Mozambique: Significant reduction of public debt unlikely before 2028 – Standard Bank

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Mozambique: Significant reduction of public debt unlikely before 2028 – Standard Bank

3:21 CAT | 26 Jul 2022

File photo: Lusa

The chief economist at Standard Bank said on Tuesday that it is unlikely that there will be a significant reduction in Mozambique’s public debt-to-GDP ratio until almost the end of the decade – to the detriment of investment.

“It is unlikely that there will be a substantial reduction in Mozambique’s debt-to-Gross Domestic Product (GDP) ratio until 2027 or 2028, the year in which gas revenues should begin to be more significant,” Fáusio Mussá said in Lisbon at a conference on investment opportunities in Angola and Mozambique organised by Standard Bank.

Mussá said that the debt-to-GDP ratio has been above 100%, which undermines investor interest, given that one of the macroeconomic variables most looked at by investors is this indicator which measures the amount of public debt as a function of the country’s wealth.

This high debt scenario forces the country to “either finance itself abroad or encourage the participation of the private sector”, Mussa added, noting that the financial assistance agreement with the International Monetary Fund is very positive, not only for the more than S$450 million it represents, but also for the confidence it will give foreign investors.

“The IMF approved a program which went into effect in June, and which gives credibility to the reforms that the country wants to implement. Partners are now willing to provide general budget support without narrow stipulations, as is the case with the World Bank, which handed over US$300 million to the government to use wherever it thinks it will have the best social and economic return,” Mussá observed.

This external support, added the economist, “is extremely important for a country that needs a bridge between future gas revenues and the waiting time until then, a time which needs to be managed”.

On the macroeconomic scenario, Fáusio Mussá said that Standard Bank expects Mozambique to achieve average growth of 3.9% up until 2025, which, despite being significantly higher than in Angola and above population growth, “is much lower than necessary, because it would be need to grow by more than 8% to tackle the poverty that currently afflicts 50% of the population”.

Source: Lusa