Mozambican economists said Tuesday that the Central bank’s decision to stop co-paying the fuel import bill is a sign that its reserves are at their “limit” and is aimed at curbing the balance of payments imbalance.
“The country is using reserves to be able to maintain what the exchange rate is, and right now the Central bank can no longer do that, we are at the limit of our reserves,” said Estrela Charles, an economist and researcher at the Center for Public Integrity (CIP), a non-governmental organization (NGO).
Charles pointed out that the volume of reserves currently held by the central bank covers a maximum of three months and cannot be below this ceiling. “The central bank started the year 2022 with net international reserves sufficient for six months’ worth of imports [of goods and services],” but between late 2022 and early 2023, it “ended up being left” with resources able to support up to three months of imports at most, he added.
Estrela Charles pointed out that the Mozambican financial regulator understands that there is plenty of currency in circulation on the Mozambican foreign exchange market, enough to finance the import of fuel, without the need for the authorities to contribute.
He warned, however, about the risk of commercial banks running out of foreign currency and putting pressure on exchange rates, if the decision is not accompanied by “other auxiliary measures.
In his turn, economist Elcídio Bachita argued that the Bank of Mozambique’s decision shows that the entity wants to prioritize the use of its assets in the financing of other activities, leaving the support for fuel imports to the market. “On one hand, this has to do with the Government’s position in the sense of letting the market regulate what the price of fuel is in Mozambique, but on the other hand, the Bank of Mozambique does not want to see itself in a position of using net international reserves for fuel import charges”, Bachita stressed.