Home Southern Africa Dollarisation in Mozambique?

Dollarisation in Mozambique?

13
Dollarisation in Mozambique?

(3 Minutes Read)

Mozambique experienced its most complicated post-election period after the general elections of 9 October 2024, with demonstrations, strikes, looting and the destruction of businesses and public institutions as a means of contesting the results. Clashes with the police also left around 400 people dead, according to organisations on the ground.

 The Governor of the Bank of Mozambique, Rogério Zandamela, acknowledged that the country witnessed a “dollarisation” of the economy at the end of last year, following the post-election crisis, particularly in the attempt to withdraw foreign currency from banks.

Zandamela was questioned, in particular, about the guarantee he gave at the end of March that there would be sufficient liquidity in the foreign exchange market, when businesspeople complained about the lack of access to foreign currency to make imports, with the central bank adopting regulations the following month to facilitate the process.

According to the Governor, the position was the result of an assessment made at the time, which was later confirmed by attempts in the market to “shield itself with the dollarisation of financial and non-financial assets”.

Mozambique experienced its most complicated post-election period after the general elections of 9 October 2024, with demonstrations, strikes, looting and the destruction of businesses and public institutions as a means of contesting the results. Clashes with the police also left around 400 people dead, according to organisations on the ground.

The violence ceased after a meeting on 23 March between presidential candidate Venâncio Mondlane, who does not recognise the election results and called for the protests, and Mozambican President Daniel Chapo, who took office on 15 January, during which both agreed to end the violence in the country.

The Bank of Mozambique claims that systemic risk in the country’s banking system is “moderate”, but warns of “increased exposure” to public debt. The refinancing of Mozambican short-term domestic debt issues cost 19.211 billion meticais (€264 million) in the first three months of the year, but the Ministry of Finance doubts the effectiveness of the measure.

According to data from the Ministry of Finance’s report on the evolution of public debt from January to March, compared to December 2024, this represents an increase of 8.9% in the stock, corresponding to an additional 36,223 million meticais (€498.1 million), influenced by the refinancing of short-term debt.

Furthermore, as acknowledged in the document, domestic debt – which closed the first quarter at 443,218 million meticais (€6,094 million) – “was aggravated by the issuance of debt in advance under the central bank’s Credit Facility”, of 21,600 million meticais, which represents a growth of 23.8%.

The Mozambican government plans to hold five auctions this year to exchange domestically issued debt, totalling almost 26,223 million meticais (€365 million), according to a document from the Ministry of Finance.

Read Also:

https://trendsnafrica.com/mozambique-facing-acute-dollar-shortage/

According to the document, regarding the situation of Mozambican public debt, the approval of ministerial diploma 87/2024 marked the introduction of exchange auctions, within the scope of the reform measures recommended by the Medium-Term Debt Management Strategy, for the period 2022-2025.