Standard Bank lowers forecast of Mozambique’s economic growth to 2%

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Standard Bank lowers forecast of Mozambique’s economic growth to 2%

2:35 CAT | 30 Jun 2016

Standard Bank has revised the forecast of economic growth of Mozambique for 2016 downwards from 5.6 percent to 2 percent, and estimates that public debt will have reached 100 percent of gross domestic product by the end of the year.

In its June economic bulletin, the financial institution also estimates that the prices of goods will continue to rise, with inflation between 17 and 19 percent in 2016 if current assumptions hold.

Standard Bank says that annual inflation rose 98 basis points to 18.3 percent and the average rose 142 basis points to 8.6 percent, reflecting the depreciation of the metical (69 percent against the dollar by May) and the poor performance of the agricultural sector.

“These figures reflect inflation of 31.9 percent year-on-year in food prices in May, a record high, and non-food inflation of 5.8 percent,” the document reads.

The report paints a gloomy picture of the difficult situation that Mozambique faces, including a drop in foreign currency supply, slowdown in foreign direct investment and reduced export earnings.

In addition, the economy is being shaken by the current political and military crisis, the suspension of support from the International Monetary Fund and other state budget of donors resulting from revelations about so-called ‘hidden debts’, rating agencies reviewing the country’s prospects downwards, further delays in natural gas megaprojects in the Rovuma basin and the low price of raw materials in the international market.

All in all, the Standard Bank expects economic growth of Mozambique this year to be only 2 percent, far below the government’s estimate of 7.8 percent, which it now admits to being very optimistic, and has revised down to between 6 and 7 percent.

Standard Bank notes that it might change its forecast again, with “an increased risk of downward revision, at least in the short term”.

Although real GDP slowdown, at 5.3 percent in the first quarter of 2016, was “weaker than expected”, the report notes that the behaviour of the Mozambican economy leads analysts to expect “a more pronounced slowdown as the year progresses and more quarters are incorporated”.

Nevertheless, the bank argues that “with a relatively diversified economy, a strong agricultural and energy potential, with a diversified base and large reserves of natural resources, including natural gas, the country has a good long-term economic outlook”.

The Standard Bank report says that the 10 percent decrease in public spending announced by the government is insufficient and considers that “a significantly higher cut” will be needed, and mentions also the slippage of the external debt as a result of the revelation of new loans guaranteed by the government which, added to the Ematum debt already known about, now total about US$2 billion.

Taking into account exchange rate issues and its new economic growth forecast, the bank calculates that: “This data suggests an increase in the public debt ratio to GDP from 76.4 percent in 2015 to close to 100 percent this year.”

Source: Lusa