MAPUTO, May 3, 2016 - After several consecutive years of accelerating growth, Mozambique’s economic performance eased to its slowest pace since 2009, whilst the economy remains increasingly exposed to heightened levels of fiscal risk, according to the Mozambique Economic Update released today. Although Mozambique’s economic prospects remain sound, a robust policy response is vital to manage short term pressures and lay the ground for future growth. The report covers the period to March 2016.
Recent Economic Developments and Outlook
Much like other resource-rich countries, the Mozambican economy continues to face the challenges of low commodity prices and weak demand amongst trading partners, as well as regional drought. These difficult conditions are further aggravated by falling investment levels and rising public debt. In 2015, foreign direct investment fell by 24 percent, exports declined by 14 percent and growth decelerated to 6.3 percent, its slowest level since 2009.
The adverse external environment is expected to persist through 2016. The report projects that a continued decline in prices for key exports, the ongoing drought and further fiscal tightening will further decelerate GDP growth to 5.8 percent in 2016, before recovering to over 7 percent in 2017. This outlook is subject to further downward risk if investment levels remain subdued and if rising debt levels lead to sharper fiscal and monetary policy adjustments.
“Short-term pressures in 2016 point to the importance of rebalancing the external position, rebuilding international reserves and securing final investment decisions for the development of the Rovuma basin gas fields,” noted Shireen Mahdi, World Bank Senior Country Economist for Mozambique.
Although short-term economic pressures are pronounced, the Mozambique Economic Update notes that the country’s economic prospects remain sound.
Special Focus on Fiscal Risk
The report also includes a special focus section on public investment and fiscal risk arising from public debt, guarantees, state owned enterprises and public private partnerships. Mozambique has been substantially scaling-up public investment over the last few years. Financing has taken various forms. However, liabilities have accumulated at a rapid pace while the due diligence mechanisms to govern them more efficiently lagged. The report highlights the need to improve monitoring, disclosure and management of debt and fiscal risks. These efforts should be complemented by measures to improve the government’s capacity to appraise and manage public investments.
“It will be increasingly important that the authorities ensure thorough assessment of the country’s fiscal risks and increase transparency through greater disclosure,” highlighted Mark R. Lundell, World Bank Country Director for Mozambique, Madagascar, Mauritius, Seychelles and Comoros.