Tuesday, June 28, 2016

IMF Staff Concludes Visit to Mozambique

Resultado de imagem para fmi

IMF Staff Concludes Visit to Mozambique

Press Release No. 16/304
June 24, 2016

End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. This mission will not result in a Board discussion.
A staff team headed by Michel Lazare visited Mozambique from June 16-24 to assess recent economic developments and help design corrective measures needed to prevent a further deterioration in economic performance. The mission also aimed at evaluating the impact of the debt that was disclosed to staff in April 2016, as well as discussing measures to strengthen transparency, improve governance, and ensure accountability while avoiding recurrence of similar debt issues. The mission met with President Nyusi, Prime Minister do Rosario, the Economy and Finance Minister, the Governor of the Bank of Mozambique, other sectoral ministers, senior government officials, parliamentarians, civil society, private sector representatives and the donor community.
At the end of the mission, Mr. Lazare issued the following statement:
“Mozambique is facing difficult economic challenges. Economic growth in 2016 is expected to decline to 4.5 percent (from 6.6 percent in 2015), nearly three percentage points below historical levels, with substantial downside risks to this projection. Inflation has been rising fast (reaching 16 percent in May). Fiscal policy in 2015 and the first half of the year has been excessively expansionary, with an increase in net credit to the government that far exceeded program targets. At the same time, the metical has depreciated by about 28 percent since the beginning of the year and international reserves have continued to decline.
“In addition, the discovery in April of $1.4 billion (10.4 percent of Mozambique’s GDP) of previously undisclosed loans has pushed the total stock of debt at end-2015 to 86 percent of GDP. According to our technical assessment, public debt is now likely to have reached a high risk of distress. Against this background, performance under the 2015-2017 Stand-by Credit Facility has been disappointing, with most assessment and performance criteria or indicative targets being missed at end-December 2015 and end-March 2016.
“The mission and the authorities agreed that this context calls for an urgent and decisive package of policy measures to avoid a further deterioration in economic performance. In particular, substantial fiscal and monetary tightening, as well as exchange rate flexibility, are needed to restore macroeconomic sustainability, reduce pressures on inflation and the balance of payments, and help alleviate pressures on the foreign exchange market while restoring balance between supply and demand on the foreign exchange market. They also agreed that adjustment should preserve critical social programs.
“The mission has made good progress in identifying with the authorities a package of measures aimed at strengthening transparency, improving governance, and ensuring accountability while, to the extent possible, avoiding recurrence of undisclosed debt. The mission agreed that recent initiatives to investigate the previously undisclosed debt, through the Attorney General and a Parliamentary Inquiry Commission, are important steps to restore confidence, though it stressed that further measures are needed. In particular, an international and independent audit of the EMATUM, Proindicus, and MAM companies would be needed – the latter two being the companies that received funding under the previously undisclosed loans.
“Further progress in the effective implementation of both the corrective macroeconomic measures and the measures aimed at strengthening transparency, improving governance, and ensuring accountability would pave the way for the resumption of program discussions at a later stage.
“The discussions were held in a cordial and constructive atmosphere, and the mission thanks the authorities for their hospitality.”

