Government revising growth forecast downwards

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Government revising growth forecast downwards

8:55 CAT | 01 Apr 2016

In File Club of Mozambique

Mozambique’s Minister of Economy and Finance, Adriano Maleiane, has accepted that the government’s target for a seven per cent growth in GDP this year is likely to be beyond reach.

Speaking at the opening on Wednesday of a meeting of his Ministry’s Coordinating Council, Maleiane said it is almost inevitable that the target will be revised downwards. The main blow to the hopes for seven per cent growth has been the drought in southern and central Mozambique, which has greatly reduced agricultural production.

“Right now we are re-assessing the data, taking into account, for example, that in agriculture we will have to look at the crops from the second sowings”, said Maleiane. “Clearly it will be very difficult to reach seven per cent growth, but I don’t want to put forward any numbers now, before we finish the work we are doing, assessing all the factors which serve as the basis for planning”.

Other factors pointing to a growth rate lower than hoped are the military tensions, as the Renamo rebels continue to attack vehicles on the roads in the centre of the country, and the decline in international commodity prices which has affected several of Mozambique’s main exports.

Standard Bank and the ratings agency Fitch have both predicted that the Mozambican economy will grow this year by only five per cent.

Asked about these forecasts, Maleiane told reporters “Each institution makes the assessment it can” – but he warned against excessive pessimism. Thus it had been forecast that in 2015, the GDP growth rate would drop below six per cent, but when all the figures were available, it turned out that GDP in 2015 grew by 6.3 per cent.

He though that growth of between six and seven per cent could still be expected this year, but more work was still needed in order to produce a more reliable forecast.

Asked about the renegotiation of the bonds for 850 million US dollars issued in 2013 by the Mozambique Tuna Company (EMATUM) and guaranteed by the government, Maleiane said a definitive response is expected on 6 April.

But it is already known that over 80 per cent of the bondholders have agreed to the government proposal to replace the EMATUM securities with a government sovereign bond.

The original EMATUM repayment terms were extremely tough – the money was to repaid over seven years, with a two year grace period, and at an interest rate of LIBOR (London Inter-Bank Offered Rate) plus 6.5 per cent.

The proposal put to the bondholders was that the EMATUM bonds (now down to 697 million dollars, after the first repayments) will be swapped for government bonds for 585.5 million dollars that mature in 2023. The interest rate, however, shoots up to 10.5 per cent.

For the government, the advantage is that it will not have to repay the capital until 2023. Until then it will only be obliged to make annual interest payments. This will bring annual payments down from around 200 million to 60 million dollars, much to the relief of the Mozambican treasury. By 2023 it is hoped that the government will be earning large amounts of revenue from the enormous discoveries of natural gas in the Rovuma Basin, off the coast of the northern province of Cabo Delgado.

Source: AIM