Maputo — Events over the past year have shaken Mozambique’s macro-economic stability and “the sharp deterioration in economic conditions is having a deep impact on Mozambican households, especially the poor”, warns the World Bank in its latest report on the country.
The report, entitled “Mozambique Economic Update: Facing hard choices”, remarks that “an ongoing downturn, brought about by low commodity prices, drought and conflict, was compounded by the fallout from the discovery of hidden debts in April 2016”.
“The revelation of 1.4 billion US dollars in previously undisclosed commercial loans dented confidence in the country and derailed its track record for high growth and economic stability”, the report says.
The harsh terms of these loans, the bulk of which were to the security-linked companies Proindicus and MAM (Mozambique Asset Management), plus the sharp depreciation of the Mozambican currency, the metical, “created severe liquidity constraints that are placing Mozambique’s capacity to meet debt service obligations in question”, the Bank says. “The outlook is uncertain, and rests on the outcome of Mozambique’s negotiations with commercial creditors, with complex discussions ahead in 2017”.
The hidden, government-guaranteed debt pushed the public debt up to 86 per cent of GDP by the end of 2015, and the World Bank expects the figure to reach 130 per cent of GDP by the end of this year.
GDP growth has stumbled, and the Bank believes it will be no more than 3.6 per cent this year (the government’s own forecast is 3.9 per cent). Foreign direct investments and exports are projected to fall by 17 and eight per cent respectively in 2016.
Nonetheless, the report is optimistic that the independent audit of Proindicus, MAM and EMATUM (Mozambique Tuna Company) “is a key step in rebuilding confidence and signifies the focus of the authorities in restoring relations with the International Monetary Fund (IMF) and other partners”.
The World Bank believes that Mozambique still has strong potential for growth thanks to the enormous discoveries of natural gas in the Rovuma Basin, off the coast of the northern province of Cabo Delgado. It expects growth to pick up to 5.2 per cent next year and 6.6 per cent in 2018.
But it warns that a great deal is riding on the independent audit, and on negotiations with creditors. In the somewhat longer term “the key items on the agenda include setting a medium term framework for restoring fiscal sustainability, anchored in a target for reducing debt and a credible fiscal adjustment programme”.
“Enhanced financial sector surveillance and the strengthening of crisis management instruments are also priorities, particularly if further monetary tightening is in the pipeline”, the report says. “Moreover the current economic circumstances highlight the need to manage fiscal risks and contingent liabilities better”.
The Bank believes that this points to the urgency of “reforms to develop effective oversight over state-owned enterprises and other public entities”.