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HomeAfricaMozambican PM condemns banks' high interest rates

Mozambican PM condemns banks’ high interest rates

Mozambican Prime Minister Luisa Diogo says the inter est rates charged by the country’s commercial banks are far too high.

In an interviewed published in the Monday edition of the independent daily, O Pa is, Diogo was asked how it was that in Britain the London Inter-Bank Offered Rat e (Libor) was 1.8 per cent, the prime rate in New York was 3.25 per cent, but the

Maputo Inter-Bank Offered Rate (Maibor) was almost 21 per cent.

Her answer was “The banks are making enormous profits every year, while the prod uctive sectors of the economy are struggling to raise capital.”

“I agree entirely with you,” said Diogo, adding “and I think that the banks are listening to us. We need an increased effort to make Mozambican credit ever more

attractive.”

She added that economies of scale are lacking in the type of investment the bank s make, although the Central Bank “has made a major effort to persuade the comme r cial banks that they should work together on some matters.”

Diogo also admitted that the high interest bearing Treasury Bonds issued by the government in the past had contributed to “laziness” among the banks.

For it was the banks that snatched up the treasury bonds as soon as they became available, and then just sat back waiting for the 14.47 per cent interest they p a id.

Diogo agreed that the money used in the risk-free business of purchasing treasur y bonds could have been put to better use in the productive sectors of the econo m y, saying that the bonds “were making life easy for the financial companies. The y were making the banks lazy in relation to credit.”

The government used to issue bonds for “astronomical values”, she said, adding ” what we were doing was competing unfairly with the productive sector. The state p uts bonds on the market which guarantee reimbursement at a favourable interest r a te, without any risks, while lending money to the private sector does carry risk s . Naturally the banks preferred to lend money to the treasury.”

After the government made this critical analysis, the Ministry of Finance this y ear stopped issuing treasury bonds, except under very specific and limited circu m stances.

For the government’s expenditure on the social services, Diogo said Mozambique w as “an example in the region and in Africa”.

Education took the largest share of the state budget, with 20 per cent, followed by infrastructures with 17.7 per cent and the health service with 14.6 per cent .

“On average, African counties spend eight per cent of their budget on health. Bu t next year we’ll be on almost 15 per cent”, said Diogo, pointing out “It’s extr a ordinary. No other country in Africa spends 15 per cent on health.”

Mozambique also planned to meet the African Union target of devoting ten per cen t of its budget to agriculture.

“This year, the figure was about eight per cent,” she said, “and next year we en visage about 10 per cent. We are complying with this guideline because it is cor r ect.”

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