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Mozambique Country Risk Report Q2 2016

  • March 2016
  • -
  • Business Monitor International
  • -
  • 41 pages

Core Views Delayed investment into Mozambique's fledgling LNG sector and rising inflation will weigh on real GDP growth in 2016. The economy will see some recovery in 2017 as investment resumes following the likely signing of two important Final Investment Decisions in the latter stages of 2016, but the associated increase in imports that will accompany this investment will moderate any jump in headline growth. President Filipe Nyusi of Mozambique will not enjoy any notable success from his decision to extend an olive branch to the leader of RENAMO, Afonso Dhlakama by way of an invitation to talks aimed at ending the current spate of violence. Instead, attacks will continue to be carried out by both RENAMO, and forces acting on behalf of the ruling FRELIMO. Mozambique's budget balance will remain deep in deficit over our medium-term outlook, as the government struggles to curtail spending amid a climate of insecurity and high debt servicing costs. Restructuring the country's debt burden, while necessary, will prove a difficult task and add greater pressure to government revenues suffering from low commodity prices.

The Banco de Moçambique will continue its hiking cycle through 2016, leaving rates at 12.5% by year end, entailing a further 175 basis points of hikes. Hawkish monetary policy will be driven by increasing inflation, as depreciation of the local currency and a prolonged drought in Southern Africa puts upward pressure on prices. Although import growth will decelerate in Mozambique in 2016, further depreciation of the metical will see the current account deficit deepen for the second successive year. However, low commodity prices and the ensuing challenges faced in financing ongoing LNG and infrastructure projects will limit growth in the capital and financial account surplus.

Table Of Contents

Mozambique Country Risk Report Q2 2016
Executive Summary 5
Core Views5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Growth Stutters On Weak Investment But Remains High8
Delayed investment into Mozambique's fledgling LNG sector and rising inflation will weigh on real GDP growth in 2016 The economy
will see some recovery in 2017 as investment resumes following the likely signing of two important Final Investment Decisions in the
latter stages of 2016, but the associated increase in imports that will accompany this investment will moderate any jump in headline
growth
GDP By Expenditure Outlook 9
TABLE: GDP GROWTH FORECASTS9
TABLE: PRIVATE CONSUMPTION FORECASTS 9
TABLE: GOVERNMENT CONSUMPTION FORECASTS9
TABLE: FIXED INVESTMENT FORECASTS 10
TABLE: NET EXPORTS FORECASTS 10
Fiscal Policy And Public Debt Outlook 10
Budget Balance Stays In Red As Spending Remains High10
Mozambique's budget balance will remain deep in deficit over our medium-term outlook, as the government struggles to curtail spending
amid a climate of insecurity and high debt servicing costs Restructuring the country's debt burden, while necessary, will prove a difficult
task and add greater pressure to government revenues suffering from low commodity prices
Structural Fiscal Position 12
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES 12
External Trade And Investment Outlook 13
Current Account Deepens Despite Slowing Import Growth13
Although import growth will decelerate in Mozambique in 2016, further depreciation of the metical will see the current account deficit
deepen for the second successive year However, low commodity prices and the ensuing challenges faced in financing ongoing LNG
and infrastructure projects will limit growth in the capital and financial account surplus
Outlook On External Position 14
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE 15
TABLE: TOP 5 GOODS IMPORTS 2014 15
TABLE: TOP 5 GOODS EXPORTS 2014 15
Monetary Policy 16
Hikes To Continue Amid Inflationary Environment16
The Banco de Moçambique will continue its hiking cycle through 2016, leaving rates at 125% by year end, entailing a further 175 basis
points of hikes Hawkish monetary policy will be driven by increasing inflation, as depreciation of the local currency and a prolonged
drought in Southern Africa puts upward pressure on prices
Monetary Policy Framework 17
Chapter 2: 10-Year Forecast 19
The Mozambican Economy To 2025 19
Country Pins Hopes On LNG Boom19
Mozambique has witnessed consistently spectacular rates of real GDP growth since the end of the civil war in 1992, averaging 80
%between 1993 and 2011, driven by the first generation of post-conflict reforms Prudent macroeconomic and fiscal management and an
investment-orientated president determined to reduce the country's dire level of poverty, Armando Guebuza, will, in our opinion, help
sustain ongoing robust average annual GDP growth at around 74% over the coming decade
TABLE: LONG-TERM MACROECONOMIC FORECASTS 19
Chapter 3: Political Outlook 21
SWOT Analysis 21
BMI Political Risk Index 21
Domestic Politics 22
Little Hope For Agreement From Proposed Peace Talks22
President Filipe Nyusi of Mozambique will not enjoy any notable success from his decision to extend an olive branch to the leader of
RENAMO, Afonso Dhlakama by way of an invitation to talks aimed at ending the current spate of violence Instead, attacks will continue
to be carried out by both RENAMO, and forces acting on behalf of the ruling FRELIMO
TABLE: POLITICAL OVERVIEW 22
Long-Term Political Outlook 23
Poverty And Corruption At The Top Of The Agenda23
FRELIMO's dominance of the Mozambican political landscape bodes well for policy continuity, although the lack of a credible opposition
party reduces the scope for checks and balances to ensure accountability and transparency This means that corruption, which is rife
in all levels of Mozambican society, is one of the most difficult and pressing issues to be addressed over the coming decade Poverty
reduction and ensuring that all income groups and regions benefit from economic development are similarly serious concerns for the
government
Chapter 4: Operational Risk 27
SWOT Analysis 27
Operational Risk Index 27
Operational Risk 28
TABLE: OPERATIONAL RISK 28
Trade Procedures And Governance 29
TABLE: IMPORT AND EXPORT DOCUMENTS 29
TABLE: TRADE PROCEDURES BREAKDOWN 29
TABLE: SUB-SAHARAN AFRICA - TRADE PROCEDURES AND GOVERNANCE RISK 30
Vulnerability To Crime 31
Chapter 5: BMI Global Macro Outlook 37
Global Macro Outlook 37
Tail Risks Mounting Amid Sub-Par Growth37
TABLE: GLOBAL ASSUMPTIONS 37
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % 38
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, 2015 AND 2016 (%) 38
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % 39
TABLE: MACROECONOMIC DATA and FORECASTS 41

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