Mozambique continues to take firm steps to restore macroeconomic stability

However, this adjustment has a high cost, which translates into a slower growth of the Gross Domestic Product (GDP), which slowed to 3.2% year after year in the first quarter of 2018, from an average of 7.3% per year between 2000 and 2015.

This analysis was presented by the Standard Bank chief economist, Fáusio Mussá, during the Economic Briefing, held on Tuesday, June 19, in Maputo, with the aim of presenting the economic outlook for the second half of this year and for the next year, 2019.

During his analysis, the chief economist highlighted that two factors characterize the current economic situation, namely high risks on the fiscal side and prospects for slow growth of the economy until the start of exports of LNG-Liquefied Natural Gas projects in Rovuma Basin, most likely in 2022-2023.

Fáusio Mussá considered that the absence of military tension since the end of 2016 and the significant steps towards achieving lasting peace are the elements that have contributed most to improving the economic outlook.

Despite these improvements, we noted that the Bank of Mozambique has reduced the cutting rate of its main reference interest rate, MIMO, from 150 basis points at the meetings of the Monetary Policy Committee on December 2017, February and April 2018 to 75 basis points during this month's meeting. This behaviour most likely indicates that the fiscal risks remain high.

For the Standard Bank chief economist, with the high level of interest rates, most of the credit for the economy is channelled to the public sector, when in a scenario where interest rates would be lower there would be appetite on the part of the private sector to start financing its activity, which would stimulate economic recovery.

Looking to the next few years, Fáusio Mussá argued that before the exploitation of natural gas in the Rovuma Basin, expected 2023, the prospects are that GDP will grow at a pace well below historical levels, and in terms of GDP per capita, there was a contraction last year: while GDP grew 3.7, the GDP per capita contracted 5.3 percent.

“However, our analysis indicates that the country continues to take firm steps towards the recovery of the economy. However, maintaining macroeconomic stability requires acceleration of structural reforms, particularly in the judiciary system, business environment, banking and financial and fiscal sector, and public companies,” said Fáusio Mussá.

According to the chief economist, it also reflects “the growth of the export sector, particularly mining, including some companies that have managed to maintain a considerable level of business by investing equity capital”.