Dolar Metical: A Macroeconomic Analysis

The Mozambican metical (MZN) has been on a rollercoaster ride in recent years, depreciating against the US dollar by over 50% since 2015 and reaching a record low in 2019. This has had a significant impact on the country's economy, making it more difficult to import goods and services and increasing the cost of living for Mozambicans.

Economic Impact of Metical Depreciation

Reduced Imports

The depreciation of the metical has made it more expensive for Mozambican businesses to import goods and services. This has led to a decline in imports, which has in turn slowed economic growth. In 2019, imports fell by 10%, the largest decline in over a decade.

Increased Cost of Living

The depreciation of the metical has also made it more expensive for Mozambicans to buy basic necessities, such as food, fuel, and medicine. This has led to an increase in the cost of living, making it harder for people to make ends meet. In 2019, inflation rose to 10%, the highest level in over five years.

Causes of Metical Depreciation

External Factors

One of the main causes of the metical's depreciation is the global economic slowdown. The slowdown has reduced demand for Mozambican exports, such as coal and natural gas, which has led to a decrease in foreign exchange earnings.

Another external factor that has contributed to the metical's depreciation is the appreciation of the US dollar. The US dollar has been strengthening against most currencies in recent years, due to the Federal Reserve's interest rate hikes and the US economy's strong performance.

Internal Factors

In addition to external factors, there are also a number of internal factors that have contributed to the metical's depreciation. These include:

• Government spending: The Mozambican government has been running a large budget deficit in recent years, which has put pressure on the metical.
• Inflation: The Mozambican government has also been struggling to control inflation, which has made the metical less attractive to investors.
• Political instability: Mozambique has been experiencing political instability in recent years, which has made investors nervous and led to a sell-off of the metical.

Outlook for the Metical

The outlook for the metical is uncertain. In the short term, the metical is likely to continue to depreciate against the US dollar. However, in the long term, the metical is expected to stabilize and appreciate as the Mozambican economy recovers.

Policy Recommendations

The Mozambican government can take a number of steps to help stabilize the metical and promote economic growth. These include:

• Reducing government spending: The government needs to reduce its budget deficit in order to reduce pressure on the metical.
• Controlling inflation: The government needs to control inflation in order to make the metical more attractive to investors.
• Promoting economic growth: The government needs to promote economic growth in order to increase foreign exchange earnings and stabilize the metical.

Conclusion

The depreciation of the Mozambican metical has had a significant impact on the country's economy. The government needs to take steps to stabilize the metical and promote economic growth in order to improve the lives of Mozambicans.