The seventh general elections were held in Mozambican on 9 October, including elections for the post of Mozambican President and parliamentary seats. Although the electoral process went smoothly, the days that followed, and especially after the results were announced by the National Electoral Commission, were marked by several demonstrations, all over the country, over alleged electoral fraud. These demonstrations, initially led by opposition figures, have called for a significant amount of daily activity to be paralysed and have led to violent clashes with the police authorities.
This situation, unprecedented since the end of the civil war in Mozambique, if it continues, in addition to the political challenges, could have negative economic consequences in the short and medium term.
In the short term, pressure is expected on public finances and economic growth. On the public accounts side, the pressure can be justified by the need to incur increased expenses beyond those provided for in the State Budget for the current financial year, with the financing of the security forces and operations to suppress demonstrations, and the repair of damaged public infrastructure. In addition, the paralysing of activities could jeopardise the collection of tax revenue by the government, due to the reduction in the volume of activity, and the reduction in company profits.
As for economic growth, it was already expected that 2024 would be a year of further cooling, particularly due to the reduction in the positive effect on GDP related to natural gas exploration in the FLNG project, which has already reached cruising speed. In the current context, post-election instability is beginning to take on proportions that affect the productive and commercial activity of economic agents, who are reporting significant impacts. On the other hand, there is also a growing perception of the risk of insecurity in Mozambique, which will certainly affect inflows associated with tourism and the consequent loss of revenue.
In the medium term, if the situation of political instability continues, it could have an impact on investors’ decisions
Still in the short term, on the monetary policy management side, despite the fact that the current context may lead to shortages of some goods, especially food products and possibly fuel, with an impact on the prices of these goods, it is estimated that the Bank of Mozambique will maintain its stance of progressively reducing interest rates, since, despite the risks of a slight increase in inflation, it remains at comfortable levels (2.7% year-on-year in October 2024), and well below the upper reference limit of 10.0%.
In the medium term, if the situation of political instability continues, it could have an impact on investors’ decisions, with the gas projects in the Rovuma basin being the most important. Let’s remember TotalEnergies’ LNG exploration project, whose Final Investment Decision was expected to take place this year, but was postponed until 2025. Before the elections, the oil company’s CEO said he would travel to Maputo at the end of October to hold talks with the new head of state, among other things to discuss the security situation in Cabo Delgado and the resumption of work on the project. This uncertainty brings risks to investment projects, which have structures comprising various partners, suppliers, financiers, etc., and which need all parties to be aligned in order to move forward.
At a time when the government is facing significant liquidity management challenges, the resumption of these projects is crucial if the state’s financial credibility is to be restored so that it can continue to fulfil its financial obligations.