Monday, June 27, 2016

Killing football

Resultado de imagem para simango juniorThis grave accusation is contained in the newspaper "Publico" this week. According to Weekly, smoothness (which no longer appears to be) in just 11 months, has worsened the Mozambican football crisis, incurring debts worth more than 20 million meticais by the BCI, he never met with the Presidents of the Associations provinces or disburses funds monthly and is due 03 months of wages to the national coach Abel Xavier. So the Simango Junior management is causing chills and some associations already think to demand the resignation of Simango and convene an Extraordinary Assembly of FMF for the election of new socias organs.
The "Public" explains that the first loan made at the beginning of the year, valued at 18 million meticais, and given as collateral apartments of the former headquarters in the building Blue Source, at Av. Samora Machel, with the payment period of a year which would be repaid with the value of the institution's sponsorships.
Resultado de imagem para simango juniorThe second loan was made on May 30 current Simango asked promissory note of 6.000,000,00Mts, the amount was intended to defray the expenses of the national team to Rwanda on 04 of this month to face the Rwandan selection in game qualifying for the CAN 2017 in Gabon. this time used as collateral values ​​that will fit from its patrociniadores, including CAF, FIFA, FPD but not yet fit any value for these purposes, which leaves the casting Simango bewildered.
In addition to the debts, there's a defense environment by the Presidents of the Associations provinces that do not receive the annual budget, estimated at about 350,000 meticais.
Off the debts with the banks, the "public" denounces that Simango Jr. He deviation from the application of the money allocated by HCB to pay for Abel Xavier wages, which on that account receives no wages to 03 months. The money was used to pay debts with hotels and travel agency in the approximately 11,251,300 Mts.

Much ink will still roll ... .pois the procession will still in the churchyard ...

Agencies asphyxiated travel

Resultado de imagem para mex maputoThe more active control that the Bank of Mozambique is doing in foreign currency movements as well as new limits for the use of credit cards in force since the beginning of the year, are stifling the Mozambican travel agencies. "Now we have a much more serious problem that is part of airlines that are starting to ban sales of airline tickets for lack of expatriation of funds," said the president of the Travel Agents Association and Tour Operators of Mozambique (Avitum) Noor Momade, warning that if nothing is done "we run the risk of shut the travel agency."

Resultado de imagem para agencias de viagem em moçambiqueThe restrictive monetary policy measures that the Central Bank has implemented unsuccessfully, to curb inflation in our country, are stifling various sectors of the national economy in addition to the bank loans have become more expensive due to the increase of the reference rates the most active control on foreign currency movements are hindering the repatriation of capital from foreign companies that sell in meticais but wish to receive these values ​​in their foreign countries.
The latest cry arose from the business of Mozambican travel agencies at a meeting held last Friday (24) with the Minister of Culture and Tourism, Silva Dunduro, warned that international airlines that sell airline ticket in our country started impose restrictions since the week ended due to the difficulty of transferring the amounts received in meticais to their respective countries.
"There are airlines flying to Mozambique, and there are others that do not fly here but you are in the market and we can sell your tickets. For example Emirates, Air France, Singapure Airlines, American Airlines and others departing from Johannesburg. Since yesterday (Thursday, 23), some of them, decreed that the Mozambican agencies can not sell their tickets than from Maputo match, "said the president of the @Verdade Avitum explaining that this decision first more expensive for domestic travelers the cost of tickets for the connection between the Mozambican capital and Johannesburg, monopolized route through Mozambique Airlines and South African Airways, is very expensive.On the other hand the sale of air tickets abroad, in addition to the routes operated by airlines flying to Maputo, represents a significant share, and lucrative, business of domestic travel agencies.In addition to this recent problem tourist agencies have faced other difficulties in selling their tourism services to clients in Mozambique intend to move to the outside. Since 1 January this year the Bank of Mozambique restricted to only the equivalent of 700,000 meticais the annual limit that each holder, regardless of the number of credit or debit cards that have one or more Mozambican banks.
"Many of us have to pay for our guests accommodation, transfers outside the country, we use the credit card. Usually the credit card company is in the name of one of the company managers and this manager also has your personal card then buying it does accumulate and the limit is unique. If there are colleagues who have exceeded the limit set by the Bank of Mozambique should not miss much, what will happen: we will issue cards to all workers (the agency) to accumulate we can 700 thousand, is correct we do that? "he asked Neima Fakir representative of a Mozambican tourism agency present at the meeting.

