{
  "title": "Evolution and Challenges for Monetary Policy in Africa",
  "publication": "IMF News, May 20, 2025",
  "sourceUrl": "https://www.imf.org/en/news/articles/2025/05/17/sp051725-evolution-and-challenges-for-monetary-policy-in-africa",
  "canonical": "https://www.imf.org/en/news/articles/2025/05/17/sp051725-evolution-and-challenges-for-monetary-policy-in-africa",
  "overlayPath": "/en/news/articles/2025/05/17/sp051725-evolution-and-challenges-for-monetary-policy-in-africa/index.md",
  "summary": "Keynote Address for the 50th Anniversary of the Banco de Moçambique By Abebe Aemro Selassie",
  "authors": [
    "Abebe Aemro Selassie Speech Resources Abebe Aemro Selassie News Related Links Republic"
  ],
  "publishDate": "2025-05-20",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Keynote Address for the 50th Anniversary of the Banco de Moçambique by Abebe Aemro Selassie, May 20, 2025.\n- Focus: evolution of central bank credibility and monetary policy in sub-Saharan Africa (SSA), with specific references to Mozambique.\n- Two central current challenges highlighted: adverse supply shocks (e.g., pandemic, Russia’s invasion of Ukraine) and growing domestic government financing needs as external financing becomes scarce."
    },
    {
      "heading": "Evolution of inflation in sub-Saharan Africa: stylized facts",
      "content": "- Historical averages:\n  - For the typical SSA economy, inflation in the 1980s and 1990s averaged 10 percent.\n  - This halved to around 5 percent after 2000.\n- Dispersion changes:\n  - Inflation range across countries declined from 80 percentage points (1980s–1990s) to 24 percentage points (post-2000).\n- Share of countries by inflation bracket:\n  - Low inflation (< 10 percent) share: 50 percent in the 1980s and 1990s; three-fourths in the 2010s; reversed somewhat since 2020.\n- External and structural influences:\n  - Decline in global inflation and improvements in monetary policy frameworks contributed to lower inflation in SSA.\n  - Small open economies in SSA are price takers for tradable goods; imported goods represent a large fraction of consumption baskets.\n- Mozambique-specific figures:\n  - Average inflation during 1980-99: 38 percent.\n  - Average inflation during 2017-24: 7 percent.\n  - Inflation reached 13 percent year-on-year in August 2022 and decelerated to 6 percent by July 2023.\n  - Price level increase since 2020: 30 percent.\n  - Food prices are 40 percent higher than in 2000.\n- Summary point:\n  - Historic successes in controlling inflation have been substantial, but recent shocks expose vulnerabilities of small open economies with high food weights in consumption baskets."
    },
    {
      "heading": "Monetary aggregates: trends and relationships",
      "content": "- Policy frameworks (de jure vs de facto):\n  - Of 45 SSA countries: about 22 target the exchange rate, 14 target monetary aggregates, and 5 have inflation-targeting frameworks (IMF AREAER).\n  - Noted divergence: more countries have de jure flexible exchange rate regimes, but the number with de facto flexible rates has declined sharply.\n  - Correlation noted: since 2020, in countries with exchange rate depreciation vis-à-vis the US dollar, inflation has been higher—with a correlation coefficient of some 80 percent.\n- Broad money growth and real money balances:\n  - Median SSA broad money growth: around 15 percent for both 1980-99 and 2000-24.\n  - Mozambique broad money growth: 35 percent during 1980-99; 19 percent in more recent decades.\n  - For the typical SSA country, money growth exceeded inflation in both 1980–1999 and 2000–2024.\n  - Real money growth averaged 5 percent in 1980–1999 and rose to 9 percent in 2000–2024 for the typical SSA country.\n  - Advanced economies show lower money growth and inflation but similar real money growth rates relative to emerging markets.\n  - Mozambique: money growth lagged inflation during 1980–1999, but reversed in 2000–2024 to align more closely with SSA median.\n- Financial deepening (broad money as share of GDP):\n  - For the average SSA country: broad money hovered around 15 percent of GDP during 1990–1999 and then doubled by 2024.\n  - Mozambique: about 20 percent of GDP in the 1990s; broad money grew to reach 50 percent by 2015 and has remained stable in recent years.\n- Takeaway:\n  - A large discrepancy between de facto and de jure monetary policy frameworks undermines clarity, credibility, and transparency of monetary regimes."
