Wednesday, August 12, 2009

Mozambican Currency Overvalued, Says Report

MAPUTO 11 August 2009 Sapa

MOZAMBICAN CURRENCY OVERVALUED: REPORT

The Mozambican currency, the Metical, is overvalued by 26 to 41
percent in real effective terms, according to an exchange rate
assessment released on Tuesday.

The Assessment of External Price Competitiveness for Mozambique,
prepared by Francis Vitek of the International Monetary Fund, said
a variety of indicators suggest Mozambique has recently lost
external price competitiveness with respect to its major trading
partners.

"If sustained, an overvaluation of this magnitude has the
potential to retard economic growth and jeopardise external
stability, calling for an adjustment of monetary policy to
gradually restore external price competitiveness," said the paper.

"External price competitiveness is only one aspect of external
competitiveness, which also encompasses structural characteristics
of the economy.

Mozambique's traditional exports are "concentrated in a few
agricultural products - tobacco, sugar, cotton, prawns and cashews
- whose production is weather sensitive and subject to terms of
trade shocks".

In addition to increasing external price competitiveness and
stimulating growth in the traditional export sector, there was need
to raise labour market flexibility and reduce transportation costs,
noted the paper.

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