African countries battle U.S dollar shortage

The Southern Africa region is navigating through significant economic challenges, with countries like Angola and Mozambique grappling with issues related to foreign exchange supply, inflation, and monetary policy. Fáusio Mussá, Chief Economist for Mozambique at Standard Bank, shed light on the current economic landscape in a recent interview with CNBC Africa. One of the pressing issues discussed was the shortage of U.S. dollars in African countries like Angola. Despite being an oil-exporting nation, Angola is facing a scarcity of foreign exchange, primarily due to a decline in supply from the treasury. This shortage has been exacerbated by higher external debt service payments, which have limited the treasury's ability to meet the market's demand for dollars. To address this challenge, Angola is exploring the option of utilizing funds from an escrow account in China to repay loans, thus potentially freeing up more dollars for the market. However, the situation remains complex, and the market is closely monitoring any developments to alleviate the forex scarcity. In terms of growth prospects, Angola's economy is expected to slow down this year, with GDP growth decelerating to 0.3 in the first quarter. The country's reliance on imports and the impact of reduced foreign exchange supply are contributing to this slowdown. Meanwhile, in Mozambique, the focus has been on inflation dynamics. The latest inflation figures for August showed a significant decline, largely driven by a sharp fall in food inflation. Imports from neighboring countries like South Africa have helped stabilize food prices, offsetting the negative effects of recent natural disasters. Looking ahead, inflation is forecasted to increase due to factors like rising oil prices and climate-related events, which could prompt the central bank to consider rate cuts. Despite not having adjusted interest rates for over a year, Mozambique may see a shift in monetary policy to address inflationary pressures and support economic growth. The central bank's previous moves to increase cash reserves have provided a buffer against inflation, but there is growing anticipation for a potential reduction in policy rates to stimulate lending and economic activity. With real interest rates currently at elevated levels, a cut in rates could provide much-needed relief to borrowers and businesses. As Southern Africa navigates through these economic challenges, policymakers and financial institutions will play a crucial role in stabilizing the macroeconomic environment and fostering sustainable growth. The road ahead may involve tough decisions, but with strategic interventions and prudent monetary policies, the region can overcome the hurdles posed by the U.S. dollar shortage and inflationary pressures.