The consultancy Capital Economics said on Thursday, 7 November, that the protests in Mozambique will not have an impact on growth in the short term, but warned that concessions to the protesters could increase the risks of default on financial obligations, the Lusa news agency reported.
‘Any attempts by the government to loosen fiscal policy to offset the effects of the protests or disruptions to major gas projects will cause the risks of financial defaults to rise again,’ the analysts wrote in a note on the protests in Mozambique following the elections.
The demonstrations and clashes in the country since the elections ‘should not have a major impact on growth in the short term’, points out Capital Economics, warning that, even so, ‘the direct economic impact will depend on its duration’.
For the British consultancy, the most worrying thing for the country’s financial situation will be when the government decides to relax its budgetary discipline in order to make concessions to the demonstrators or to compensate for the slowdown in economic activity resulting from the closure of shops, businesses and industries that has been going on for weeks in the country.
‘The government may try to compensate for the economic shock through a looser fiscal policy, which would raise concerns about the fiscal framework and the commitment to comply with the International Monetary Fund’s programme,’ they say, pointing out that investors have reacted badly to the instability, with interest rates on debt rising since mid-October.
The negative economic effects would be much more damaging if the impact of the protests reached Cabo Delgado province, where the country’s largest natural gas reserves are located.
‘The thousands of jobs and growth that were expected at the beginning of the 2020s are now forecast for 2027 and 2028, a postponement that could be extended even further if the insurgents take advantage of the current instability,’ warns Capital Economics, emphasising that the financial impact of any postponement of the projects would be very serious.
Since TotalEnergies suspended the works in 2021, ‘foreign direct investment in the country has dried up, falling from 33 per cent of GDP that year to 13 per cent in 2023, and this is important because external financing needs are enormous – the current account deficit was 34 per cent in 2022, and public debt is over 90 per cent.’
Thus, they conclude, ‘without the revenues linked to investments in these gas projects or exports after the projects are implemented, it will be extremely difficult for Mozambique to avoid a sovereign default.’
The announcement by the Mozambican National Electoral Commission (CNE) on 24 October, in which it awarded victory to Daniel Chapo, supported by the Mozambican Liberation Front (Frelimo, the party in power since 1975) in the election for Mozambican President, with 70.67% of the votes, sparked popular protests, called by presidential candidate Venâncio Mondlane.
According to the CNE, Mondlane came second with 20.32%, but the latter said he did not recognise the results, which still have to be validated and proclaimed by the Constitutional Council.
Following street protests that brought the country to a standstill, Mondlane once again called the population to a seven-day general strike from 31 October, with nationwide protests and a demonstration in Maputo scheduled for today (7).
The Mozambican Bar Association warned that ‘there are all the conditions’ for a ‘bloodbath’, calling for ‘genuine dialogue’ to prevent this from happening.
Today marks the eighth day of strikes and demonstrations across the country.
