British consultancy considers that Mozambique will grow only 1.2% this year, recovering from the 2020 recession, due to the suspension of gas projects, the effects of the pandemic and the slow distribution of vaccines.

Analysts predict that "economic growth will be limited [in Mozambique] in 2021, although the first contraction since 1992 was recorded last year," they write, considering that the economy will only grow by 1.2% this year, below the average of recent years.

"The indefinite suspension of construction activities related to natural gas projects in Cabo Delgado, the emergence of new variants of the coronavirus, and a slow distribution of Covid-19 vaccines are all factors that will weigh on economic output this year," point out the analysts at this African branch of British Oxford Economics.

In a commentary on Mozambique's economic developments, the analysts write that the central bank remains concerned about inflation-related risks. "These risks are unlikely to disappear before the end of the year, so we expect that the central bank will not cut rates in the near term," they conclude.

Mozambican financial regulator

The Monetary Policy Committee (CPMO) of the Bank of Mozambique decided on Wednesday (19.05) to maintain the monetary policy interest rate (MIMO rate) at 13.25%, the Mozambican financial regulator announced in a statement. 

"The decision is based on the worsening risks and uncertainties, notwithstanding the downward revision of inflation prospects in the short and medium term, reflecting, above all, the recent appreciation of the metical," the press release said. 

The regulator states that "the risks and uncertainties associated with inflation projections have worsened" and at "a domestic level, the intensification of military instability in the northern part of the country stands out, with an impact on fiscal pressure and the suspension of the Mozambique LNG project" for the production of liquefied natural gas.

On the other hand, he continues, a greater volatility of the exchange rate prevails, due to high uncertainties and asymmetries in the process of forming expectations of the operators in the exchange market. 

New Coronavirus Variants

"In the external environment, we highlight increased fluctuation in financial asset and commodity prices and the emergence of new variants of the coronavirus," the text states.

The CPMO revised inflation downward, decelerating to 5.19% in April, after 5.76% in March, as a result of the recent appreciation of the metical and the dissipation of the impact of the bad weather that struck the country earlier in the year. 

The economy is expected to recover more slowly in 2021, supported by weak domestic demand, coupled with the suspension of the gas exploration project by Total, notwithstanding the expected gradual recovery of external demand and the trend towards curbing the spread of Covid-19. 

"Given the limited space for monetary policy and the State Budget, it is still pertinent to deepen structural reforms in the economy, with a view to strengthening institutions, improving the business environment, attracting investment, and creating jobs," the statement said.