Mozambique Facing Hard Economic Choices as GDP Declines

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The Mozambique Economic Update (MEU): Facing Hard Choices by the World Bank reveals that the country’s GDP growth has declined to 3.6 per cent in 2016 from 6.6 per cent in 2015.

The country’s ongoing economic downturn is occasioned by low commodity prices, drought, conflict and the fallout from the discovery of $1.4 billion hidden debt in April 2016 which make it one of the countries with the highest public debt-to-GDP rations in Africa.

Successive downgrades by credit ratings agencies have further weakened investor confidence in Mozambique.

Foreign direct investment and exports are projected to decline by 17 per cent and eight per cent respectively this year.

Fiscal consolidation and monetary tightening are also contributing to the decreasing growth.

The country’s currency, the metical depreciated by 42 per cent against the US dollar for most of this year, worse than any other African commodity exporters including Angola and Nigeria, accelerating inflation to 25 per cent and in turn, the cost of living.

Shireen Mahdi, World Bank Senior Country Economist, Mozambique said, “The increase in prices is particularly sharp for the poor. Since April, inflation is estimated to have been approximately 9 per cent higher for the poorest 40 per cent of the population than for the average Mozambican.”

The MEU also notes that the pressure on Mozambique’s external position is easing following the Central Bank’s monetary tightening as imports have declined and the metical stabilized since October 2016.

Independent audit of the the Empresa Moçambicana de Atum (EMATUM), Mozambique Asset Management (MAM), and Proindicus loans are also rebuilding confidence.

The country’s gas production is expected to contribute to a 6.6 per cent growth by 2018.

The World Bank advices a sharper focus on fiscal adjustment; enhanced financial sector surveillance; and stronger instruments of crisis management to restore fiscal sustainability in Mozambique.

It also emphasizes the need for reforms to develop effective oversight over state-owned enterprises and other public entities and to overhaul the framework for managing guarantees as the current economic circumstances reveal the need to better manage fiscal risks and contingent liabilities.

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