Mozambique: Delays in gas projects and vaccines restrict economic growth

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Mozambique: Delays in gas projects and vaccines restrict economic growth

7:43 CAT | 25 May 2021

in file CoM

British consultant Oxford Economics forecasts that, as a result of the suspension of gas projects, the effects of the pandemic and the slow distribution of vaccines, Mozambique will recover from the 2020 recession at a rate of only 1.2% this year.

Analysts predict that “economic growth will be limited [in Mozambique] in 2021, despite the first contraction since 1992 having been registered last year,” and that the economy will only grow 1.2% this year, below the average the past few years.

“The indefinite suspension of construction activities related to the natural gas projects in Cabo Delgado, the emergence of new variants of the coronavirus and slow distribution of vaccines against Covid-19 are factors that will weigh on economic production this year,” analysts in the Africa department of British Oxford Economics foresee.

In a comment on Mozambique’s economic evolution, analysts write that the central bank remains concerned about the risk of inflation. “These risks are unlikely to disappear before the end of the year, so we hope that the central bank will not cut rates in the short term,” they conclude.

Mozambican financial regulator

The Monetary Policy Committee (CPMO) of the Bank of Mozambique decided on Wednesday (19) to keep the monetary policy interest rate (MIMO rate) at 13.25%, the Mozambican financial regulator announced in a statement.

“The decision is based on the worsening of risks and uncertainties, despite the downward revision of inflation prospects in the short and medium term, reflecting, above all, the recent appreciation of the metical,” a central bank press release reads.

The regulator states that “the risks and uncertainties associated with inflation projections have worsened”, and, at the domestic level, “the intensification of military instability in the north of the country stands out, with an impact on fiscal pressure and the suspension of the Mozambique LNG project”.

On the other hand, greater exchange rate volatility prevails, due to uncertainties and asymmetries in expectations among foreign exchange market operators.

New variants of coronavirus

“In the external environment, there is a greater fluctuation in the prices of financial assets and commodities and the emergence of new variants of the coronavirus,” the text reads.

The CPMO revised its inflation forecast downward to 5.19% in April, after standing at 5.76% in March, as a result of the recent appreciation of the metical and the dissipation of the impact of the storms that plagued the country at the beginning of the year.

Slower economic recovery is expected in 2021, as a result of weak domestic demand, coupled with the suspension of the gas exploration project by Total, despite the forecast of a gradual recovery in external demand and the tendency to contain the spread of Covid-19.

“Given the limited scope of monetary policy and the State Budget, the relevance of deepening structural reforms in the economy is maintained, with a view to strengthening institutions, improving the business environment, attracting investments and creating jobs,” the Bank of Mozambique statement reads.

Source: Deutsche Welle