EIU projects contraction of Mozambique’s economy in 2020

16 April 2020

Mozambique’s economy is expected to contract by 2.4% this year said the Economist Intelligence Unit (EIU) in its latest report on the country. This projection differs from the one issued by the International Monetary Fund (IMF), which projects economic growth of 2.2%.

The IMF document includes forecasts for just two years – 2020 and 2021 – while the EIU covers the period up to 2024, the year in which the Mozambican economy is expected to be growing at a rate of 9.0%.

This rate of 9.0% is essentially linked to the beginning of the exploration of natural gas reserves in the Rovuma basin, northern Mozambique, but the attacks carried out by radical Muslims as well as the Covid-19 pandemic led ExxonMobil to postpone its final investment decision for projects in the Area 4 block.

For 2021 the IMF forecasts a growth rate of 4.7%, more than double the figure expected by the EIU of 2.0%, followed in subsequent years by rates of 6.5% in 2022 and 7.8% in 2023, in addition to 9.0% in 2024.

The balance of budget implementation projected by EIU analysts is negative in all the years analysed, and is particularly significant in 2020 and 2021, with values of -13.3% and -11.1%, respectively.

The EIU document suggests tax revenue will be hard hit by the Covid-19 pandemic, due to the reduction of exports and lower tax revenue arising from the measures applied to prevent the spread of the new coronavirus, but points out that the situation is likely to improve by 2021, as economic activity resumes.

In addition, increased public spending throughout the year due to the growth of health care costs as well subsidies granted to companies, as part of measures to relieve the consequences of the pandemic must also be considered.

Also, as a result of Covid-19 there will be a drop in foreign reserves, with the EIU analysts anticipating that Mozambique will have only enough reserves to cover 4.4 months of imports of goods and services, excluding major projects.

“The reserves will tend to recover in the period from 2022 to 2024 to 5.4 months of imports due to improvements seen in the balance of current transactions,” it said.

The rate of inflation, for its part, will tend to worsen this year with a rate of 6.8%, after 2.8% in 2019, ranging in the following years between a maximum of 7.8% in 2024 and a minimum of 4.2% in 2021. (macauhub)