British consultancy Oxford Economics reckons that Mozambique will grow by only 1.2% this year, recovering from the 2020 recession, due to the suspension of gas projects, the effects of the pandemic and the slow distribution of vaccines.
Analysts predict that “economic growth will be limited [in Mozambique] in 2021, despite the first contraction since 1992 being recorded last year,” they write, considering that the economy will only grow by 1.2% this year, below the average of recent years.
“The indefinite suspension of construction activities related to the natural gas projects in Cabo Delgado, the emergence of new variants of the coronavirus and a slow distribution of vaccines against Covid-19 are factors that will weigh on economic output this year,” point out the analysts of this African branch of British Oxford Economics.
In a commentary on Mozambique’s economic developments, the analysts write that the central bank remains concerned about inflation-related risks. “It is unlikely that these risks will disappear before the end of the year, so we expect that the central bank will not cut rates in the short term,” they conclude.
The Monetary Policy Committee (CPMO) of the Bank of Mozambique decided on Wednesday (19.05) to keep the monetary policy interest rate (MIMO rate) at 13.25%, the Mozambican financial regulator announced in a statement.
The risks and uncertainties associated with inflation projections have worsened” and at “domestic level, the intensification of military instability in the northern part of the country stands out, with an impact on fiscal pressure and the suspension of the Mozambique LNG project
“The decision is based on the worsening risks and uncertainties, despite the downward revision of inflation prospects in the short and medium term, reflecting, above all, the recent appreciation of the metical,” he said in the press release.
The regulator states that “the risks and uncertainties associated with inflation projections have worsened” and at “a domestic level, we highlight the intensification of military instability in the northern part of the country, with impact on fiscal pressure and suspension of the Mozambique LNG project” for the production of liquefied natural gas.
On the other hand, he continues, a greater volatility of the exchange rate prevails, due to high uncertainties and asymmetries in the process of forming expectations of operators in the foreign exchange market.
New variants of the coronavirus
“In the external environment, greater fluctuation in the prices of financial assets and commodities and the emergence of new variants of the coronavirus are highlighted,” the text states.
The CPMO revised inflation downward, slowing to 5.19% in April from 5.76% in March, as a result of the recent appreciation of the metical and the dissipation of the impact of the bad weather that struck the country earlier in the year.
The economy is expected to recover more slowly in 2021, underpinned by weak domestic demand, coupled with the suspension of the gas exploration project by Total, notwithstanding the forecast gradual pick-up in external demand and the trend towards curbing the spread of Covid-19.
“Given the limited space for monetary policy and the State Budget, it remains pertinent to deepen structural reforms in the economy, with a view to strengthening institutions, improving the business environment, attracting investment and creating jobs,” the statement said.
