The impact of devaluation as an adjustment policy tool in Mozambique

Abstract

The period between 1982 and 1986 was characterized by several negative trends in all sectors of the Mozambican economy, mainly due to the natural and also man-made calamities. Give the need to halt the steep economic decline and tum it into growth, the govermment introduced the ERP, with the support of the IMF/WB, in 1987, Among different economic measures taken within the ERP, the devaluation of the national currency, the metical, stands out. As defended by most traditional textbooks on trade and also by the orthodox stabilization and adjustment programmes sponsored by the IMF/WB, an improvement in economic performance of Mozambique was expected to be brought about by by devaluating the metical . Thus the impact of this policy measure on exports, imports, trade balance, and output is the main objective of this study. An attempt is made to test the hypotheses of positive relations between changes in the Mozambican exchange rates and these four macroeconomic aggregates. However, from results obtained, it is found that such relations do not hold, suggesting that devalution in Mozambique has not had significant impacts on output and trade flows. Given that economic performance in mozambique is not yet good, despite the ERP witch was established 11 years ago, we recommend that the govermment of Mozambique should start thinking of other economic development strategies, instead of relying on the orthodox stabilization and adjustment programmes sponsored by the IMF/WB. An economic development strategy, wich is not fully dependent on external resources, and wich leads to changes in economic structure of the country, would be more suitable for Mozambique.