The Bank of Mozambique says that the national financial system continued during the first half of 2022 to carry out financial intermediation and payment services activities without disturbance, but characterised by multiple vulnerabilities resulting from successive shocks that have been shaking the domestic economy.
Among the main vulnerabilities, the institution highlights the persistence of military instability in Cabo Delgado, high public sector indebtedness, adverse climatic factors, namely cyclone Gombe and tropical depression Ana, and the country’s confidence in the international market.
In a Financial Stability Bulletin referring to the first six months of 2022, the Central Bank states that despite the reduction in the intensity and frequency of attacks, in a context of calm in the central region of the country, even though the process of disarmament, demobilisation and reintegration is not closed.
“This instability has led to the continued suspension of Mozambique LNG – TotalEnergies’ onshore project located in the Afungi peninsula. The uncertainty about the resumption of the exploration activities of the energy resources in the Rovuma basin affects the prospect of economic growth for the country as a result of the expected revenues, despite the progress made in the offshore gas exploration off the Afungi peninsula, by ENI. Military instability limits economic activity and increases government spending on military logistics and humanitarian assistance, as well as limiting financial inclusion,” the document said.
Along with terrorism, the Bank of Mozambique also said that in the first half of 2022 pressure on the State’s internal debt with the financial system was notorious. Indeed, the source reports that the State’s internal debt rose by 24.26 billion Meticais in the first six months of 2022, reflecting the use of Treasury bills to finance the current deficit.
The Bulletin reports that, until the period in question, the total stock of public debt (internal and external) contracted by the State stood at 908 billion Meticais against 848.8 billion for the same period in 2021.
The high indebtedness continued to tarnish the country’s confidence in the international market, despite the recovery of the International Monetary Fund and the World Bank. With that, financial rating agencies continued to place the national economy as less reliable. “The major financial rating agents have maintained the country’s rating at substantial risk in the international market. The rating of substantial risk, in the international market, despite the improvement seen, still imposes restrictions on access to financial markets, which may increase market risk in the domestic financial system in the exchange rate and interest rate components,” reads the Bulletin.
Allied to the low confidence in the international financial market, in the first half of 2022, the financial system found itself vulnerable due to cyclone Gombe and tropical depression Ana, which affected the central and northern regions of the country, having had a severe impact on infrastructure (communication routes, factories, crop fields, among others) and the well-being of the population, generating high economic and social costs.
“These extreme events impacted the country’s production levels, as a result of the destruction of infrastructure and production, as well as having influenced the ability of families and companies to honour their commitments with the banking sector,” the Bank of Mozambique noted.
Carta de Moçambique
