Mozambique: Government is conducting irresponsible fiscal policies, civil society organisation warns
Economic growth will be 3.2% next year, compared to the 8.3% predicted before the $2 bn secret debt was revealed, the World Bank says in its “Mozambique Economic Update” issued 22 December. The biggest hit has come from donors: “On budget donor grants and project lending is estimated to have narrowed to 3.8% of GDP in 2017, down from 9% of GDP in 2015.” bit.ly/WB-M-D17
“The fallout from revelation of $1.4 bn in previously undisclosed borrowing has had severe consequences on Mozambique’s economy, extending well beyond the nominal burden of the additional debts. The debt caused a loss in confidence by investors and donors, and has been a major contributor to the significant drop in national output over the past 18 months,” the report says.
Mozambique is becoming a “two-speed economy.” Growth is in the capital-intensive resource extraction sector with low employment generation, while “the continued transmission of the debt crisis to the real sectors of the economy [means] Mozambique’s economy today is generating fewer productive jobs for an ever-larger population of rural and urban jobseekers.”
The Bank estimates that “500,000 people (net) will enter the labor force each year over the next decade – almost twice as many as over the last decade” and that most are stuck in the lowest productivity jobs, in agriculture and non-farm informal services. And the bank warns this is “bound to create frustration and disappointment among youth.” One-third of he urban population is poor and inequality is increasing, the Bank notes.
“Small and medium enterprises have fallen back even further, especially in the manufacturing sector, which contracted for this first time since 1994. Their growth, and capacity to generate jobs, has been restricted by the economic downturn in the post-hidden debt period through reduced demand from both private consumers and the public sector, reduced investment, and the high cost of credit. Small and medium enterprises are crowded out, and not even the sizable growth in commodity exports is sufficient to counteract the effects this is having on growth.”
Meanwhile, “Mozambique’s public finances have continued to worsen under the ongoing downturn. The budget continued to adjust by reducing public investment in favor of a still growing wage bill and higher debt service costs.”
The government continues to borrow, and in the past two years the average interest rate on treasury bills and bonds has jumped from 10% to 26%, yet government was only able to sell 61% of its bonds in 2017. External debt is now estimated at 83% of GDP (down from 103% at end 2016 due to the appreciation of the Metical) and total debt at 99% of GDP, “an unsustainably high level”.
By Joseph HanlonSource: News reports & clippings