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Mozambique Economy Set to Improve Next Year

Approximate reading time: 2 minutes

According to data from the International Monetary Fund, Mozambique’s economy will grow 6.5 percent in 2016, as natural gas projects will boost the economy next year, according to Reuters. The economy was set to expand sooner if not for the delay of natural gas investments. The nation’s central bank expects 7.0-percent growth in 2015, but the government expects a target of 7.5 percent.

Mozambique’s economy has come a long way since the country exited a brutal civil war in 1992, but the country has a long way to go in terms of long-term sustainability. Mozambique has grown at a steady rate of 7.0 percent over the decades, but living standards and poverty rates remain unchanged.

The discovery and further development of natural gas offshore may raise living standards, but history has shown otherwise. Further, relying on a single commodity is an inherent risk, and officials will need to diversify the economy to ensure stable growth. While natural gas is a resource that will elevate Mozambique, the government must not fall into the trap of using commodities as a sole revenue stream for decades on end. With that, Mozambique achieved a stable expansion over the years, with growth reaching 9.6 percent in 2014, and the country has vast potential going forward. The IMF also expects the economy to grow at around 8.0 percent between 2017 and 2020, and a majority of the growth will stem from the commodities sector, most notably natural gas.

Despite the positive trajectory, Mozambique will face bumps that could disrupt natural gas aspirations. For one thing, commodity price fluctuations sparked shockwaves across the world economy, especially in nations that rely on the commodities trade. One must also consider the instability within the energy market, as low oil prices dealt a heavy blow to energy-rich economies around the world.

The current conditions of the world market forced the government to accept $286 million in aid from the IMF to counter the effects of a downtrodden economy. The loan package also includes certain attributes, such as raising interest rates and lowering the deficit for the budget.

Authorities also need the money because Mozambique’s currency, the metical, dropped a whopping 29 percent compared to the dollar. Moreover, the government exhausted a great deal of reserves to pay off loan interest, and international reserves fell 25 percent since 2014, notes Bloomberg. Accepting money from the IMF is rarely an ideal option, but this leaves Mozambique with few options, as the economy is not diversified and powerful enough to rise above the downturn.

Source: Economy Watch

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