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Mozambique Country Risk Report Q2 2016

Mozambique Country Risk Report Q2 2016

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.


Executive Summary
Core Views
Key Risks
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Growth Stutters On Weak Investment But Remains High
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
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Fiscal Policy And Public Debt Outlook
Budget Balance Stays In Red As Spending Remains High
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
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
External Trade And Investment Outlook
Current Account Deepens Despite Slowing Import Growth
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
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
TABLE: TOP 5 GOODS IMPORTS 2014
TABLE: TOP 5 GOODS EXPORTS 2014
Monetary Policy
Hikes To Continue Amid Inflationary Environment
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.
Monetary Policy Framework
Chapter 2: 10-Year Forecast
The Mozambican Economy To 2025
Country Pins Hopes On LNG Boom
Mozambique has witnessed consistently spectacular rates of real GDP growth since the end of the civil war in 1992, averaging 8.0
%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 7.4% over the coming decade.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Little Hope For Agreement From Proposed Peace Talks
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
Long-Term Political Outlook
Poverty And Corruption At The Top Of The Agenda
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
SWOT Analysis
Operational Risk Index
Operational Risk
TABLE: OPERATIONAL RISK
Trade Procedures And Governance
TABLE: IMPORT AND EXPORT DOCUMENTS
TABLE: TRADE PROCEDURES BREAKDOWN
TABLE: SUB-SAHARAN AFRICA - TRADE PROCEDURES AND GOVERNANCE RISK
Vulnerability To Crime
Chapter 5: BMI Global Macro Outlook
Global Macro Outlook
Tail Risks Mounting Amid Sub-Par Growth
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, 2015 AND 2016 (%)
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
TABLE: MACROECONOMIC DATA & FORECASTS

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