Taking into account the relevance of a more local view when evaluating the latest developments on the Mozambican economy, we visited Maputo for several days, in anticipation of our next country report. In a nutshell, we were able to confirm the tighter restrictions faced by the country in 2016, triggered by the fall in commodity prices since mid-2014, among other negative developments with an adverse impact on economic confidence. Despite some improvements at the end of the past year, driven by the rebound of Vale’s coal exports, the Metical’s appreciation, and the benefits of a highly restrictive monetary measures, the institutions and firms interviewed continue to highlight various weaknesses in the Mozambican economy. Among others, locals referred the weak judicial system, red tape, infrastructure bottlenecks and shortage of skilled labour. In addition to these structural factors, current weaknesses were underscored: difficult access to financing (given the high interest rates and tight credit restrictions), Government liquidity constraints, and lack of confidence by international donors. Having said this, it is our conviction that Mozambique has passed the worst point of the recent crisis and that authorities have been taking the most adequate measures in terms of economic policy in order to deal with this challenging situation.
In 2017, expectations are of a recovery and a broadly more positive and sustainable trend, although economic growth is most likely to come short of the solid pace observed in the past. At the same time, the country should face various challenges during this year: negotiation of the deal with creditors to restructure part of the external debt; reaching an agreement with the IMF for a new program; gradual elimination of fuel subsidies; subsiding, but still mildly active political and military tensions; uncertain evolution of commodity prices in international markets; maintenance of a scenario with liquidity restraints for the Mozambican State; still uncertain timing of the final investment decisions in gas projects; recovery of international credibility, in particular from the donors’ community point of view. However, it is important to note some positive signs, namely the recent Bank of Mozambique’s decision: the Central Bank decided to adopt a less restrictive monetary policy, given the more benign evolution of both inflation and the exchange rate. Additionally, exports continue to perform well, increasing almost 35% yoy in Q1 2017, boosting the net international reserves to levels superior to USD 2 billion in the first week of April.