Floods fail to dampen economic prospects

The economic outlook in Mozambique remained favourable despite the impact of severe flooding earlier in the year, the Economist Intelligence Unit (EIU) said in its latest update on Mozambique this week. The EIU raised its forecast for real gross domestic product (GDP) growth to 7.5 percent for this year - one of the highest rates in the world - and to 8.5 percent in 2001.

“The underlying sources of economic growth - high levels of foreign direct investment, macroeconomic stability and a favourable policy environment - remain strong,” the EIU said. It said substantial international assistance for reconstruction was expected to “fuel a boom” in investment in public and private infrastructure.

The exchange rate of the metical against the US dollar is expected to stabilise by the end of the year. Its instability during the first half of 2000 was caused largely by the shock of the floods and by the strength of the dollar against the rand (South Africa is Mozambique’s main trading partner). The EIU said relief on debt service granted by official creditors in response to the floods, combined with the debt reduction under the International Monetary Fund’s (IMF) and World Bank’s heavily indebted poor countries (HIPC) initiative, would substantially reduce debt-service payments and improve the country’s debt profile.