Resultado de imagem para agencias de viagem em moçambiqueAccording to Neima Fakir the "solution could be a bank transfer, but if a customer appears today to pay a hotel anywhere in the world the bank does not transfer on the same day, and the hotel there until they receive will not accept the client"."This is very bad for us because our sales will decline and we have workers doing nothing, we will not be able to pay wages, let's lay off or we'll have to close the agency," concluded Neima Fakir.Silva Dunduro minister left the meeting before its completion due to scheduling reasons, without giving answers to the representatives of Mozambican travel agencies.

THE IMPACT OF Mozambique’s hidden debt service payments

The economic impact of a falling exchange rate
A fall in the exchange rate is known as depreciation in the case of a floating exchange rate regime, as exists in Mozambique (as opposed to a fixed exchange rate regime). Mozambique’s floating exchange rate adjusts on a daily basis (sometimes only by a fraction of a Metical), and it could appreciate (gain value) or depreciate (lose value). When it depreciates, the Metical is worth less compared to the currencies of other countries, notably the US dollar. When there is depreciation and more Meticais are needed per US dollar, the immediate effect is that imports will become more expensive, and exports will become cheaper. Therefore, in principle, a depreciation of the Metical makes Mozambican goods (not only exports but also so-called nontradables, like restaurants that attract tourists) more competitive, because domestically-produced goods are demanded relatively more by locals as well as by foreigners since they have become relatively cheaper compared to goods produced abroad. However, as shown below, the debt scandal has wiped out any of the benefits of depreciation, since it has destroyed confidence in the Government’s economic policies. At the microeconomic level, with depreciation the man on the street is paying more for imported goods. Imports (excluding imports for megaprojects, which respond to a different dynamic) accounted in 2014 for 38% of GDP, which is substantial and means that the impact of higher prices of imported goods is being felt throughout most areas of consumption. A consequence of this is that people will start purchasing less since their income is limited; this, in turn, means their standard of living will suffer. The higher cost of imports is exacerbated by the impact of the depreciation-caused inflation on locally produced goods: to the extent that such goods use imported inputs, their prices will increase as well, and demand for them will also decrease. There also is a demonstration effect: even if locally produced goods do not use, or use only few, imported inputs, their prices are also bound to increase because producers will take advantage of the upward creep in prices of similar goods that have a greater import component. At the macroeconomic level, higher import prices will cause demand to fall across the economy. This will reduce demand for foreign exchange, but it will also lead to a reduction in economic growth (GDP will grow by less), because higher prices of inputs will make companies produce less overall. The fall in aggregate demand will help improve the current account balance of payments (and therefore reduce the pressure on the exchange rate), but it affects the real sector because of a lower growth rate.1 But there is an even worse effect: both the companies that import and those that produce local goods with imported inputs will sell less. At the extreme, they may not be able to cover their costs anymore since consumers, given their inelastic income, will quickly cut back on purchases if prices rise too fast. This will affect employment as those companies that are producing less will start to lay off workers. As a consequence, there is an additional negative effect on GDP growth, and on the standard of living, as people lose jobs. Finally, there is effect of falling confidence, which clearly is the case now in Mozambique. The secretive handling by the Government of its external financial transactions (starting already with the EMATUM loan of 2013) has now increased to crisis proportions, where economic agents do not believe that the Government can soon return the economy to a macroeconomic equilibrium. This has been exacerbated by donors suspending all budget support to the Government. With a lack of confidence, the demand for foreign exchange will increase no matter what government policies are announced, as economic players do not give credence to the Government’s commitment to better policies. By expecting a further deterioration of the availability of foreign exchange, more is demanded than is actually needed for operational purposes, and with speculation setting in, depreciation may even accelerate beyond economic fundamentals.

