The Central Bank’s monetary policy has returned to the spotlight with the significant increase in the reserve requirement ratios in local currency (28% to 39%) and foreign currency (28.5% and 39.5%).
Unless I am mistaken, and despite this increase, I do not believe that we are yet facing a true inflationary process (generalised and recurrent price increases), but rather an adjustment of relative prices, following various economic shocks, mainly of supply. Although with high inflationary potential.
At the economic level, these measures represent a shock on both the supply and demand sides, unprecedented in the recent past and with effects whose magnitude and scope are particularly complex and difficult to predict. From the economic point of view, the transmission channels of this shock are multiple and interconnected, with a strong impact on business activity (retraction of investment and falls in production), income (with an increase in unemployment) and productivity (through disturbances in production and employment).
Successive supply shocks have had a strong effect on the price level, leading to a deterioration of the terms of trade with abroad and, in this way, to an inevitable and unavoidable decrease in the real income of families and of some sectors of activity. What may turn this effect into an inflationary process will be the attempts to recover, by nominal means, the income irretrievably lost and the pressure of demand in overheated economies.
The result of Monetary Policy measures, at economic and financial level, has marked effects:
LIQUIDITY: lower financing capacity to the real sector of the economy, considering that 2/5 of the deposits captured on the market will be mobilised to the Central Bank (without remuneration).
PROFITABILITY: narrowing of the financial margin resulting from the lower flow of credit activity. The transformation ratios of the banks should increase reflecting a weak conversion of deposits into financial credit.
CREDIT QUALITY: deterioration in the creditworthiness of borrowers (companies and individuals), which will imply a greater provisioning effort and capital consumption by banks.
INTEREST RATE: upward revision of the Prime Rate of the Financial System, taking into account the pressure of non-performing loans on banks’ capital ratios and results.
CAPITAL FORMATION: rising interest rates are detrimental to business activity at a time when the country is expecting to welcome capital-intensive investments in strategic sectors for development (Agriculture, Industry, Oil and Gas, Energy, Mining). Repercussions on the value chains integrated in structuring projects, resulting from the increase of problems associated to business over-indebtedness.
PRIVATE CONSUMPTION: families will face increased financing costs and feel the inevitable loss of real income (purchasing power), so they will have to adjust their expenditure.
GROSS DOMESTIC PRODUCT: economic activity will grow less than expected due to restrictive monetary conditions that affect investment, profitability, productivity and the growth of national companies.
CONFIDENCE: reduction in the levels of confidence of economic agents, associated with the escalating degrees of uncertainty, with an impact on investment decisions (which may be deferred or cancelled) and on the consumption of goods and services (which may be reduced).
PUBLIC FINANCES: fiscal pressures associated with increased financing needs will have an impact on interest expenditure and debt burden.
INTERNATIONAL RESERVES: the current balance should increase in view of the absorption of deposits, allowing greater availability of foreign currency to meet the need to import goods and services.
And if without investment there is no action, it is now important to adapt Mozambique’s Economic Recovery Plan to the available financial means. It is crucial to take a short-term and a medium/long-term perspective, and to consider the leading role of different players in the different phases.
In the short term, the State will play a decisive role in relaunching the economy and protecting employment, preventing the stagnation of economic activities and services, and helping to capitalise businesses and families in difficulty.
In the medium term, it is necessary to ensure a transformation of the Mozambican economy, making it more socially, environmentally and economically sustainable, more resilient, more digitalised, more innovative, more interconnected and able to compete on a global scale with a critical mass equipped to make a difference.
In the long term, therefore, the role of the State will be to define policies and public investment, ensuring the reorientation of our economy, but the private sector will assume a crucial role as the engine of change and investment in our society and economic activity.
Mozambican companies are very undercapitalised and it is essential to create the conditions for strengthening equity capital through appropriate fiscal and financial policies. On the one hand, we need to support corporate treasury, in line with what the banks have been doing, but we need to broaden this support by creating mechanisms such as
Creating a Fund, of public basis, of capital and quasi-capital, open to private funds, for operations preferably in co-investment, aimed at companies with an export orientation and potential for exploitation of scale.
To redefine and simplify instruments of capital and access to funding, according to the conditions resulting from the life cycle of companies, supplying public intervention in market failures, structural development priorities and stimulating market offers in specific segments. Implementation of the Mutual Guarantee Fund.
Creation of a Promotional Bank, defining a clear operating matrix around the segments of companies with greater capacity to drag along and not in a logic of taking over risk operations that the conventional financial system is not available to accept.
A support programme for corporate restructuring, supporting the recovery and reallocation of capital to more productive companies, with reallocation of means of production and workers. The possibility of deducting profits in recent years, incentive mechanisms and tax credits to encourage the revitalisation of companies, deduction of accumulated losses, incentives for mergers and acquisitions to create critical mass in the economy.
