Price rises could create social tensions in Mozambique

Former prime minister Mario Machungo said on Friday that the increase in prices could create social tensions in the country, and advocated greater collaboration between the banking sector and the Bank of Mozambique "to stabilize the currency".Speaking to Lusa in Oporto on the sidelines of the Portugal Africa Foundation’s “Africa, Ways of the Future" conference, Machungo said he found the price increases worrying, as they "could create social tension"."The metical worries me. It has devalued tremendously recently and this is worrying for all of Mozambique", he said.According to its former president, Millenium bim, Mozambique’s largest bank, could help offset the external shock that the economy is suffering by "adopting monetary policies advocated by the Bank of Mozambique".The bank must "cooperate with the central bank to stabilize the currency," he said.Machungo also said that the bank "has to be prepared to implement the envisaged measures" to reduce credit acceleration, relieving imports and pressure on the metical, but, he argued, "demand cannot be stopped abruptly"."The economy – businesses – need credit to sustain employment and work. The bank should not be pressured to do it in one day; it must have time to do it," he said.Asked whether he agreed with the austerity measures suggested by the International Monetary Fund (IMF) and already implemented by the Mozambican government, Machungo said that he has "little knowledge" of the IMF proposals, but said that he accepts measures aimed at "solving problems of misapplication of funds, of misuse, which do not promote development.

"The IMF said on Wednesday that adjustments and structural reforms to control threats facing the economy of Mozambique were inevitable, while still believing that the situation is temporary."There is need for adjustments to stabilize the macroeconomic situation," IMF representative in Mozambique Alex Segura said during the presentation in Maputo of an IMF report on the economic outlook for sub-Saharan Africa, entitled "Dealing With Dark Clouds."According to Segura, the "external shock" facing the region caused by the slowdown in emerging economies and the normalization of US monetary policy and change in China’s development mode, the drop of the price of raw materials, will require tax adjustments and a credit slowdown in Mozambique, which has "experienced excessive expansion mainly financing consumption and low employment sectors".To contain the impact of the external shock, the IMF advocates Mozambique adopt a policy of moderate inflation, debt sustainability and stabilized metical depreciation levels.Mozambique and IMF in October negotiated a loan of US$286 million (EUR 263 million) to cover the sharp devaluation of the metical, falling foreign currency reserves, rising inflation, reduced foreign investment and foreign aid and rising debt.