Manifestations of inflation
The additional debt service payments that the Government needs to make have caused the Metical to depreciate. As shown above, depreciation results in higher prices of imported goods as well as of locally produced goods, and therefore increases overall inflation. Thus, at present, inflation in Mozambique is driven overwhelmingly by exchange rate depreciation. Inflation can also be driven by other factors, such as increases in salaries or removal of subsidies, notably of petroleum products; however, that is not the case currently in Mozambique. Inflation is considered a “regressive tax”, because it affects all economic agents in the same way. Poor segments of society have to deal with the same rate of inflation as do the rich segments.However, since poor people have less financial resources, they suffer more.2 The sudden need by the Government for more foreign exchange, as a result of its unprogrammed debt service payments, is causing depreciation of the Metical and an increase in inflation, which creates a direct link to the common people. Through no fault of their own, they suddenly face an effective decrease in their income, because the things they buy cost more. Inflation for the twelve months May 2015 to May 2016 has reached 18.3%, compared to 1.3% for the twelve months May 2014 to May 2015. Because the payments on the debt are bound to be higher in the second half of 2016, inflation is expected to increase further in 2016.

Issuing money

Money is created (“pumped into the economy”) in two ways: by the Central Bank, when it gives credit to the Government for financing the budget deficit, and by commercial banks, when they give loans.3 When a bank makes a loan, it credits the customer’s bank account with the amount of the loan. At that moment, new money is created. Obviously, commercial banks have immense power if they can create money at will. This power is controlled in 2 ways: structurally, by regulations as to the amount of loans banks can give based on their capital and deposits (including by a central bank tool that requires banks to freeze some deposits with the Central Bank, called “reserve requirements”); and operationally, by adjusting the relative cost of making loans through interest rates. In Mozambique, in the 12 months from April 2015 to April 2016, the Central Bank accounts show that domestic credit (virtually equal to the increase in money) increased by 86,4 MMT (44%), with the Government accounting for 54,3 MMT and the private sector for 32,2 MMT. The day by day control of the growth of money is one of the key functions of the Central Bank because of the effect issuing money has on inflation and the exchange rate. Central Banks often “anchor” their monetary policies on an inflation target. In developed economies, Central Banks control the growth of money by issuing bonds, which take liquidity out of the market, and by adjusting key interests rates. In Mozambique, the Central Bank has been relying on adjusting key interest rates. Needless to say, with domestic credit growing by 44%, the Central Bank has not been terribly successful in anchoring its monetary policy. And there is one important reason why that may be so: as the Central Bank raises its benchmark interest rate, the interest rates on all other loans, also rise. Importantly, higher interest rates affect productive activities, and when companies that need loans to be able to produce more have to pay more interest, it affects their profit calculations. This may lead companies to not borrow, affecting domestic production and the GDP growth rate. The Bank of Mozambique raised its benchmark interest rate twice in recent months. But since money still grew by 44%, it means that the increases were not sufficient to maintain a stable macroeconomic environment. This highlights the dilemma between fiscal and monetary policy: if the Government assumes a lax fiscal policy, as evidenced by its large share in creating new money for Mozambique’s economy, then the Central Bank is limited in its use of monetary policy: it can raise interest rates only so much before the real sector, i.e. productive activities, is affected in a major way that can cause massive unemployment. Contrary to intuition, the money created is overwhelmingly in the form of deposits in bank accounts, not banknotes and coins. At end-April 2016, only 7.8% of “total” money (“money and quasi-money,” the latter being time deposits) was in the form of banknotes and coins. The need for money in day-to-day transactions (as opposed to deposits) is referred as the “transactions” demand for money. To the extent that people use more and more ATM and credit cards, as well as checks, tangible money that you can touch has been decreasing world-wide. In fact, in the United Kingdom, tangible money represents only 3% of total money. As to the effect on demand for foreign exchange or for goods, it makes no difference what form money takes (tangible or bank deposits), since the payment mechanisms work smoothly no matter what the medium is. There is, however, one situation where the form of money makes a noticeable difference: the case of hyperinflation. Banknotes and coins have to procured or produced by the Central Bank, and that costs money. (C.I.P.)


