Economic growth in Mozambique will be bolstered by natural gas exploration

12 December 2017

The beginning of the process of extraction, processing and marketing of natural gas by Italian group ENI and other partners in northern Mozambique will result in more accelerated economic growth, at an average of 5.5% between 2020 and 2022, according to the Economist Intelligence Unit (EIU).

The EIU said in its latest report on the country that economic growth in Mozambique will remain weak, when compared with rates from the recent past, between this year, in which it expects growth of 3.0% and 2019, with growth of 3.6%, due to weak domestic demand as well as low levels of investment.

The report said that GDP growth forecast for 2018/2019 had been revised downwards to an annual average of 3.4%, compared with a previous estimate of 4.3%, due to weaker-than-expected economic growth this year.

From 2020 the EIU expects a more pronounced economic recovery, which will be supported by the development of export-oriented industries, among which natural gas exploration stands out, the report said

Over the period examined (2017/2022) budget execution is expected to lead to deficits that ranging between a minimum of 3.0% in 2022 and a maximum of 4.2% this year. The current account balance as a percentage of GDP will maintain a deficit of 15.8% in 2018 and 21.3% in 2022, and this year is expected to be -16.2%.

The expected value for the current account deficit for 2018 is based, according to the EIU, on the reduction of imports and the increase in the export of raw materials, and from that date on ward it will tend to worsen with the expected increase in imports of goods and services.

The EIU analysts added that “due to the reluctance of the government to ensure full transparency of public accounts” it is not expected that the partners of the so-called programmatic support will return to contributing to the State Budget, and the Mozambican authorities will seek funding in other geographies, such as China, which is Mozambique’s largest creditor, as well as Asian countries that import natural gas and coal, including India, Japan and Thailand.

However, the donor countries and organisations should continue to support some specific development projects in Mozambique “provided that the funds do not have to go through the country’s Treasury.”

The Bank of Mozambique is expected to maintain its policies to restore stability in consumer prices and support domestic demand, “although the weak coordination between fiscal and monetary policy may hold these efforts back,” added the report.

With price pressure slowing, with the EIU forecasting that inflation will begin on a downward trajectory in 2018 to reach 6.5% in 2022, the Bank of Mozambique should reduce the rigidity of its monetary policy in order to respond to the current liquidity crisis. (macauhub)