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Mozambique Ministry of Economy and Finance (MEF) foresees the metical-US dollar average exchange rate worsening.

Mozambique Ministry of Economy and Finance (MEF) foresees the metical-US dollar average exchange rate worsening

Mozambique Ministry of Economy and Finance (MEF) expects exchange rate to reach 68 meticais per US dollar by the year end 2021.

The 2022 Tax Risks Report (RRF), published at the end of last August, the MEF starts by revealing that the metical depreciated in 2020 to an average of 66.6 meticais per US dollar, against an initial forecast of 60.0 meticais.

“For 2021, the projections changed with the impact of Covid-19, with pressure on the foreign exchange market being expected, which could raise the exchange rate to 68.0 MT/USD,” the document reads, under the section on ” Foreign Currency Risks

However, in relation to the initial forecast (in the 2021 State Budget), the MEF report shows that there was a negative variation in the increase in the exchange rate.

Initially, the MEF had predicted that the average annual exchange rate would reach 69.0 meticais per US dollar.

Fitch Solutions, an international financial ratings institution, also revised downwards the forecast of metical’s depreciation against the dollar in 2021.

 If initially the forecast for the end of this year was 74 meticais per US dollar, in August, the institution reduced it to 71 meticais per US dollar, due to the improvement in the prices of mineral coal and aluminium, two of the main export products in the country.

As for prices, the MEF forecasts for 2021 a certain stability in the level of inflation, standing at 5.0%, equivalent to a reduction of 0.5pp compared to last year.

The source points to a probability of materialization of the risk of deceleration, of a reduction in the general price level of 42.9%.

“However, given the new wave of Covid-19, the medium-term prospects could lead to an increase in price levels, due to the fall in production activity.

The acceleration will also be justified by the need for budgetary and/or public spending reinforcements, to face the effects of Covid-19, as well as to continue actions to support vulnerable families,” the MEF report reads

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