Thursday, February 11, 2016

Additional measures to stabilize metical

The economic research bureau of Banco Portugues de Investimento (BPI) believes that the Bank of Mozambique will have to take additional measures to restore the stability of the metical, in the wake of its strong devaluation."We believe that the central bank will have to take additional measures to restore the stability of the exchange rate," the BPI experts write in an analysis of various African economies.According to the document, accessed by Lusa, the country's economic growth is expected to accelerate to 6.5 percent this year, "supported by mega-project activity, in particular liquefied natural gas and coal projects".In its analysis of the economy, the BPI writes that it expects the current account deficit to worsen because of the low prices of raw materials and the increase in imports for projects, but stresses that this is not a significant risk in itself "since a large part of the deficit is financed by foreign direct investment and the financing of the private sector".More important, the experts consider, are the effects of the devaluation of the metical, which fell 40 percent in value last year, on the inflation rate, "which should compel the central bank to take additional steps to prevent inflation rates from reaching excessive levels".In addition to the rise in inflation, a weak metical will also increase the burden of external debt, which has risen considerably in recent years, and will at the same time create problems for companies by increasing the cost of imports.Mozambique, the economic research bureau concludes, "will still be vulnerable to external factors, in particular the fall in raw material prices, which may have a direct impact on external and fiscal revenues and threaten investment decisions" of multinationals, in the coal industry in particular, "which, according to the IMF, could shave 0.5 percentage points from expected economic growth in 2016 if coal prices continue to fall".

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