Mozambique - Money

SAP-induced reforms in 1992 instituted a free floating exchange rate policy in Mozambique, with the value of the metical thereafter being determined by its supply and demand in international money markets. Prior to the reform, the Mozambican government followed a fixed exchange regime in which the metical was pegged to the U.S. dollar at a specific rate, subject to alterations only to rectify substantial distortions (severe imbalances between the market value of the metical against the U.S. dollar and the official value of the metical against the U.S. dollar).

Since the introduction of the free floating exchange regime, the metical has consistently depreciated vis-á-vis the U.S. dollar, meaning it takes increasingly greater quantities of meticais to equal the value of 1 U.S. dollar. In 1995, the exchange rate averaged Mt9,024.3 per US$1, with the rate depreciating to an average of Mt12,775.1 per US$1 in 1999, and an average of Mt13,392.0 per US$1 in 2000. The EIU expects that the rate will average at Mt16,225 per US$1 in 2001, and

Exchange rates: Mozambique meticais (Mt) per US$1
Jan 2001	17,331.0
2000	5,199.8
1999	12,775.1
1998	11,874.6
1997	11.543.6
1996	11,293.8
SOURCE: CIA World Factbook 2001 [ONLINE].

Mt17,280 per US$1 in 2002. The substantial devaluation that occurred in 2001 reflects, in large part, a weakening economy affected by flooding and declining agricultural productivity.

While currency depreciation may be positive for the exporting sectors of the Mozambican economy, since less foreign money is needed to buy Mozambican exports which thereby renders them more attractive, it has the adverse effect of increasing the prices of imports. Imports become more expensive since more meticais are needed to purchase them. For a food-importing nation like Mozambique, increases in the prices of essential imports, such as wheat, can have negative consequences on the poorest segments of the society, who cannot afford to pay increased prices. In their zeal for export-led economic growth, however, the IFIs, which routinely apply pressure on sub-Saharan governments to continuously devalue their currencies, fail to take this negative affect into account.