The Business Year

Ernesto Gove


King Pin

Governor, Banco de Moçambique


Ernesto Gove entered the Central Bank in 1976, holding positions in several departments including the Foreign Department, Currency Issuing and Treasure Department, and Credit Department. He served as Director in Foreign Currency Operations and Currency Issuing and Treasure, before being appointed Executive Director and Member of the Board in 1991. Gove oversaw the establishment of the Banking Supervision Department, following the approval of the Law 1/92. In 1995, he was appointed Deputy Governor of the Banco de Moçambique. He also chaired the Board of Directors of the Sociedade de Notí­cias and the Fiscal Council of the Açucareira de Mafambisse. Gove graduated in Economics from the Eduardo Mondlane University, and obtained a Master’s degree in Finance Economics from the University of London.

How would you characterize the strength of the financial system in Mozambique? Unlike in developed markets, where the capital markets play a leading role in the financial system, in Mozambique […]

How would you characterize the strength of the financial system in Mozambique?

Unlike in developed markets, where the capital markets play a leading role in the financial system, in Mozambique the banks are the primary dynamo of the economy. Therefore, an analysis of the Mozambican financial system—the current outlook for which is positive—must rely on an analysis of the banking system. Despite the international financial crisis impacting most advanced economies, the Mozambican banking system continues to develop normally, in a healthy, robust, and transparent manner. Over the past five years, the system has seen growth of 100% in net assets, deposits, and total credit. In addition, the banks have been active in complying with the prudential ratios and limits established by the Bank of Mozambique for the protection of depositors and investors. During the same five-year period, there was also an increase in capital, which contributed to an increase in credit and helped in maintaining high levels of liquidity in the banking system. This is crucial for maintaining trust. Indeed, the solvency ratio of the Mozambican banking system is 15%, which is more than double the stipulated level. Another positive aspect is that the level of overdue loans in the banking system remains at just 5%.

How would you evaluate the current reforms underway in Mozambique’s banking regulatory system?

They are having a positive effect, and our regulatory system incorporates the principle recommendations of the Basel Committee, as adapted for Mozambique. In this context, the legislation creates ideal conditions for the fostering of banking activity in a favorable climate for all interested parties. Mozambique’s banking legislation has undergone a number of reforms over the past two decades. These have allowed the banking sector to thrive with the emergence of new institutions and the growth of the economy. And now, given recent events in the international financial system, Mozambique is also in the process of updating its banking regulations to achieve a number of goals. First, in order to strengthen our ability to prevent and manage financial crises, we have approved the creation of a deposit guarantee fund, and have approved a regulation allowing the Bank of Mozambique to become the lender of last resort and provide emergency liquidity assistance to temporarily insolvent financial institutions. In addition, we are approving contingency plans for credit institutions in Mozambique. Secondly, in order to improve technical supervision, we have adopted a new risk-based methodology. Finally, we are also working to improve the classification of loans in line with international standards, to intensify our anti-money laundering measures, and to strengthen cooperation with other supervisory authorities.

How does the Bank plan to confront the risks posted by the expansion of the extractive sector in Mozambique?

The discovery and exploitation of natural resources in Mozambique in recent times has been a subject of much debate among the country’s macroeconomic policymakers, as well as in the private sector and civil society. The country is aware of the risks and possible impacts that can arise from the exploitation of the natural resource sector. Over the medium to long term, commenced development of the extractive sector is expected to bring marked improvement to the country’s key macroeconomic indicators. In terms of the fiscal sector, the IMF projects tax revenues rising to around 34% of GDP in 2020, up from the current 23%. We will also see a reduction of total expenditure as a percentage of GDP. Initially, this ratio will increase to reflect the high investments in infrastructure to support natural resource development. Over the long term, we expect expenditure to stabilize at around 30% less than revenues, creating a budget surplus. This will be coupled with a reduction in the role of foreign aid in the state budget. In the external sector, we will see an improvement in the current account balance over the long term, as well as an increase in foreign reserves. However, in the short term, continued imports of goods and machinery for megaprojects will see the current account deficit increase. The high inflow of external resources and increased state revenues will also pose challenges to the macroeconomic management of the country. The first challenge will be the lack of internal absorption capacity, which will create inflationary pressure. If increased capital inflows are not coupled with a rise in goods and services in the economy, inflation can result. Secondly, the increased expenditure in the short term to support infrastructure development may lead to an increase in public debt. Finally, massive capital inflows might lead to currency depreciation and the so-called “Dutch disease.” However, there is no evidence of this phenomenon occurring. There is also a risk that this would leave Mozambique vulnerable to price shocks in oil and minerals. In view of these concerns, the Bank recommends the creation of a sovereign wealth fund. Among the many possibilities for spending Mozambique’s resource wealth, the establishment of a sovereign wealth fund is the most suitable alternative for the current macroeconomic climate.

“ The Bank of Mozambique has pursued a monetary policy over the past two years geared at creating space for credit growth in the private sector. “

What is your outlook for the Mozambican economy, and what are your monetary policy priorities for 2014?

The performance of the Mozambican economy remains positive and in line with the macroeconomic targets set by the government for 2013. More recent data indicates that in 2012, real GDP grew at a rate of 7.2% (similar to the 7.3% average of the past five years). In 2013, the country was devastated by floods, especially in the southern regions, which hampered the performance of the agricultural sector. Since agriculture is the sector with the largest share of GDP, this contributed to a deceleration of the growth rate in the first quarter to 4.3%. However, data from the second quarter indicates an improvement in sector performance (in particular the production of foodstuffs) and economic activity in general, with real growth year on year at 8.7% in the second quarter of the current year’s GDP. Inflation data shows an evolution of this indicator up to September, in line with government forecasts for the year-end. In pursuing the objectives of monetary policy, the Bank of Mozambique has pursued a monetary policy over the past two years geared at creating space for credit growth in the private sector, and in this manner contributing to an inclusive and stronger economic growth. The Bank of Mozambique has focused interventions via the interbank markets in order to regulate bank liquidity and to ensure stability of the exchange rate. Information on inflation until September, as well as the Bank’s short and medium term projections, suggests that the 4.4% average inflation target set for 2013 will be met. For 2014, monetary policy will remain geared toward meeting the main macroeconomic objectives of the government. However, we realize that 2014 is an election year and that the commissioning of a further 10 municipalities could contribute to accelerating inflation.



You may also be interested in...

MOZAMBIQUE - Health & Education

Covid-19 challenges



Carmelita Rita Namashulua

MOZAMBIQUE - Health & Education

Carmelita Rita Namashulua


Minister of Education and Human Development,

View All interviews