Mozambique's new central bank governor arrives at a moment when inflation is more contained and interest rates are falling — yet businesses continue to struggle for financing and the country remains exposed to significant fiscal, foreign-exchange and external pressures.

Felisberto Navalha returns to Banco de Moçambique four years after his previous stint, this time as governor. The mandate of Rogério Zandamela has ended, and leadership has passed to a figure with more than two decades of experience at the institution. Navalha was sworn in on 2 September, in a context where Mozambique is seeking to consolidate monetary stability while confronting an economy that continues to grow below its potential.

Economists Moisés Nhanombe and Eduardo Sengo outlined to E&M a set of challenges the new governor is likely to face during his tenure. The starting point is the overarching objective: ensuring that hard-won stability gains translate into improved access to financing for businesses, greater investment, and stronger productive activity. And this task begins from a seemingly favourable position. Annual inflation stood at 6.45% in August, while the MIMO policy rate has fallen to 9.25%, down from 17.25% at the end of 2023.

The new administration is challenged to ensure that the market operates in a sufficiently predictable manner for companies that need foreign currency.

Over the same period, the prime rate retreated from 24.1% to 15.5% as of 18 September. The decline in reference rates has significantly altered the cost of money, but it has not resolved the question that Felisberto Navalha will need to answer: why has the reduction in rates not yet translated into a more robust expansion of credit to the economy?

Credit Growth Lags Behind Falling Interest Rates

This is the contradiction that constitutes the first concern raised by both economists. 'It is necessary to ensure that the reduction in reference rates translates into credit that is genuinely cheaper,' argues Eduardo Sengo. This is not to say it is not happening — but data from Banco de Moçambique show that the transmission remains slow. In March 2026, credit to the economy grew 2.9% year-on-year, following 2.5% in February. The central bank links this recovery to the decline in the MIMO rate, but acknowledges that it continues to be constrained by the slow recovery of economic activity and banks' perception of elevated credit risk.

At its core, this is a problem that goes beyond any simple administrative decision by the central bank. 'Even with cheaper money available in the market, banks may remain cautious when faced with companies lacking sufficient collateral, robust financial information, or projects deemed sufficiently safe,' said Moisés Nhanombe.

Both economists argue that the new governor must draw on his experience and lay the groundwork for the current foreign currency scarcity to gradually give way to the challenge of managing much larger inflows of hard currency.

When the State and Businesses Compete for the Same Money

The second front concerns the financing needs of the state itself. For Moisés Nhanombe, growing demand for resources in the domestic market reduces banks' capacity to finance private enterprises — and 'limits a relevant portion of the potential for employment growth.'

Eduardo Sengo echoes this concern but adds a dimension that deepens the worry: 'the decline in reference rates will have limited effects on financing to the economy if the state's financing needs continue to place pressure on the market.' He notes accordingly that Navalha inherits a task that has challenged several of his predecessors at Banco de Moçambique: finding the path that fosters a 'perfect marriage' between monetary and fiscal policy.

The Exchange Rate Beyond the Daily Fix

The third challenge lies in the foreign exchange market. At a time when the country is grappling with a dollar shortage that has persisted for approximately two years, the new administration is challenged to ensure the market operates in a sufficiently predictable manner for companies that need foreign currency to import, produce and invest.

'It is not enough to have international reserves. Foreign currency must be distributed efficiently through the financial system in order to meet the needs of the economy without creating new pressures on reserves,' said economist Moisés Nhanombe. Eduardo Sengo approaches the problem from a different angle, pointing out that the gap between the rate prevailing in the formal market and values resulting from transactions outside the organised circuit deserves particular attention from Felisberto Navalha. 'These imbalances need to be corrected gradually, avoiding an abrupt adjustment that could feed inflation,' he warned.

The issue extends well beyond the metical's daily rate against the dollar. For an economy heavily dependent on imports of food, fuel, equipment and raw materials, the availability of foreign currency directly affects business costs and, by extension, the prices paid by consumers.

Guarding Against Dutch Disease

Looking further ahead to the horizon of gas revenues — which are expected to intensify over the coming years with the possible start-up of new exploration projects — Eduardo Sengo identifies an additional challenge for the central bank. 'The country may receive more dollars and must determine how those revenues enter the economy without triggering an excessive appreciation of the metical that would undermine the competitiveness of other sectors,' Sengo explained. This is the phenomenon known as Dutch disease, one of the most feared risks faced by all resource-rich countries.

To address this risk, both economists argue that the new governor must draw on his background in economic research and monetary policy to lay the groundwork for the current foreign currency scarcity to progressively give way to the challenge of managing far larger inflows of hard currency.

Source: Diário Económico
Original article: https://www.diarioeconomico.co.mz/?p=552482