Mozambique’s economy is more stable, but with reduced capacity for growth, a World Bank assessment on the country being presented today in Maputo reads.

“Mozambique is emerging from the recent episode of macroeconomic volatility with a reduced capacity for growth. GDP growth dropped to an average of 3.8 for 2016 and 2017, down from 8% on average over the preceding decade, and is expected to attain the slightly lower rate of 3.3% in 2018 as the economy continues to confront the downturn that followed the debt crisis in 2016,” the document reads.

The analysis, entitled “Mozambique Economic Update – Shifting to More Inclusive Growth”, emphasises that the need for state financing and the risks posed to foreign trade cloud the economic outlook.

“A weaker price setting for Mozambique’s main exports coal, aluminium and tobacco is a source of risk to the external outlook, especially if demand for consumer imports recovers.”

The situation could put pressure on the central bank’s reserves and motivate imbalances. “A recovery in import demand, if not accompanied by an improved performance in exports from key sectors such as agriculture and energy, and an increase in investment, is likely to widen the economy’s external financing needs and raise pressure on central bank reserves.”

“At the level of public accounts, the gradual decline in the primary deficit has coincided with an increase in domestic debt, exacerbating debt levels and reflecting the public sector’s persistent financing needs, including those linked to under-performing state-owned enterprises,” the World Bank notes.

These needs are associated with the “poor performance of state-owned enterprises”, it adds.

“Rising domestic debt levels are of concern considering the high cost of domestic credit, and the potential for public sector financing to crowd out the private sector’s access to credit,” the report points out.

On the other hand, “the wage bill, which is typically a rigid expense, is beginning to slow at a gradual pace but continues to be a significant source of fiscal pressure. In addition, the ongoing electoral cycle and the emerging decentralisation arrangements could have significant budgetary implications that condition the pace of fiscal adjustment in the medium-term”, the report reads.

The government of the Liberation Front of Mozambique (Frelimo), the party in power since Portugal’s independence in 1975, and the Mozambican National Resistance (Renamo), the main opposition party, this year achieved agreement on decentralisation, which will be put into practice with the general elections of 2019.

You may read the World Bank’s ‘Mozambique Economic Update – Shifting to More Inclusive Growth’ HERE

- Lusa / World Bank