Rogério Zandamela: Restructuring Mozambique for a post-debt crisis revival

Q: What impact do you expect the big liquefied natural gas [LNG] projects scheduled to come on stream in the next few years will have on the economy of Mozambique?

A: Strong prospects for the Mozambican economy will open up when these major LNG projects start production. They are expected to generate large volumes of exports, producing revenues that will strengthen our international reserves. The large number of jobs and related services they create should help reduce current levels of unemployment and help leverage micro, small and medium-sized enterprises by aggregating local content. The tax revenues generated are also expected to help our government implement social and infrastructure investment plans and develop a long-term savings programme. For these reasons, I expect these projects to bring about a structural transformation of our economy.

Q: What steps is Mozambique taking to make the country attractive to foreign investors?

A: The government has been working across every area to reduce the costs of doing business in Mozambique, gradually removing the main barriers. In terms of the financial sector, we recently approved and have begun implementing legislation for a private credit registry. Legislation for registering the collateral of movable assets is also being drawn up.

In 2011, we approved foreign exchange legislation that liberalises all current transactions, and very recently we updated the regulations governing the Foreign Exchange Law, gradually liberalising part of our capital account. This makes us one of the few countries in southern Africa with an open capital account. All of these measures are aimed at creating a favourable environment in which all classes of investors are treated equally, whether they are big or small.

Q: In what areas should the Mozambican economy expand and diversify?

A: We need to diversify the economy as a whole to take better advantage of our natural resources. In my view, agriculture and tourism should be the priority sectors for expansion and diversification, with the focus on small and medium-sized businesses. The fact that the majority of the Mozambican population, about 80%, live in the countryside supports this view. Subsistence, family-based agriculture predominates. This means there is great untapped potential for agriculture and tourism, as well as a young, unemployed workforce.

Q: Is Mozambique considering the privatisation of some state-owned companies?

A: It is no secret that the government has an ambitious plan to restructure the state business sector, which includes state and public companies. The government recently approved legislation on the restructuring of these companies and, in some cases, the implementation process has already begun.

Q: How confident are you that Mozambique will return to the high growth rates it enjoyed before the recent downturn?

A: I believe we will. We are committed to laying the groundwork for this by increasingly cementing our macroeconomic stability. I have no doubt that in an environment of economic stability and lasting peace, with the tapping of our mineral resources under way and a plan to diversify the economy in place, we will equal – and perhaps surpass – our recent growth rates of 7%.

Q: Is Mozambique likely to reach an agreement in the near future with the International Monetary Fund [IMF] and other international creditors over the country’s debt problems?

A: The government is working on this issue and many important steps have already been taken to complete the process. Of course, the complexities involved always require caution and consideration, so that each step taken is secure. In regard to the relationship with the IMF, we have been working closely together in the area of technical assistance, training our technicians in various fields.

Our dialogue continues in the context of the Article IV consultations and very recently we have had discussions on the preparation of our 2019 government budget. We will soon begin discussions as part of the staff-monitored programme in what will be an important step towards forging a closer relationship in the future.

Q: Do you expect Mozambique to regain a positive credit rating in the near future so that it will no longer be considered a country in ‘selective default’?

A: My expectation is that this will happen soon, taking into account a whole set of measures that the government is taking to restructure the debt to levels consistent with Mozambique’s ability to pay, and taking into consideration the forecasts for our mineral resource revenues.

Q: What steps have been taken to ensure the stability of the banking sector following the crisis of 2016?

A: It is already widely known that to protect the interests of depositors and other creditors, as well as to safeguard normal operating conditions for the banking system and avoid the risk of contagion after the 2016 crisis, the central bank intervened in two credit institutions, assuming direct management in one and revoking the other’s licence to operate. Prosecutions were subsequently instituted against some managers of those banks, culminating in exemplary fines and suspending their management duties at credit institutions in Mozambique.

To strengthen stability, robustness and confidence in the financial system, we have approved an increase in the minimum capital requirement for commercial banks from 70m meticais [$1.05m] to 1.7bn meticais within three years. We have changed the regulatory capital clearing mechanisms as well as the ratios and limits for credit institutions. We have also lifted the minimum solvency ratio from 8% to 12%.

At the same time, we began the process of revising the legislation pertaining to credit institutions, adapting it to the current situation and complying with best practices, especially with regard to bank resolutions. We have also created the Financial Stability and Supervision Committee, which regularly reviews prudential issues.

To discourage the practice of irregularities by banks, especially in relation to money laundering and terrorist financing, we have recently published the names of the institutions and the value of the fines imposed on them resulting from the inspections to which they are subject.

Q: What are the main goals of the central bank’s monetary policy and how is this policy likely to develop?

A: The main objective of monetary policy is price stability. This translates into stable inflation within the single-digit band. Taking into account the medium-term inflation outlook, the monetary policy committee has been reducing reference rates since April 2017. In this context, the future course of monetary policy will depend on the committee’s ongoing assessment of the medium-term outlook. We are ready to take the necessary steps to ensure macroeconomic stability.

Q: Do you envisage any further regulatory measures for the banking sector?

A: The banking sector is very dynamic. Depending on developments in the sector, new measures may be taken to ensure stability. At present, the priority is to ensure the correct implementation of the measures taken with regard to: minimum capital requirements; foreign exchange operations; completing the process of reviewing the legislation pertaining to credit institutions and the implementation of risk-based supervision; and paying greater attention to combating money laundering and the financing of terrorism.

Rogério Zandamela is the governor of Mozambique's central bank.