Projects

Mozambique’s economy has grown rapidly since the end of the Civil War in 1992, but with only a moderate impact on poverty reduction. Mozambique is now entering a period of acute challenges and slower economic growth brought on by lower commodity prices, drought, internal conflict, and governance challenges, particularly in the area of public finances. The challenging macroeconomic, fiscal, and financial environment has contributed to a significant exchange rate volatility. Bank soundness and performance is adversely impacted as a result of the deteriorating fiscal situation and public arrears. Banks dominate the financial sector in Mozambique, accounting for almost all the financial sector assets and more than 95 percent of total credit in the financial system.
 
The current bank resolution framework is limited. It allows only temporary administration or liquidation and lacks alternatives such as partial or total asset transfers and bridge banks. Given the fragilities in the banking sector, the Bank of Mozambique (BM) needs to urgently develop its crisis management capacity. The deposit insurance system is weak and back-up funding is non-existent. BM’s intervention in the pay-out of a recently closed bank highlighted the importance of deposit insurance and demonstrated the need to improve the scheme’s functionality and capacity.
 
BM has requested technical support from the World Bank to strengthen its bank resolution framework and operationalize its deposit insurance scheme. This TA is closely coordinated with the IMF.