Parliamentary deputies of Mozambique’s ruling Frelimo Party on Wednesday called on Attorney-General Beatriz Buchili to take action against the main opposition party, the rebel movement Renamo, and even to outlaw it.During the debate on Buchili’s annual report on the state of justice to the Mozambican parliament, the Assembly of the Republic, Lucilia Nota Hama, who is a member of the Frelimo Political Commission, declared that Buchili’s office must take measures to hold Renamo criminally responsible for the death and destruction caused by the actions of its illegal militia.The Mozambican constitution, she pointed out, forbids political parties from using force to change the political order. “Renamo is in gross violation of both the Constitution and the law on political parties”, she said. “The Attorney-General must take action against the crimes committed by Renamo and its leader (Afonso Dhlakama)”. Hama urged Renamo to “take the path of peace and reconciliation”, by accepting unconditionally President Filipe Nyusi’s offer of face-to-face talks with Dhlakama.Patricio M’pangai went further and called for Renamo to be banned. 
Resultado de imagem para FRELIMO CALLS FOR PROSECUTION OF RENAMO AND DHLAKAMA“Renamo is deliberately killing citizens, looting the goods of the population, and destroying social and economic infrastructures”, he said. “Renamo prevents schools from functioning in several parts of the centre of the country in a clear demonstration that it wants to plunge our country into pain and poverty”. Renamo “is a criminal organization”, M’pangai declared. “It is permanently degrading human values such as love for one’s neighbor, solidarity, compassion and mutual respect”. Because of its behaviour, “there is no more room for it to enjoy the rights of a political party”, and Buchili should remove “its apparent impunity”.He was seconded by Jose Coffe, who said Renamo should be declared an illegal organization, and Dhlakama held responsible for the crimes committed by his militia.“For how long must we have a Renamo acting as a chameleon, with men in parliament in suits and ties, speaking in the name of the people, while others, under the command of the Renamo leader, take the lives of Mozambicans?”, he asked.Renamo deputy Antonio Muchanga accused Frelimo of responsibility for two attempts on Dhlakama’s life in September and threatened that Renamo “will open fire on the places where Frelimo leaders live”.
Mario Ali attacked what he called “the colonialist Frelimo regime”, repeatedly calling Frelimo both “colonialist” and “communist”.
This was too much for the spokesperson of the Frelimo parliamentary group, Edmundo Galiza-Maros Junior, who pointed out “it was Frelimo that expelled the colonialist regime from Mozambique”. 
Resultado de imagem para edmundo galiza matosAs for Renamo’s deliberate conflation of Frelimo with the army and the police, Galiza-Matos retorted that Frelimo is a political party that has no weapons, while the defence and security forces contains “people who come from Renamo and quite possible from the MDM (Mozambique Democratic Movement) and other parties”. The Mozambican armed forces (FADM) were created in 1994 out of a merger of volunteers’ from the old government army, the FAM/FPLM, and from Renamo and several Renamo officers remain in senior positions in the FADM. People who join the defence forces today are not asked which political party they support.The army and police, Galiza-Matos told the Renamo benches, “are defending the people against what you are doing”. The latest Renamo attack had come at 02.00 on Wednesday morning in Mossurize district, in the central province of Manica, when a local Frelimo secretary had been murdered. The MDM concentrated its fire on the failure by prosecutors to act against those involved in the government guaranteed loan of 850 million US dollars to the Mozambique Tuna Company (EMATUM). Thanks to an MDM intervention in the Assembly a year ago, Buchili’s office opened a case file on EMATUM. But since then nothing much has happened and the case remains at the stage of “preliminary investigation”.MDM deputy Jose Manuel de Sousa described the EMATUM loan as “the greatest financial scandal in Mozambican history”. Yet a year after the case had been opened, it had fallen into “complete stagnation”.Indeed, the fact that a case file was open in Buchili’s office had led the Assembly to reject a proposal for a parliamentary commission of inquiry into EMATUM on the grounds that the matter was sub judice. A second MDM deputy, Geraldo Carvalho, declared “the Attorney-General’s Office must not be an obstacle to justice. We want a genuinely independent and operational prosecution service”.