The International Monetary Fund said on Wednesday that the economy of Mozambique, which was hit hard by two ravaging cyclones in March and April this year, was recovering well, despite some challenges.
Close to 2.2 million people in a country of about 30 million people were left in need of urgent assistance in Mozambique in March and April 2019, after Southern Africa was hit by two cyclones that left a trail of destruction in their path.
Tropical Cyclone Idai was the first to hit hard on the night of 14 to 15 March when it made landfall near Beira City, Sofala Province, in central Mozambique.
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The cyclone brought torrential rains and winds to Sofala, Zambezia, Manica and Inhambane provinces.
It did not stop there. Cyclone Idai continued across land as a Tropical Storm and hit eastern Zimbabwe.
Idai left more than 600 people dead and an estimated 1.85 million people in need in Mozambique alone, according to the United Nations.
Not long after, on 24 April, Tropical Cyclone Kenneth passed north of the Comoros Islands, hitting the northern island of Ngazidja. The next day, on the evening of 25 April, the cyclone made landfall in Mozambique, leaving another trail of hardship and destruction.
The United Nations recorded that with wind gusts of up to 220km per hour, Tropical Cyclone Kenneth became the strongest cyclone to ever hit the African continent. Cyclone Kenneth left 374,000 people in need.
Back then, it seemed as though Mozambique, which was the hardest hit, would collapse or take many years or decades to recover.
But, an IMF staff team led by Ricardo Velloso which visited Maputo during November 6–12, 2019, to take stock of recent economic developments and update macroeconomic projections, is reporting that things are beginning to look up.
“As a result of Tropical Cyclones Idai and Kenneth, real GDP growth decelerated to 2¼ percent (year-on-year) in the second quarter of 2019, affected by a weak performance in agriculture. Inflation declined to 2¼ percent (year-on-year) in October, from about 5 percent a year earlier, as tight monetary conditions more than offset the supply shock to prices induced by the cyclones. The exchange rate has been broadly stable; and international reserves at the Bank of Mozambique increased to about US$3.9 billion at end-October, covering 6¾ months of next years’ projected non-megaprojects imports,” Mr. Velloso said in a statement sent to TODAY NEWS AFRICA in Washington DC.
Mr. Velloso said the outlook for 2020 is for a strong rebound in economic activity and low inflation.
“Real GDP growth is projected to reach 5½ percent in 2020, from 2.1 percent projected for 2019, supported by post-cyclones reconstruction efforts, a recovery in agriculture, and economic stimulus from further gradual easing of monetary conditions and clearing of domestic payments arrears to suppliers. Construction and other activities should also be boosted by investments in the liquefied natural gas (LNG) megaprojects. Inflation is projected to remain low, increasing slightly to 5 percent at end-2020, from 3 percent at end-2019”.
He added: “Consistent with the advice laid out in the latest Article IV consultation, the mission recommended gradual fiscal consolidation over the medium term, with a view of eliminating the primary fiscal deficit by 2022, while protecting or increasing well-targeted social spending. Financing should continue to rely on external grants and highly concessional loans given the high level of public debt. The mission welcomed the significant progress on clearing domestic payments arrears to suppliers and noted that, despite some progress, additional efforts will be needed to address the VAT refund backlog.
“The mission noted that there is ample room for the Bank of Mozambique to continue easing monetary policy given well-anchored inflation expectations, provided this easing is supported by a prudent fiscal policy stance. It welcomed the Bank of Mozambique’s strong commitment to maintain a flexible exchange rate and safeguard financial sector stability.
“The mission welcomed the authorities’ comprehensive diagnostic of governance and corruption challenges in Mozambique, which was published in August and was supported by IMF technical assistance. It encouraged the Government to implement the reforms under the roadmap outlined in the report.
“The mission welcomed the ongoing efforts by the Attorney-General’s Office to bring accountability to the issue of the previously undisclosed loans, as well as the Government’s initiatives to fight corruption and strengthen transparency.
“The mission noted that the recently-concluded Eurobond exchange lowered interest payments and extended maturities broadly in line with the baseline scenario in the debt sustainability analysis published in April. However, as also noted in that analysis, gradual fiscal consolidation and success in the Government’s strategy to secure additional debt relief from international private creditors remain critical for public debt sustainability.
“The mission welcomed the progress in the development of the LNG megaprojects in the northern province of Cabo Delgado. It reiterated the importance of building stronger institutions to help ensure that the fiscal revenue from such projects transform the lives of the Mozambican people, playing a significant role in sustainable development and poverty reduction. In this context, the mission welcomed the Government’s intention to save part of the capital gains tax—from the sale to Total of Anadarko/Occidental’s share in one of the projects—into an embryonic, future sovereign wealth fund.
“The mission held fruitful discussions with President Filipe Nyusi, Prime Minister Carlos do Rosário, Minister of Economy and Finance Adriano Maleiane, Minister of Mineral Resources and Energy Ernesto Max Tonela, Bank of Mozambique Governor Rogério Zandamela and other senior government officials, private sector, and the donor community. The mission thanks the authorities for their availability and cooperation as well as the arrangements made to facilitate our work.”