sector in August, Millennium bim’s chief economist, Oldemiro Belchior, referred to an aspect that is worth exploring. He began by taking a position that seems to contradict the findings of the private sector on the ground. ‘There is not a shortage of foreign currency, but an insufficiency of foreign currency. It’s good not to confuse the two. Shortage is lack. This would mean that the market is dry of liquidity, which is not possible. What is happening is a shortage of foreign currency. In other words, the stock of foreign currency available on the market is not sufficient to meet the need to import goods and services,’ he explained.
Next, and most importantly, he clarified that ‘this shortage [of foreign currency] depends on the balance sheet of each bank, a reality that cannot be attributed to the entire banking system, since banks have different balance sheet structures: some have more liquidity in foreign currency and others don’t, because they have a smaller portfolio of exporting clients. As a result, they also have less capacity to raise foreign currency and respond to import needs.’ In other words, some banks do have foreign currency and others do not. Despite this, the private sector is still struggling to identify those that really do have the stability mentioned by Oldemiro Belchior.
Economist Oldemiro Belchior pointed out that the shortage of foreign currency is not common to all commercial banks, without specifying which ones are experiencing constraints
What exits?
Economists argue that there should be a series of actions coordinated between the government and the Central Bank. Which ones, specifically? ‘An immediate measure would be to relax the current exchange restrictions, allowing more foreign currency to be made available to the private sector,’ suggests Naima Nurein.
In the long term, the economist believes that diversifying the economy is also essential to reduce dependence on imports. ‘We need to promote policies that encourage exports and attract more foreign investment. The development of sectors such as tourism and agro-industry can help generate new sources of foreign currency,’ he added.
Egas Daniel agrees, but warns that the change will only be effective when it is gradually introduced. ‘The Bank of Mozambique has to be more sensitive to market conditions and adjust its policies gradually. The suspension of support for fuel imports, for example, was a measure that had a profound impact [on the shortage of foreign currency] and needs to be reviewed,’ he said. The economist also suggests that the Bank of Mozambique re-evaluate its compulsory reserves policy, which is currently too high for an economy like Mozambique’s that is struggling and thirsty for investment.
Yuran Nhancale argues that the Bank of Mozambique should resume subsidising commercial banks for fuel imports. ‘Resuming this measure, albeit moderately, could be an effective short-term solution,’ he argues.
Despite recognising the positive impact of the reforms made within the framework of the Package of Economic Acceleration Measures (PAE) taken by the government in 2022, the economist suggests that the government adopt additional measures, particularly at the level of fiscal and monetary policies, which favour attracting foreign investment in order to guarantee a continuous flow of foreign currency and relieve pressure on the foreign exchange market.
Text: Felisberto Ruco – Photo: D.R.