    },
    {
      "heading": "Monetary policy dilemmas and transmission challenges",
      "content": "- Adverse supply shocks:\n  - Shocks (commodity price spikes, supply-chain disruptions) raise the price level, increase inflation, reduce output, and erode real incomes—posing a tradeoff for monetary policy between price stability and supporting activity.\n  - Example: Mozambique’s policy response—policy rate raised to 17.25 percent by September 2022 following inflation spike to 13 percent in August 2022; inflation decelerated to 6 percent by July 2023.\n  - Price-level effects: overall price level up 30 percent since 2020 in Mozambique; food prices up 40 percent since 2000.\n  - Downward nominal rigidities imply monetary policy cannot restore pre-shock price levels without large output/employment costs.\n- Fiscal coordination need:\n  - Fiscal policy is best placed to protect vulnerable households through targeted transfers; however, Mozambique’s government spending on the INAS cash transfers program has declined sharply (Figure 12 referenced).\n- Rising domestic government financing and crowding out:\n  - Government financing from banking system has been systematically positive in most SSA countries since 2008, and very strongly so since 2015.\n  - Share of bank credit to government (median SSA country): increased from 20 percent in 2010 to 35 percent in 2023.\n  - Mozambique: share of bank credit to government went from -5 percent in 2010 to 45 percent in 2023.\n  - Consequences:\n    - Crowding out of private sector credit, potential negative effects on investment and productivity.\n    - Greater dependence of commodity sectors on external financing while non-commodity sectors rely on domestic financing—potentially widening sectoral disparities.\n    - Higher concentration of public debt in banks raises vulnerability to sovereign debt crises and can weaken monetary policy transmission.\n    - Central banks may face tradeoffs between price stability and financial stability when banking sectors hold large shares of public debt."
    },
    {
      "heading": "Policy implications and recommendations (implicit from address)",
      "content": "- Preserve and strengthen monetary policy credibility and transparency by aligning de jure frameworks with de facto practice to improve clarity of objectives and expectations anchoring.\n- Enhance coordination between central banks and fiscal authorities, especially to:\n  - Use targeted fiscal transfers to protect vulnerable households from supply-driven price-level shocks.\n  - Limit ad hoc reliance on domestic bank financing to avoid crowding out and preserve monetary transmission.\n- Monitor and manage banking sector exposure to sovereign debt to reduce systemic vulnerability and maintain effective monetary policy transmission.\n- Recognize limits of monetary policy in reversing price-level increases caused by supply shocks, and prioritize fiscal and social measures to address distributive impacts.\n\nSource: Evolution and Challenges for Monetary Policy in Africa — Keynote Address for the 50th Anniversary of the Banco de Moçambique By Abebe Aemro Selassie, May 20, 2025.\n\n---\n\n\n References\n\n- Abebe Aemro Selassie\n- Republic of Mozambique and the IMF\n- Speeches\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2025/05/17/sp051725-evolution-and-challenges-for-monetary-policy-in-africa"
    }
  ],
  "bullets": [
    "[Markdown version](/en/news/articles/2025/05/17/sp051725-evolution-and-challenges-for-monetary-policy-in-africa/index.md)",
    "[Structured JSON version](/en/news/articles/2025/05/17/sp051725-evolution-and-challenges-for-monetary-policy-in-africa/index.json)",
    "[Bundle manifest](/en/news/articles/2025/05/17/sp051725-evolution-and-challenges-for-monetary-policy-in-africa/bundle-manifest.json)",
    "Authors: Abebe Aemro Selassie Speech Resources Abebe Aemro Selassie News Related Links Republic",
    "Published: May 20, 2025",
    "Keynote Address for the 50th Anniversary of the Banco de Moçambique by Abebe Aemro Selassie, May 20, 2025.",
    "Focus: evolution of central bank credibility and monetary policy in sub-Saharan Africa (SSA), with specific references to Mozambique.",
    "Two central current challenges highlighted: adverse supply shocks (e.g., pandemic, Russia’s invasion of Ukraine) and growing domestic government financing needs as external financing becomes scarce.",
    "Historical averages:",
    "Dispersion changes:",
    "Share of countries by inflation bracket:",
    "External and structural influences:",
    "Mozambique-specific figures:",
    "Summary point:",
    "Policy frameworks (de jure vs de facto):",
    "Broad money growth and real money balances:",
    "Financial deepening (broad money as share of GDP):",
    "Takeaway:",
    "Adverse supply shocks:",
    "Fiscal coordination need:",
    "Rising domestic government financing and crowding out:",
    "Preserve and strengthen monetary policy credibility and transparency by aligning de jure frameworks with de facto practice to improve clarity of objectives and expectations anchoring.",
    "Enhance coordination between central banks and fiscal authorities, especially to:",
    "Monitor and manage banking sector exposure to sovereign debt to reduce systemic vulnerability and maintain effective monetary policy transmission.",
    "Recognize limits of monetary policy in reversing price-level increases caused by supply shocks, and prioritize fiscal and social measures to address distributive impacts.",
    "[Abebe Aemro Selassie](https://www.imf.org/en/About/senior-officials/Bios/abebe-selassie)",
    "[Republic of Mozambique and the IMF](http://www.imf.org/external/country/MOZ/index.htm)",
    "[Speeches](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
  ],
  "alternates": {
    "markdown": "/en/news/articles/2025/05/17/sp051725-evolution-and-challenges-for-monetary-policy-in-africa/index.md",
    "json": "/en/news/articles/2025/05/17/sp051725-evolution-and-challenges-for-monetary-policy-in-africa/index.json",
    "bundleManifest": "/en/news/articles/2025/05/17/sp051725-evolution-and-challenges-for-monetary-policy-in-africa/bundle-manifest.json"
  },
  "generatedAtUtc": "2026-09-26T03:52:40.166Z"
}