Good afternoon. Yesterday we reported that the government has found another short-term fix to ease the foreign currency shortage, in the form of a deal with commodity trader Vitol that will see it providing $600m of credit to pay for fuel imports for 12 months. Now the government is insisting that it is dealing with airlines’ inability to withdraw funds from Mozambique due to the currency crunch (see below). But a more lasting solution to the crisis is still awaited.
How has Mozambique got into this situation? Several things have happened in the last year to trigger a foreign currency shortage. The most obvious is the fall in exports caused by the nationwide post-election protests, which caused a slump in foreign currency entering the country. The protests also deterred foreign direct investment, and encouraged companies and savers to keep more of their money in US dollars for fear of a collapse in the value of the metical. The prices of some of Mozambique’s most valuable commodity exports, such as rubies, coal and cotton, have fallen recently. The end of the government’s loan programme with the International Monetary Fund, which has yet to be replaced, deprived it of an important source of dollars.
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Tom Gould
However, those events would not have had such a big impact, had Mozambique not been in such a vulnerable situation to begin with. The country is heavily reliant on imports, including goods like food that could be produced domestically, and equally reliant on commodities to generate most of its export revenues, whose price can fluctuate considerably.
