GOVERNOR ROGÉRIO ZANDAMELA OPENS THE 48TH BM ADVISORY BOARD MEETING IN INHAMBANE

This Wednesday morning (1), the Governor of the Banco de Moçambique, Rogério Zandamela, opened the 48^th Advisory Board meeting of the Banco de Moçambique (CCBM) in Inhambane city, in Inhambane province.

In his speech, Rogério Zandamela highlighted the resilience of economic activity amid shocks and vulnerabilities, in a global and domestic environment marked by high risks and uncertainties. Regarding the performance of the economy, Rogério Zandamela noted that the gross domestic product (GDP) recorded an annual growth of 4.4% in the first half of this year, accompanied by an inflation slowdown to 4.6% in September, following a peak of 12.9% in August 2022, reflecting the combined effect of exchange rate stability and the restrictive stance of monetary policy, as well as the fall in food and fuel prices in the international market.

Other indicators referenced by Rogério Zandamela and that explain the country's macroeconomic stability are underpinned by the improvement in the current account deficit by 78.3% in the first quarter of this year, driven by the decline in mega project imports, as well as the country's gross international reserves, sufficient to cover 4 months of imports of goods and services, excluding mega project imports.

In addition, the Governor assured that the informal banking sector remains sound and well-capitalized, with the solvency ratio set at 24.0% in September of this year, i.e., 12.0 percentage points above the regulatory minimum. "Meanwhile, the credit default ratio remains relatively high, standing at 9.1% in September 2023, following 9.3% in the same period last year" - he noted.

Regarding the monetary policy stance, amidst risks and uncertainties, Rogério Zandamela recalled that Mozambique has been cyclically struck by several shocks, including extreme weather events, which tend to grow in intensity and frequency, stressing that "Between 2019 and 2022 alone, 11 climate shocks took place, namely droughts, floods and cyclones, with estimated losses at about USD 1.5 billion, equivalent to 9% of the average GDP for the period. In 2023, our country has also hit by Cyclone Freddy".

According to Zandamela, domestically, the strong pressure on public spending, amid weak revenue collection and limited external financing sources, contributes to increased fiscal risk and domestic indebtedness. "The increase in spending is mainly due to the implementation of the wage reform and expenses associated with the election cycle" - he clarified and exemplified, noting that the stock of domestic public debt, which stood at 275 billion meticais in 2022, increased by about 19% over the last 10 months to 327 billion meticais.

On the external front, the Governor alluded to the escalation and potential spread of the Russia-Ukraine and Israel-Hamas conflicts, with impacts in hikes in fuel and food prices in the global markets, which may set off developments in domestic prices of goods and services.

In addition, he pointed to the stance of protectionist policies worldwide as another risk factor that has been driving the increase in global trade segmentation and, consequently, the slowdown in the global economy.

Rogério Zandamela referenced the prevalence of high uncertainties regarding the magnitude of the impacts of listed risks, amplified by the volatility in financial markets, which has required increasingly prudent monetary policy action and underpinned ongoing restrictive monetary policy with the MIMO policy rate standing at 17.25%.

He also made it clear the in order to tackle the excess liquidity in the banking system, exacerbated by the sudden increase in public spending, resulting from the implementation of the salary scale, "we decided to increase the reserve requirement ratios for domestic and foreign currency liabilities by 28.5 and 28 percentage points to 39.0% and 39.5%, respectively".

In the area of reforms, the Governor mentioned the transition from the national switch to the new electronic payment processing platform, Euronet, in which banks are already fully integrated, including electronic money institutions (EMIs), with an impact on boosting economic transactions in remote areas, as well as financial inclusion levels. He also referenced the ongoing process of Foreign Exchange Law regulation which should facilitate the inflow and outflow of capitals driven by the liberalization of the capital account, and the ongoing works in order to remove Mozambique from the gray list of the Financial Action Task Force, in the context anti-money laundering/countering the financing of terrorism.

As part of efforts to promote innovation and improve access and use of financial services by the Mozambican population, the fourth edition of the regulatory sandbox was launched, which was attended by eight fintech participants, and recently the call for the fifth edition was released. "We believe that this initiative will help to respond to the challenges posed by technological innovation in the field of financial services without neglecting aspects related to risk mitigation, consumer protection, and market conduct" - he noted.

Regarding the short and medium-term economic outlook, the governor warned of the possible exacerbation of vulnerabilities, risks, and uncertainties, which should continue to hamper domestic economic activity and the policy measures that will be taken. "The current backdrop, dominated by the extractive industry, in particular the implementation of liquefied natural gas projects in the Rovuma basin, is expected to continue to be the biggest driver of GDP growth."

Zandamela expressed the conviction that creating the Sovereign Fund, in addition to helping to ease public spending, stabilize prices, and accumulate savings in order to respond to future shocks, is an important mechanism to accelerate the diversification of the economy, bolstering the growth of some traditional sectors.

Regarding the external position, he said he expected the balance of the country's net international reserves to remain comfortable to cover import needs and the exchange rate of the Metical against the currencies of the main partners to remain stable.

Rogério Zandamela praised the importance and gains for the country from the extrajudicial agreement reached between the Government of Mozambique and creditors under the undeclared debts' dossier. The debt write-off, as stated by the Governor, "contributes to improving the sustainability of macroeconomic indicators, particularly the commercial debt profile, which, consequently, will exert less pressure on international reserves, in addition to opening room for restoring foreign investor confidence in the country and strengthening national banking sector stability".

While wrapping up, Rogério Zandamela stressed that this year's results reflect the dedication and commitment, individual and collective, of the workers of the Banco de Moçambique, to whom he addressed special recognition, encouraging them to continue to give their best towards the growth and strengthening of the institution.

The Advisory Board meeting is set to run from today to November 3 the first two days are scheduled to discuss internal matters, while the last is reserved for the public session themed­ "Challenges and Opportunities in Maximizing Mozambique's Tourism Potential: the Case of Inhambane province".

In attendance at the 48^th CCBM are BM Board Members, managers and staff members.

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