We are near the end of 2023, and the persistence of some past challenges has marked the evolution of many economies around the world.
Fighting inflation has been one of the central banks’ biggest challenges, and although it has fallen significantly for much of the year, it still remains above the desired reference limits. Maintaining economic growth was another major challenge, with many economies showing growth below expectations, influenced by restrictive policies, both fiscal and monetary. The emergence of a new armed conflict, with the potential to escalate into a regional conflict, was another challenge that arose in 2023, with Israel’s response to the terrorist attack perpetrated by Hamas at the beginning of October. However, 2023 draws to a close on a positive note, and with the expectation that 2024 could be much better.
According to the International Monetary Fund (IMF), the outlook for economic growth in sub-Saharan Africa for 2024 is positive. Real GDP growth is expected to accelerate in most countries, whether they are exporters of natural resources or those that base their economies on other goods and services.
Inflation is expected to continue on a downward path, driven by lower food prices, the easing of restrictions on supply chains and the tightening of monetary policies. This slowdown in inflation is not expected to be uniform in all countries, and to benefit some countries more than others.
Although inflation continues to fall, the truth is that it remains high in relation to central bank targets, with two thirds of countries recording inflation above these targets. A third of the countries have inflation in the double digits and, for 2024, monetary policy is expected to adjust to the different contexts, with central banks adopting restrictive or more neutral stances depending on the situation in their respective countries.
In 2023, there was a generalised rise in interest rates, both for reference and longer maturities. However, the contraction in financing is not over yet. The level of indebtedness of African countries has increased significantly since 2015, leading many countries to reach a situation of worrying over-indebtedness in 2023, which has fuelled a currency devaluation that has been observed since the covid-19 pandemic.
The outlook for economic growth in Mozambique is even brighter in 2024, with an estimated growth of close to 7 per cent, driven by the start of gas exploration and the restart of work by TotalEnergies
Rising interest rates have contributed to this scenario, leading some countries to reach unsustainable levels of debt servicing in relation to tax revenue and to consider requests for aid from the IMF and restructuring their debt stock. According to the body, from 2023 onwards, the region needs to continue making budgetary adjustments to stabilise debt below 70% of GDP, in order to make public debt sustainable.
In Mozambique, 2023 will be marked by an acceleration in growth and a continued slowdown in inflation. Mozambique will be the fifth country with the highest GDP growth rate globally, with the main emphasis on the primary sector, especially Agriculture, Livestock, Hunting, Forestry and Logging. In addition, there has been significant growth in the Mining Industry, especially in the extraction of mineral coal and natural gas.
Mozambique’s growth prospects are even brighter in 2024, with an estimated growth of close to 7 per cent, driven by the start of gas exploration and the resumption of work by TotalEnergies. In 2027 and 2028, growth is expected to increase to double digits, with TotalEnergies starting to explore for natural gas onshore. The resumption of preparation activities at the Afungi – Cabo Delgado – plant by the French oil company, following the lifting of the “Force Majeure,” could boost investor confidence and give greater dynamism to the Mozambican economy, noting that ExxonMobil has this measure as a benchmark for resuming the project.
Inflation in Mozambique has been below the central bank’s reference limit for at least seven months, as a result of its restrictive stance and the external effects mentioned above. With inflation under control and a favourable outlook for 2024, it is expected that the Bank of Mozambique’s Monetary Policy Committee will reassess its stance, reducing benchmark interest rates in the coming months. If it materialises, this drop in rates could help expand economic activity in other sectors that are not related to the extraction of gas and other natural resources.
