Mozambique’s growth will hit the bottom this year, rebound to 3.7% in 2019 – Standard Bank

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Mozambique’s growth will hit the bottom this year, rebound to 3.7% in 2019 – Standard Bank

11:35 CAT | 04 Jun 2018

Standard Bank’s economic analysis unit estimates that the slowdown in Mozambique’s economy will peak this year, with a growth of 3.5 percent, accelerating to 3.7 percent in 2019.

“We expect economic activity to be below potential, with growth in the gross domestic product likely to be at its lowest point this year, with growth of 3.5 percent, against the government’s forecast of 5.3 percent and against 3.7 percent registered in 2017 and 3.8 percent in 2016,” analysts write.

Standard Bank’s most recent analysis of the African markets anticipate that “Mozambique will grow 3.7 percent next year, due to the expected final investment decisions in Area 1 and 4 of the Rovuma Basin projects, which are worth approximately US$25 and 30 billion respectively, easing pressure on the balance of payments and boosting the economy once the construction of the liquid natural gas plant starts”.

Economic growth will continue to be based on primary activities, which account for a third of the total, with particularly positive performances in agriculture and the mining sector expected, but the rest of the economy will remain below potential.

Domestic demand, they say, is expected to remain limited this year, although last year it has seen “phenomenal growth, supported by rising coal production and rising commodity prices”.

Investment, for its part, “should contract further, with private consumption being constrained by low disposable income despite the slowdown in inflation,” which Standard Bank expects to remain at 4.3 percent this year and at 7.3 percent in 2019.

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The metical, in Standard Bank forecasts, “may fall to 55” against the US dollar next year, supported by investment inflows in the natural gas sector, which represents an improvement from the 59 meticais per dollar at the end of 2017 and 71.2 meticais per US dollar at the end of 2016.

On the issue of public debt, analysts hold the view that lenders will not accept the proposal presented by the government in March in London. “We do not expect holders of public debt securities and creditors of MAM and Proindicus to accept the restructuring proposed by the government.”

The absence of an International Monetary Fund programme “is also seen as an impediment to confidence, with clearly negative consequences”, noting that “there is already evidence that a shift away from credit to the private sector, delays in domestic payments and a growing financial vulnerability of public enterprises that compromises macroeconomic stability”.

The Standard Bank forecast however points to a decline in the debt-to-GDP ratio over the next two years from 106.8 percent this year to 101.2 percent of GDP in 2019, unlike the IMF forecast, which predicts 110.1 percent this year and 116.6 percent in 2019.

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Source: Lusa