Mozambique on Path to Launch Sovereign Wealth Fund

Mozambique on Path to Launch Sovereign Wealth Fund

Mozambique has announced plans to establish a sovereign wealth fund later this year as it prepares to start natural gas exports aimed at generating $96 billion of revenue for country.

Finance Minister Max Tonela says authorities are in the process of finalizing draft legislation that will govern the management of the fund, which is expected to be operational before Mozambique’s first liquefied-natural-gas exports begin flowing by October.

Mozambique’s central bank in October 2020 published a proposed model for the fund, which it said would build up savings and contribute to fiscal stability when commodity prices fluctuate. Under that plan, half of the state’s revenue should go to the fund and the rest to the government’s budget during the first two decades of LNG production.

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A sovereign wealth fund is a state-owned investment fund that invests in real and financial assets such as stocks, bonds, real estate, precious metals. Most of the wealth funds are financed by revenues from commodity exports or foreign-exchange reserves held by the central bank.

Other African countries that have established a sovereign wealth fund are Gabon, Senegal, Algeria, Botswana, Nigeria, Uganda, Namibia, Mauritania, Libya, Ghana, Equatorial Guinea, Angola, and Rwanda.

Meanwhile, Mozambique central bank has increased its key interest rate to a near four-year high, citing rising prices resulting from Russia’s invasion of Ukraine and the effects of tropical cyclones that struck the country earlier this year.

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The Banco de Mocambique raised the rate to 15.25% from 13.25%, Governor Rogerio Zandamela told reporters Wednesday in Maputo, the capital. That’s the first increase since last January and takes the rate to the highest since June 2018, when it was 15.75%.

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