Mozambique’s Foreign Investment Slumps by 35% in First QuarterBy
Falling investment adds pressure on already weak currency
Nation cutting 27 billion metical of spending this year
Foreign investment flows into Mozambique fell 35 percent in the first quarter, putting pressure on the nation’s balance of payments and exchange rate, Finance Minister Adriano Maleaine said.
Investors brought in $650 million in the first three months compared with $1 billion a year ago, Maleiane told members of the ruling Mozambique Liberation Front, or Frelimo, on Wednesday in the capital, Maputo.
“Foreign direct investment used to be an important source of foreign exchange, but it’s falling,” Maleaine said.
Declining investment and the fact that donors froze disbursement of about $500 million worsened the coal-producing nation’s balance of payments and increased pressure on the exchange rate, he said. Mozambique spends about $7 billion annually on imports. The currency has lost a quarter of its value against the dollar this year.
Donors withheld $65 million in February, citing alleged violation of human rights of Mozambican refugees sheltering in Malawi, and demanded a report explaining the issue, Maleaine said. In the interim, the nation revealed that it had withheld information about state-backed corporate loans, exacerbating the situation when budget support was suspended.
Maleiane said that while the nation counts $535 million loaned to the state-owned Mozambique Asset Management, or MAM, as sovereign debt, incorporating the credit into the country’s budget would be a last option. The company that defaulted on a $178 million interest payment due on May 23 is still negotiating with lenders to restructure its debt, he said.
The nation holds total debt of $11.6 billion, including foreign loans of $9.2 billion. It owes the International Monetary Fund $247 million. The Washington-based lender, which sent a mission to assess the country’s economic situation earlier in June, projects the economy will expand at 4.5 percent this year, slower than 6.6 percent in 2015.
A decline in farming output because of a drought and conflict in Mozambique’s central region are partly to blame for the slower growth, Maleaine said. In belt-tightening measures, the Treasury decided to cut expenses of 27 billion metical ($424.9 million) meant for the construction of houses and foreign travel for government officials this year.
“The government can’t raise taxes, take loans or ask for help from private sector,” he said. “The only solution left is to sell assets and the assets are public companies. But it is not a good decision to sell assets at a time of crisis because they will sell low.”