africa credit rating Economy Mozambique

Fitch expects Mozambican economy to slow down 1.4% in 2019

Fitch Solutions on Wednesday said that the effects of cyclones Idai and Kenneth, in Mozambique, will slow economic growth to 1.4% this year, before accelerating to 3.8% in 2020.

“Mozambique’s economic growth will be limited in the coming quarters by the effects of the cyclones; real GDP growth of 1.4% this year and 3.8% in 2020 is below the average of 5.9% recorded between 2009 and 2018,” analysts from the consulting firm owned by financial rating agency Fitch said.

According to an analysis of Mozambique’s economy, sent to customers and to which Lusa had access, the damage caused by the cyclones has made food prices and inflation rise from 3.5% in 2018 to 5.2% this year and 6.6% in 2020, affecting consumer spending.

“Growth will still be driven by external financial assistance to support reconstruction efforts and by increasing investments in the hydrocarbon sector,” analysts pointed out.

The “boycott” of international donors, following the 2016 hidden debts scandal will influence Mozambique’s current account in the coming quarters although the flow of investment in the mining and hydrocarbon sectors is sufficient to maintain a sustainable balance of payments, the country will remain susceptible to external shocks in the coming years.

The worsening of economic metrics in recent years has increased the budget deficit, going from a budget imbalance of 5% in 2017 to 5% last year and 7.8% this year, before a slight reduction expected for 2020, the year in which the deficit should be 7.3%, according to Fitch.

“Mozambique remains vulnerable to an adverse climate, especially heavy or little rainfall, and this will continue to be a risk to the economy, based essentially on agriculture”.

Other risks to economic development are the deficient transport and communications infrastructure, which is inadequate to take the country’s natural wealth to international markets.

In March, cyclone Idai hit central Mozambique, killing 604 people and affecting about 1.8 million.

Shortly after, in April, the north of the country was devastated by Cyclone Kenneth, killing 45 people and affecting another 250,000.

Source: Lusa via Club of Mozambique

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