Mozambique: Cut of international funding will force austerity into the middle of next decade

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Mozambique: Cut of international funding will force austerity into the middle of next decade

4:11 CAT | 18 Mar 2019

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Bloomberg economist and financial analyst Mark Bohlund said on Sunday that lack of international financing for Mozambique would force the government to pursue austerity policies right into the middle of the next decade.

“We anticipate that external financing will continue to be low in the medium term, forcing Mozambican authorities to implement a relatively tight fiscal policy until natural gas revenues materialise by the middle of the next decade,” Bohlund writes.

The Bloomberg analysis says that “donor countries are likely to continue to fund project support outside of government budget in the short term”, but warns that “in the medium term, foreign aid is likely to be redirected to countries with lower natural resources, especially in the European case, where aid should be channelled to more northern countries” on the continent.

Mozambique’s economic prospects “will depend on the level of income from the energy sector that is invested in education and infrastructure” and the degree of openness and cooperation the country affords the ongoing ‘hidden debts’ investigation.

“The Ematum scandal can be a blessing in disguise if it means less corruption and better governance,” Bohlund writes. “The degree of cooperation of the authorities with the US Department of Justice will be seen by investors as a measure of whether or not governance is improving.”

If the authorities are “transparent and compliant during the case, this may indicate progress in governance, which in turn may mean they can avoid the ‘curse of resources’ that other countries in sub-Saharan Africa have had,” Bohlund writes.

The Mozambican economy grew by 3.8% last year, one of the lowest rates in the last two decades, but one which is expected to continue this year “as the mining industry is nearing peak production and fiscal policy remains tight, but investments in the energy sector off the coast of the country should make the economy recover from 2020,” the Bloomberg note reads.

Capital investment fell for the second consecutive year in 2018, and was only partially offset by increased exports, but economic growth is expected to exceed 4% starting in 2020, based on investments in energy megaprojects, Bloomberg concludes.

Source: Lusa