Mozambique economic recovery amid global uncertainty

Mozambique, like many other countries around the world, is facing economic challenges amidst global uncertainty. Recently, Mozambique's central bank cut rates for an eighth straight meeting, marking its longest unbroken easing cycle since introducing the Mimo rate. This move comes as the country grapples with a shrinking economy, which contracted by a record 4.9 percent in the final quarter of 2024 due to post-election unrest affecting businesses. To shed light on the economic landscape and the path ahead for Mozambique, Fáusio Mussá, Chief Economist at Standard Bank Mozambique, shared insights in an interview with CNBC Africa. Mussá highlighted that there have been positive developments in Mozambique's economy, particularly in the political dialogue front, which could potentially ease social and political tensions. One major boost was the approval of a $4.7 billion facility by the US Ex-Im Bank for the Total Energy Project, specifically the Mozambique LNG project. This approval is seen as a significant step that could enhance sentiment and increase the likelihood of project progression in the latter part of the year. The conversation around tariffs and trade relations, especially in the context of global economic shifts, also surfaced. Despite Mozambique's relatively small trade volume with the US, there could be ripple effects on the economy, primarily through commodity pricing channels. Given that Mozambique heavily relies on commodity exports, any fluctuations in global markets could impact export revenues and foreign exchange supply and demand dynamics. Inflationary concerns were also addressed, with expectations of a potential uptick in inflation in Mozambique. Factors such as food price pressures, disrupted value chains, and climate-related impacts on agriculture may contribute to rising inflation rates. The central bank's decision to continue cutting interest rates, despite inflationary pressures, is partly driven by the anticipated stability of the exchange rate, which has played a crucial role in keeping inflation in check. When discussing the central bank's room for maneuverability in light of these economic challenges, Mussá emphasized several risks, including fiscal constraints and foreign exchange imbalances. With limited leeway for further easing, projections point to additional interest rate cuts by the end of the year. However, financing conditions remain tight, given high cash reserve ratios and prime lending rates, resulting in relatively high real interest rates compared to other African countries. FX liquidity issues in Mozambique have been a recurring concern, with unsatisfied demand for foreign exchange posing challenges for investment and economic performance. While measures have been implemented to address these issues, the lingering impact on the overall economy remains a focal point of attention. Looking ahead, key priorities include the approval of a government budget to manage fiscal pressures and support for large-scale investments such as the natural gas projects. Maintaining focus on crucial deliverables and addressing domestic challenges are vital amidst evolving global trade dynamics and economic uncertainties. By navigating these hurdles strategically, Mozambique aims to sustain economic growth and stability in the face of external pressures. In conclusion, as Mozambique treads a path of recovery amid a complex global landscape, proactive measures, robust policy decisions, and efficient resource management will be essential in steering the country towards sustained economic progress.