Mozambican economy still destabilised by liquidity crisis

10 April 2017

The Mozambican economy will continue to be destabilised by a liquidity crisis due to public debt impossible to manage and the suspension of international aid, the Economist Intelligence Unit (EIU) indicates in its latest report on the country.


The document states that the government plans to control fiscal and monetary policies in order to resume relations with the International Monetary Fund and resolve the liquidity problems, but adds that resistance from the political elite and the electorate will weaken that determination.


The economy’s real growth rate will remain low in the 2017-2018 biennium, owing to weak domestic demand and reduced investment, though the following years should see more robust performance, “as the confidence of investors gains strength.”


According to the EIU, the Mozambican government’s priority is to recover macroeconomic stability in a scenario marked by unsustainable public debt, a sharp drop in capital inflow and very little economic growth when compared to growth rates achieved in the recent past.


The revelation of state-endorsed loans unlawfully contracted by public enterprises led to suspension of the support programme with the International Monetary Fund and shortly afterward with the group of countries and international bodies that supported the state budget and additional development projects.


The country officially entered in default in February 2017 when it failed to pay the first coupon of the bond issue of Empresa Moçambicana de Atum. It subsequently failed to make another payment concerning Proindicus and the government then stated it did not have the capacity to meet its financial commitments.


The EIU states in this document obtained by Macauhub that the most likely solution for the three debt issues will be grouping them in one single instrument, with the holders of Mozambican public debt having to accept a major cut and payment of the remaining debt postponed until after 2020. (Macauhub)