2017 Draft Budget: Govt predicts 5.5% growth, inflation slowdown, rise in FDI – Mozambique

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2017 Draft Budget: Govt predicts 5.5% growth, inflation slowdown, rise in FDI – Mozambique

8:19 CAT | 15 Oct 2016

The Mozambican government’s draft budget for 2017 envisages expenditure of around 272.3 billion meticais (about 3.53 billion US dollars, at current exchange rates).

The government’s budget document, presented on Friday at a meeting in Maputo with civil society organisations is divided into state running costs of 156.4 billion meticais, and a capital budget of 80.4 billion meticais, while state financial operations account for 35.5 billion meticais.

This is to be covered by domestic resources (essentially tax revenue) of around 207 billion meticais, and external resources of 65 billion meticais.

The latter figure seems extraordinarily optimistic, and the document does not explain where these external resources will come from. Following the discovery in April of well over a billion dollars worth of undisclosed government-guaranteed loans, the International Monetary Fund (IMF) suspended its programme with Mozambique.

Other multilateral organisations, such as the World Bank, and bilateral donors followed suit. All 14 donors and financial institutions that used to provide direct support to the state budget suspended further disbursements. Thus all programme aid is currently at a standstill, although the country’s partners are still putting money into a large number of scattered projects.

The IMF and the western donors have repeatedly made it clear that any resumption of normal relations depends on an international, independent audit of the controversial loans to the three quasi-public companies involved – the Mozambique Tuna Company (EMATUM), and the security-linked companies Proindicus and MAM (Mozambique Asset Management).

Thus the figure of 65 billion meticais in external resources appears to assume that the relations with the donor community will be patched up, and hence that the audit will be held successfully.

The figure of 65 billion is also mathematically necessary. As the document puts it “total expenditure is equal to the total volume of resources, and thus the principle of budgetary equilibrium is safeguarded”. If those external resources do not materialize, there will be a deficit of 65 billion meticais.

5.5% growth, inflation down, FDI up

Presenting the document, the head of the planning and budgetary policy department in the Finance Ministry, Alfredo Mutombene, said that the forecast for 2017 is for a recovery in Mozambican economic growth, a slowdown in the rate of inflation (currently running at almost 25 per cent a year), and a rise in the inflow of Foreign Direct Investment.

The projection for the nominal gross domestic product in 2017 is 802.9 billion meticais, which compares with the 2016 estimate of 694.5 billion meticais. The estimates for economic growth in 2016 have been repeatedly cut, and now stand at 3.9 per cent. But Mutombene said that growth should rise to 5.5 per cent in 2017.

In terms of sectors, agricultural production is expected to rise by 5.9 per cent, the extractive industry by 24 per cent, electricity and gas by 8.9 per cent, fisheries by 4.4 per cent, transport by 4.3 per cent, and trade by 4.4 per cent.

The country’s exports are expected to rise to 3.46 billion dollars, an increase of 7.7 per cent on the 2016 estimate of 3.21 billion.

The government clearly hopes that the slump in international commodity prices is over and that the current recovery in the prices of coal and natural gas, both key Mozambican exports, is more than a blip. “The trend to an increase in gas and coal prices, although slight, is encouraging for our country and for the extractive industry, which has been suffering from falling world prices over the last two years”, said the Finance Ministry document.

The forecast for a 2017 recovery in the national economy is based on factors which are far from certain – notably the recovery of confidence by Mozambique’s international partners, leading to increased flows of foreign investment, and the consolidation of peace.

Source: AIM