Mozambican government will seek to restore relations with the IMF

18 May 2017

The Mozambican government will seek to tighten fiscal and monetary policies to restore relations with the International Monetary Fund (IMF) and resolve liquidity problems, the Economist Intelligence Unit (EIU) said in its latest country report.

Noting that political pressures will lead to these policies not being fully adopted, the EIU added that economic growth will remain weak in 2017/2018, at least when compared to previous periods, due to weak domestic demand and a low level of investment.

“Stronger economic growth is expected to start in 2019 as business and investor confidence strengthens,” the report said.

The EIU analysts once again said in this report that the economy remains destabilised by a liquidity crisis created by debt servicing that is complex to manage and by the widespread freezing of aid previously provided by international organisations and by Western countries.

The debt crisis, which is the basis of one of the most complicated situations experienced by Mozambique since the end of the civil war, “shows no signs of a quick resolution,” and the country has already gone into default because it failed to pay two coupons on two loans contracted by public companies with the State’s guarantee.

“The government is seeking to restructure foreign debt servicing, which is equivalent to 100% of Gross Domestic Product (GDP), but both the result of these efforts and the timetable for its implementation are surrounded by uncertainties,” said the report, accessed by Macauhub.

The EIU also writes that the most likely scenario will be for the three commercial loans to be joined together (one bond issue and two syndicated loans) into a single instrument, with creditors being forced to lose part of the capital invested and repayment to the mid/late twenties.

The report forecasts a budget deficit of 6.7% of GDP for this year, with expenditure and revenues falling compared to previous years, with a decrease of 3.1% in 2018 due to revenue from the probable start of natural gas exploration in the north of the country.

The Bank of Mozambique, the report continues, will seek to restore price stability and at the same time try to mitigate vulnerabilities in the banking sector, where Nosso Banco has ceased to exist and Moza remains the target of intervention by decision of the central bank. (macauhub)