Mozambique faces a delicate financial situation during a period of political stabilisation

22 May 2017

The political and security situation has stabilised in Mozambique in recent months, but the financial situation is still very delicate and leads investors to view the country with concern, according to the Africa Monitor.

In the first Country Risk Report on Mozambique, Africa Monitor identifies the main economic risk in Mozambique to its public finance situation, because of worsening public debt (130-140% of GDP), related to loans taken on by public companies Ematum (US$850 million), Proindicus (US$622 million) and MAM (US$535 million), with high interest rates and very short amortisation periods that were undisclosed for over a year.

“The fall in the confidence of donors and international financial organisations, reflected in the suspension of the financial flows of the cooperating countries and the support of the International Monetary Fund, has worsened the financial situation,” said the report. This situation led to a sharp devaluation of metical and increased inflation (27% in 2016).

Meanwhile, the government was able to raise US$350 million from capital gains from the sale to ExxonMobil of part of ENI East Africa’s stake in the Area 4 block of the Rovuma basin, but given the State’s current needs this income was merely “palliative,” Africa Monitor said.

“The public finance situation will require an IMF intervention with conditions that will involve austerity measures and fiscal reform with direct effects on consumer goods and the population’s income. These increase the likelihood of social protests, which have been contained in recent months,” the report said.

The banking sector’s situation is also delicate, given the lack of liquidity, with the Bank of Mozambique being forced to intervene in two banks – Moza Banco and Nosso Banco – in just a few months.

“Banks face growing problems of default by companies and private individuals and a lack of cash flow, with a rise in bad credit,” the report said.

The main improvement was in the political situation, with increased trust between the government and the Renamo (Mozambican National Resistance) party to allow a cease-fire to be declared in December 2016 and for an “indefinite” period of time in May 2017, putting an end to sporadic clashes that were constraining economic activity, especially circulation on major roadways in the country.

According to Africa Monitor, the main political risk now lies in ruling party Frelimo itself, with conflicting interests between the current president, Filipe Nyusi, and the former president, Armando Emílio Guebuza, whose government was responsible for taking on hidden debts of US$2 billion, which were the focus of an audit recently completed by Kroll Associates UK, to be released by the end of May.

Nyusi, the report said, is on a “trajectory of affirmation,” due to the success of his approach to Renamo, greater exposure of the process of the hidden debts of his predecessor, still one of the most influential figures in the country, as well as to the prevailing idea among diplomats that supporting Nyusi is the greatest guarantee of political stability for the country. (macauhub)