Worst of the crisis is behind Mozambique but many challenges remain

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The economic and financial research department of BPI Bank believes that the worst of Mozambique’s financial crisis in now behind it, while nevertheless anticipating growth below the level of previous years.

“The short-term scenario for the Mozambican economy has clearly improved, and the low point of the cycle has already passed. However, the scenario is still constrained by several risks and is conditioned by the occurrence of several events,” reads an analysis to which Lusa has access.

BPI analysts say their contacts in Maputo recently noted “certain weaknesses in the economy”, highlighting “the weak judicial system, high levels of state bureaucracy, poor infrastructure and a low-skilled population”.

To these structural factors, the analysts add “the current weaknesses of the economy, […] difficult access to financing, both through high interest rates and demanding terms, the liquidity of state finances and lack of confidence on the part of the international partners”.

At the end of the year, the news such as Vale’s resumption of coal exports and appreciation of the metical as a result of tight monetary policy measures was positive, but this year’s growth rate will remain historically low.

“Despite the expectation of some resumption of economic activity, growth rates like those seen in the past are not expected, although the trajectory should be positive,” BPI analysts write after visiting the country.

Challenges for this year include “negotiations debt restructuring with creditors and agreeing a new program with the IMF; the gradual withdrawal of fuel subsidies; confirmation of the mitigation or suspension of political-military tensions; prices of raw materials in international markets and the maintenance of liquidity restrictions in the state apparatus; and the final investment decisions of natural gas projects”.

BPI analysts who follow the Mozambican economy say international donor’s financial assistance model will shift towards more concrete projects.

“It does not seem possible for donors to resume donations in the same way as they did before. They will rather apply them directly to projects, with better monitoring. The government will therefore have to develop strategies to broaden its tax base to meet current expenditure and operating costs as well as the costs essential for economic development,” the note reads.

The medium and long-term perspectives, however, continue to be favourable, mainly due to the renewed dynamics of mega-projects in the area of natural resources, and the political-military situation “apparently more pacified, allowing the resumption of normal circulation of goods and people”.

The past year’s crises have, however, had consequences. “The government will have to operate with fewer resources, promoting their use more efficiently, promote measures to broaden the tax base, measures to combat the informality of economy and promote diversification and job creation.”

As to the private sector, “companies that survive the crisis are expected to become more robust in the future by lowering costs, improving governance and better weighing their options”. In the financial sector, “more cautious cash management, more cost control and better credit risk assessment” are expected.

The crisis, they conclude, should be “seen as a window of opportunity, fostering more sustained growth and welfare for the population”.

Source: Lusa

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