Unpacking Angola's, Mozambique's: Budgets & economic outlook

Angola and Mozambique are facing economic challenges as they grapple with budget deficits, liquidity issues, and a looming debt crisis. The nations have recently released their national budgets for 2024, aiming to achieve growth and stability amidst these hurdles. Fáusio Mussá, Chief Economist at Standard Bank Mozambique, shed light on the budget proposals and economic strategies aimed at sustaining GDP growth despite the adversities they face. Angola, known for its dependence on oil revenues, has adopted a more conservative budget this year, with a lower oil price assumption of $65 to $69 per barrel, down from $75 per barrel in the previous year. The country is also cutting development expenditure to reduce borrowing and mitigate the impact of its debt burden. By spending less and borrowing less, Angola aims to balance its budget and reduce its deficit. The nation is also focusing on diversifying its economy by promoting non-oil sectors like agriculture to support GDP growth. Conversely, Mozambique has seen a boost in GDP growth due to the LNG project that commenced exports last year. The country's GDP is expected to increase by 7% this year, driven by the LNG investments. While the GDP growth is forecasted to lower to 5.5% next year, Mozambique anticipates a resurgence in LNG construction projects in the northern part of the country to stimulate investments and economic growth. However, both nations are facing challenges in containing their debt, which has implications on their monetary policy. In Angola, inflation is on the rise, reaching 15%, and there is pressure for the Central Bank to hike interest rates to combat the inflationary pressures. Mozambique, on the other hand, has seen a decline in inflation to 4.6% in September, but the government's aggressive borrowing on the domestic market could limit the Central Bank's ability to cut interest rates. Mozambique's debt stock is predominantly in foreign currency, with about 77% of its debt in foreign currency. The country has been prudent in borrowing externally to avoid excessive reliance on foreign borrowing. Still, the rise in domestic debt due to increased development spending raises concerns about liquidity and capital flight. Despite the challenges, both nations have made efforts to reduce their debt-to-GDP ratio. Angola successfully lowered its debt-to-GDP ratio to 83% in 2022 and aims to further reduce it below 80% this year. Mozambique, too, has seen a decline in its debt-to-GDP ratio, aiming to reach below 50% by 2026. However, the aggressive borrowing on the domestic market poses a challenge to achieving this target. In conclusion, Angola and Mozambique are navigating economic challenges through prudent budgeting, diversification of their economies, and efforts to reduce debt burdens. The road ahead presents both opportunities and obstacles as they strive for sustainable growth and stability in the face of fiscal constraints and external pressures.