Mozambique Needs More Rate Hikes to Curb Inflation, Says IMF

  • Central bank has raised interest rates 300 basis points
  • Inflation accelerated to 22 percent in Aug., growth is slowing

Mozambique needs to further increase its benchmark interest rate to counter rising inflation and prevent its currency from depreciating, the International Monetary Fund said, following a visit to the southern African nation.

The IMF visited the coal-producing country this week after government finances have come under pressure as global commodity prices plunged and financiers, such as the IMF, and donors froze funding due the disclosure of $1.4 billion in hidden debt. As a consequence, the central bank increased its benchmark interest rate by 300 basis points to stave off inflation, which quickened to almost 22 percent in August, and protect the metical, which is Africa’s worst performer this year.

“The mission welcomed the central bank’s intent to continue adjusting its monetary stance to help reduce inflationary pressures,” Michel Lazare, head of the Washington-based lender’s staff team visiting the country, said in an e-mailed statement on Thursday. “With inflation still rising and the metical depreciating, further policy tightening is needed to safeguard macroeconomic stability.”

President Filipe Nyusi’s visit to Washington for talks with IMF Managing Director Christine Lagarde helped to set the terms for an audit of the country’s debt, including the state tuna-fishing company known as Ematum and Mozambique Asset Management, or MAM, Lazare said in the statement. The mission begun discussions on the terms of reference for an independent probe that international lenders are demanding before resuming financial assistance.

The implementation of sound policies and a speedy initiation of the audit will “help to create the conditions for a possible resumption of program discussions with the IMF,” Lazare said.

Mozambique’s growth is expected to slow to 3.7 percent this year from 6.6 percent in 2015, according to IMF estimates, undermined by weak exports, falling foreign direct investment and the drop in donor aid. The metical has lost 38 percent against the dollar this year.

The country, which is developing gas fields that may make it the third-biggest exporter of liquefied natural gas globally, has net general debt equal to 90 percent of gross domestic product, according to estimates by S&P Global Ratings.

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