Mozambique faces 2.4% recession this year – EIU

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Mozambique faces 2.4% recession this year – EIU

3:00 CAT | 29 Apr 2020

The Economist Intelligence Unit (EIU) consultancy anticipates a 2.4% recession in Mozambique this year due to the impact of the Covid-19 pandemic, plus a slowdown in coal production and drought affecting agriculture.

“Coal production will fall due to declining demand because of the new coronavirus, which extends the duration of mine closure; agriculture will remain weak, as many parts of the country remain in a drought situation, so we forecast that the economy will contract by 2.4% this year,” a note from the experts of the analysis unit of the British magazine The Economist reads.

In the note, sent to customers and to which Lusa has had access, analysts write that “the economy will gradually recover in 2021 and 2022, with GDP accelerating to an average growth of 4.3%, and the gas industry the main driver of economic expansion”.

The start of production at Coral South in 2023 will give “a direct boost to GDP, which will grow by 7.8% in 2023 and 9% in 2024”. “The production of liquefied natural gas will make a further contribution when all locations are in production, at the end of our forecast period, which runs from 2020 to 2024.”

Mozambique, analysts recall, “has been basically cut off from international capital markets since 2016 when the ‘secret debts’ guaranteed by the state but contracted illegally by state-owned companies, were revealed”.

Although creditors accepted a restructuring of US$727.5 million (€671 million) in sovereign debt securities in September last year, “the two loans that public companies borrowed, totalling US$1.1 billion (about a billion euros) remain in default, so donor relations have not been easy and financing has been a challenge”.

Although this problem is currently in litigation, “the management of the economic consequences of the Covid-19 outbreak will dominate the Government’s political options this year, with restrictions on travel within the country and isolation measures dominating the executive’s attention”, the EIU foresees.

“This will seriously damage economic activity,” they warn, noting that the country is still recovering from cyclones Idai and Kenneth last year, on top of the cut in international donor funding.

Source: Lusa