Mozambique Economy Worsens as Year Ends

Mozambique fails to improve economically as the southern African nation suffers from low commodity prices and overindulgent spending, according to AFP. The currency fell to a record 35 percent in 2015 against the dollar.

The government recently borrowed $286 million from the IMF, but it will not prove sufficient to save Mozambique from mounting issues—most notably the staggering debt. Public debt will climb to 60 percent of GDP as the year draws to a close. Further, donors and investors grow concerned over Mozambique’s finances and overall direction of the country.

Mozambique fails to improve economically as the southern African nation suffers from low commodity prices and overindulgent spending, according to AFP. The currency fell to a record 35 percent in 2015 against the dollar.

The government recently borrowed $286 million from the IMF, but it will not prove sufficient to save Mozambique from mounting issues—most notably the staggering debt. Public debt will climb to 60 percent of GDP as the year draws to a close. Further, donors and investors grow concerned over Mozambique’s finances and overall direction of the country.

For instance, the government financed the purchase of a state-owned tuna fleet with $850 million in public bonds, but officials labeled $500 million of that debt as defense spending and used it to buy French naval boats and other military-related hardware.

Meanwhile, the fishing boats remain unused, and authorities failed to explain why the purchase was made in the first place. The tuna fleet investment also calls into question whether the government is capable of honoring the bonds, but authorities appointed a local bank to look for ways of restructuring the debt. The problem is that any change in the maturity date without investor approval would result in a default and investment downgrade.

Ratings agency Moody’s already downgraded Mozambique’s credit standing in August 2015. The bond situation highlights the government’s lack of transparency and sound governance, and the spending issue goes back to former President Armando Guebuza’s tenure from 2005 to 2012, when he spent a great deal of money on expensive infrastructure projects in the capital city.

A great deal of work has gone into rebuilding the country’s infrastructure, destroyed during a civil war that ended in 1992. The economy improved thereafter, and the nation did fairly well throughout the decades, becoming one of the most prominent emerging markets in Africa. Mozambique saw direct foreign investment surge 57 percent in 2014 alone, and officials have high hopes for natural gas development in the future.

With that, price drops in commodities and oil will continue to hamper progress, and many investors are losing interest in emerging markets as developing economies struggle, notes Bloomberg Business. Moreover, Mozambique’s security situation deteriorates as the government contends with opposition militias, a conflict that has taken many lives over the last six months, and analysts fear the instability could scare away more investors.

The country’s saving grace could come in the form of natural gas exploration, but with low energy prices and an unstable investor climate, the hope of a prosperous Mozambique may be dashed for the time being. Standard Bank Group Ltd. estimates that the economy could expand nine times its current rate by 2030 due to natural gas production.