Mozambique: Debt ‘sustainable’ – World Bank

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Mozambique: Debt ‘sustainable’ – World Bank

6:35 CAT | 24 May 2022

Image: RM

The World Bank said on Monday that Mozambique’s public debt was “sustainable” thanks to gas export prospects, despite pressures remaining high on the country’s economy, it said in a document on the country.

“Fiscal pressures have persisted” and “the country is at high risk of over-indebtedness,” but “the debt is assessed as sustainable considering future gas revenues and risk management of the debt.

The World Bank (WB) outlook is part of a document on “Country Partnership Framework,” which will be the guiding instrument for cooperation between the institution and the Mozambican authorities between 2023 and 2027, to which Lusa had access.

Debt servicing and the public sector wage bill “absorb 90% of total tax revenues”, and “the government’s capacity to invest in human capital and public services has fallen.

In this context, the WB advocates a “structural transformation” to generate greater economic growth and job creation in Mozambique and to reduce the profound social and economic inequalities prevailing in the country.

“The country needs to improve economic management for sustainable and resilient job creation, better capacity to carry out public expenditure and reduce the risk of [sovereign debt],” the text said.

The change in the growth paradigm involves diversifying the economy and creating opportunities for the development of small and medium-sized enterprises, which have greater potential for job creation, the bank said.

The bank believes that Mozambique should shield itself from negative impacts, from internal and external shocks, including regular outbreaks of armed conflict, as a premise for economic growth and development.

The authorities must also promote the strengthening of institutions to drive the reduction of social and economic inequalities, the report said.

The Mozambican economy must move from a “primary” phase to an “industrial and services” phase, making it competitive and advanced.

The structural transformation will take time, but the country needs to immediately emerge from the recession it has been in since 2020 due to a combination of factors such as the Covid-19 pandemic, climate shocks and armed conflict, the WB notes. “In 2020, the country faced its first contraction in the economy in 30 years but grew moderately in 2021,” it added.

Last week, the African Development Bank (AfDB) also advocated for structural reforms of the Mozambican economy to deliver inclusive growth and development.

ALSO READ: Mozambique’s main challenges: Poverty and inequalities – AfDB

The Mozambican economy grew by 4.1% in the first quarter of this year, the National Statistics Institute (INE) announced, the most significant quarterly jump since June 2018.

According to the Bank of Mozambique, the growth is associated with the easing of restrictions to contain Covid-19, allowing the economy to grow.

The Mozambican economy grew by 2.16% in 2021. The government forecast a 2.9% rise in the Economic and Social Plan and OE approved by parliament in December – even before global inflationary risks triggered by the war in Ukraine.

Source: Lusa