Mozambique’s economy is going through a turbulent week, marked by the political crisis, the revision of growth forecasts and the increase in public debt. At the same time, data revealed by the Bank of Mozambique highlights the services sector as the main destination for bank credit, reinforcing the role of financing as a tool for financial inclusion.
Electoral Instability and Economic Impact
Since the October elections, Mozambique has faced mass protests led by opposition candidate Venâncio Mondlane, who is contesting the victory of Daniel Chapo, who was elected with 70.67% of the vote. Mondlane does not recognise the results and has called a general strike, aggravating the tension in the country’s main cities. Capital Economics said that although the impact of the protests on immediate economic growth is limited, any concession by the government to the protesters could increase the risk of financial default, threatening the already fragile economic stability.
The capital, Maputo, is on high alert, with the army on the streets and access restrictions, especially in areas where embassies and government buildings are located. Social pressure and the government’s response have increased tension, with the Bank of Mozambique registering a 0.2 per cent drop in Mozambican Eurobonds, as a result of investors’ fear of instability.
IMF Growth Review and Future Challenges
The International Monetary Fund (IMF) adjusted Mozambique’s economic growth forecast to 4.3 per cent in 2024 and 2025, down from the 5 per cent previously estimated. Despite exceeding the average for sub-Saharan Africa, this rate is insufficient to reduce poverty in a sustained manner. According to the IMF, per capita income growth is insufficient to meet development challenges and rapidly improve quality of life.
This review highlights the economic difficulties faced by the country, with a growth rate below the government’s target of 5.5 per cent, established in the State Budget. The situation is aggravated by the high public debt, which is expected to reach 96.5 per cent of GDP by 2024, limiting the capacity for investment and development.
Increase in Public Debt and Expansion of Credit to the Services Sector
Mozambique’s public debt, which already represents 96% of GDP, is a structural challenge that could limit the country’s investment capacity in the coming years. Despite the fall in inflationary pressures, which suggest inflation of 3.5 per cent by 2024, the high levels of indebtedness continue to jeopardise the resources earmarked for development.
Meanwhile, the Bank of Mozambique (BoM) reported a 2 per cent increase in total credit made available to the economy, which reached 248.6 billion meticals in August. The services sector led the way as the main beneficiary, receiving 47 per cent of this amount, equivalent to 116.9 billion meticals. Maputo city concentrated around 34 per cent of the total credit, reflecting its economic and financial importance. These figures reveal a moderate expansion in financing for the private sector, with a growing focus on financial inclusion.
Text: Felisberto Ruco
