The Bank of Mozambique (BM) considers that the Gross Domestic Product (GDP) should grow moderately in this second quarter of the year.

The Central Bank underpins its outlook with the recovery of external demand and by the effects of additional fiscal stimulus packages, as well as domestically by the trend toward pandemic control.

"However, worsening military instability, which led to the suspension of Mozambique LNG project activities in the Rovuma basin, may limit economic performance in the year," the Bank of Moçambqie reports.

In its latest Economic Outlook and Inflation Prospects Report (CEPI), the Bank states that on the price side, the recent appreciation of the Metical and the dissipation of the effects of climate shocks, which occurred earlier in the year in the country, translated into lower inflation in April and led to a downward revision of its outlook for the short and medium term.

However, the Bank of Mozambique recognizes that the confidence of economic agents registered a drop in the 1st quarter of 2021, after signs of recovery in the previous quarter.

"This, coupled with weaker aggregate demand in the face of continued restrictive measures to mitigate the increase in Covid-19 infections; and the negative effects of weather shocks, both observed at the beginning of the year, reinforce the outlook for deteriorating economic activity in the alluded period," it advances.

The source adds that the limited aggregate demand is sustained by the weak dynamics in foreign trade and credit to the economy, despite the increase in public spending. In fact, it adds, in the first quarter of the year there was a significant reduction in imports of intermediate goods and capital, which, in the face of a slight increase in exports, corroborates the weak performance of economic activity in the same period.

The Central Bank also reports that in the quarter in question, credit to the private sector decreased in annual terms, with emphasis on the foreign currency component, due to the appreciation of the Metical during the period.

"On the other hand, public expenditure increased by 11% in annual terms, and the current - with the largest share in total expenditure, increased by about 13%. In a context where total revenue grew less than expenditure, the overall fiscal deficit worsened by 18%, largely financed by domestic resources," he explains.

Compared to March, the Bank of Mozambique shows that domestic debt increased by 310 million meticais, to a balance of 205.489 million meticais, reflecting the increase in the issuance of Treasury Bonds.