The head of the International Monetary Fund (IMF) mission to Mozambique said on Tuesday that the country’s debt is sustainable even if oil company TotalEnergies does not resume work to explore natural gas in the country.
“The debt will be sustainable even if the gas exploration projects do not go ahead,” Alvaro Piris said at a press conference following the approval of the first review of the economic adjustment programme in the country.
“Our growth estimate for the rest of the economy, apart from natural gas, is 4%, and it is a conservative forecast, so considering the increase in prices, the nominal GDP increase would be almost double-digit in our base scenario,” Piris told Lusa when asked whether the Debt Sustainability Analysis admitted the possibility of TotalEnergies deciding not to resume the gas exploration project in the north of the country due to a lack of safety conditions.
In addition to the growth forecast for the non-oil economy, the IMF’s head of mission in Mozambique also said that the structure of natural gas projects does not increase the debt to gross domestic product (GDP) ratio before the projects are implemented.
“Some debt was incurred at the beginning, but the large portion of the expenditure is during project development, or in other words, there is no disbursement until construction,” he noted.
He concluded that “the risks would be greater, with lower revenues, and it would take longer for the country to reach a comfortable level of debt and debt servicing, but they would get there eventually.
The IMF returned to Mozambique this year after suspending budget aid due to the hidden debts scandal in 2016 and has an ongoing $456 million financial assistance programme aimed at creating budgetary headroom for government investments in human capital, climate adaptation and infrastructure.
The International Monetary Fund has revised down its growth forecast for sub-Saharan Africa, now estimating growth of 3.6% and 3.7% this year and next year, with inflation rising to 15%. For Mozambique, the forecast is for growth of 3.8% this year and 5% in 2023, according to the approval of the first assessment of the programme.
“The programme performance criteria, indicative targets and structural benchmarks at the end of June 2022 have been met. The monetary policy outlook and the proactive tightening since the beginning of 2021 are appropriate for dealing with the expected rise in inflation,” the IMF said in the note announcing approval by the board of directors of the first review of the Extended Credit Facility (ECF).
Approval of the first review of the three-year programme, approved in May this year, represents an immediate disbursement of US$59.2 million (almost €58 million) of the total US$456 million (€443 million) included in the financial adjustment programme of which Mozambique has already received around US$150 million, or €145 million.
“Growth is expected to increase in 2022, with the strengthening of economic recovery, despite the deteriorating international economic environment and rising commodity prices, reflecting a robust vaccination campaign and the full lifting of restrictions against Covid-19 in July 2022,” the statement also pointed out.
Among the main risks to meeting the programme’s objectives, the IMF noted rising prices, which have already pushed inflation to double digits, social unrest, terrorist activity in the north of the country and natural disasters, which are, nevertheless, offset by the strengthening economic recovery, strong demand prospects for liquefied natural gas and the possibility of higher-than-expected growth in other sectors of the economy in the medium term.