Extractive industry decisive for public revenues – World Bank

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Extractive industry decisive for public revenues – World Bank

8:03 CAT | 02 Aug 2017

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The World Bank expects that projected investments in Mozambique extractive industries will significantly increase public revenues.

In its newly approved strategy for Mozambique, the multilateral financial institution estimates that such investments will account for seven percent of gross domestic product (GDP) by 2022-23.

“These capital-intensive megaprojects could however further aggravate Mozambique’s current pattern of development, where rapid growth has not increased employment opportunities,” the institution warns.

The World Bank however considers that Mozambique is preparing well for a new environment characterised by abundant resources as well as the development of a more diversified and productive economy, conclusions supported by the government’s 2015-2019 Five Year Plan and consultations with national and international partners among other factors.

In an assessment designed to evaluate Mozambique’s main constraints and opportunities as the country strives to sustain robust growth and macroeconomic stability, the World Bank stresses the need to prepare for a situation where the population is increasingly younger.

“Mozambique is in the midst of a demographic transition, with high fertility rates and a reduction in child mortality, meaning its population will be young. In the absence of structural changes in the economy, it will be a challenge to find productive employment for new individuals entering the labour market, and on the other hand social services are likely to become increasingly overburdened,” it warns.

Despite positive growth prospects, the World Bank notes that the debt crisis is putting enormous pressure on fiscal forecasts. Mozambique’s previously undeclared loans have shifted the landscape to a point where increased debt service costs, cuts in donor support and lack of room to borrow have reduced fiscal room for manoeuvre.

“The revelations have resulted in the suspension of International Monetary Fund and donor support to the budget, as well as in the review of the International Development Association’s non-concessionary lending policy,” the report observes.

The World Bank states that these sources financed an average of six percent of the state budget (about two percent of GDP) over the last three years.

Additional debt, it continued, and the resulting currency depreciation also meant a sharp rise in debt service obligations, potentially adding another two percent of GDP to debt servicing each year.

Source: Notícias