IMF support expected to compel Mozambican government to adopt unpopular measures

10 October 2017

Mozambique’s dependence on external financing is expected to force the government to adopt some unpopular political measures in order to regain the support of the International Monetary Fund (IMF), said the Economist Intelligence Unit (EIU) in its latest report on the country.

The document stresses that the unwillingness to introduce austerity measures before the 2019 elections may tempt the government to postpone the re-launch of the IMF’s support programme, but adds that the deteriorating liquidity crisis will push the government to change its thinking on this.

This belief stems from the fact that the government continues to resist the IMF’s demands for full transparency, including full disclosure of the report produced by consulting firm Kroll Associates UK on hidden debts as well as the adoption of a more restrictive fiscal policy, with the EIU concluding that an agreement with the IMF will not be put in place in 2018.

The debt crisis will not see a quick solution, and the EIU analysts say that the most likely solution will be to merge the three debts amounting to US$2 billion into a single one, with lenders being forced to lose part of their investment and the loan repayment, in default since February 2017, to be pushed to after 2020.

The timetable for reaching a solution, whatever it may be, is even more uncertain, with Mozambican government borrowers demanding, similarly to the IMF and international donors, full disclosure of Kroll Associates UK’s report.

Mozambique’s economy, which is expected to start accelerating this year due to rising prices of the commodities that Mozambique exports, including coal, is expected to grow from 4.2% in 2017 to 5.6% in 2022.

Fiscal consolidation will continue to limit growth in services and civil construction, areas usually dependent on government contracts, although entrepreneurs will make some private investment as confidence recovers.

The gas industry is expected to be a major development factor for the Mozambican economy, with the projects in the Area 1 and Area 4 blocks in the Rovuma basin in the north of the country, but their complexity and investment values will mean that the extraction of natural gas and subsequent processing and liquefaction will only begin after 2022. (macauhub)