Mozambique: 2.5% growth this year but faces multiple challenges – S&P

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Mozambique: 2.5% growth this year but faces multiple challenges – S&P

8:01 CAT | 29 Apr 2021

File photo: Lusa

Financial rating agency Standard & Poor’s (S&P) on Thursday said that Mozambique is expected to grow 2.5% this year, after falling 1.5% in 2020, and warned that the country continues to face multiple challenges.

“In our view, Mozambique will continue to face multiple challenges in the wake of the 2020 economic contraction, linked to the Covid-19 pandemic and the underperformance of the mining sector, in addition to the impact it suffered due to extreme weather events, which affected long-term growth prospects,” the analysts wrote.

In a commentary on Mozambique’s economy, sent to clients and to which Lusa had access, the analysts from the rating agency noted that the country is one of the worst affected by climate conditions, which are added to the massive challenges in the social and health areas due to low levels of wealth and the great severity and frequency of natural disasters, which aggravate the humanitarian crisis caused by the insurgency against the government.

The attacks on the populations of Palma, the town closest to Total’s Area 1 natural gas exploration project in the north of the country, are expected to lead to delays in the project, leading to a worsening of the current account deficit of up to 30% of GDP in the period under review, despite the stabilisation expected this year.

Last year’s budget deficit, they pointed out, was smaller than anticipated, standing at 5.2%, which compares favourably to the previous S&P forecast, which predicted an imbalance of 7% in public accounts, because the government was cautious in disbursements. Still, the deficit is expected to rise to 7% due to increased security and health costs, which a decrease in public investment will partially offset.

On the public debt to GDP ratio, one of the highest in sub-Saharan Africa, analysts estimate that it will remain above 100%, and warn that debt service is likely to increase this year, reflecting the end of moratoria on debt payments triggered by international financial institutions.

“The risks to these forecasts are negative, given the government’s ability to deal with the country’s multiple challenges and address the underlying causes of the insurgency, which poses a major threat to the prospects for long-term growth and stability,” they said.

Source: Lusa