The Mozambican Economy

Revised budget to face new economic backdrop

Economic activity to expand at slowest pace since the year 2000

The Mozambican government cut its real GDP growth forecast for this year to 4.5% from a previous estimate of 7% and the 6.6% recorded in 2015. This is the slowest growth rate expected since the year 2000 when economic activity expanded at 1.7%. In its revised budget for 2016 (recently approved in the country's Parliament), the government also anticipates that average inflation will climb to 16.7% this year. This is significantly higher than the 5.6% estimated in the initial budget presented at the end of last year and the 3.6% seen in 2015. The local authorities highlighted that the amendments done to the 2016 budget resulted from several headwinds (both on the domestic and international fronts) that the Mozambican economy is facing this year.

Government includes "safety net" in the budget for possible surprises

The newly revised budget incorporates (1) lower expected government receipts and spending, (2) lower budget support following the suspension of disbursements from international donors, (3) higher debt service payments due to the depreciation of the metical and (4) significantly higher domestic financing. Overall, total revenues were revised downwards by 6.2% while expenditures were only reduced by a very modest (and surprising) 1.1% from the initial budget. This is due to a large increase in "other current expenditures", which according to the government are related to possible surprises that can occur in the months ahead, namely in terms of disbursements of donor partners and debt guarantees by the State. Meanwhile, grants are expected to stand 26.6% lower than previously expected and represent less than 10% of the total receipts.

Expenditures cut on all economic and social sectors except healthcare

Estimated capital expenditures saw a downward revision of 9.4% this year, as the government expects to cancel new projects that have not yet been initiated in 2016, namely the construction, repair and refurbishment of public buildings. The local authorities are also expected to cut public spending in several infrastructure projects such as roads and bridges. In terms of expenditures by economic and social sector, healthcare is apparently the only sector that is spared from the government's more restrictive spending plans. Overall, total expenditures by sector were lowered by 6.8% and are expected to represent 63% of total public spending excluding interests and net lending.

Deficit (ex-grants) to reach 11.3% of GDP (vs. prev. estimate of 10.2%)

Overall, the revised budget deficit forecast (before grants) is 11.7% higher than the previous estimate and represents 11.3% of GDP. After grants, it stands at 8.7% of GDP. This compares with previous forecasts of 10.2% and 6.6%, respectively. The government plans to finance the 2016 budget with higher domestic receipts, namely through a significant increase in domestic financing that is expected to nearly triple when compared with the initial budget proposal. Tax revenues will continue to cover the largest share of the government's financing needs while external receipts are expected to be impacted by the much lower grants received.