Wednesday, February 21, 2024

Fiscal risks in gas revenues: challenges for Mozambique’s economic stability

Mozambique’s macroeconomic scenario in the hydrocarbons sector faces considerable challenges, despite optimistic projections of economic growth. These positive expectations are confronted with significant changes in the production and export of liquefied natural gas, which not only directly impacts the growth rate, but also poses fiscal risks that could result in an increase in public debt.

According to the Economic and Social Plan and State Budget (PESOE), the extractive industry sector for the year 2023 forecasts overall growth of 23.1 per cent, which will be supported by increased production of rubies, coal, heavy sands (ilmenite, zircon and rutile), natural gas and construction materials.

The projections made, despite showing growth in the extractive sector, do not always take into account market fluctuations. In 2022, a notable example of these challenges occurred when the country carried out the first export of gas from the Rovuma Basin, part of the Coral Sul project, which had been planned for previous years. This deviation between projected and realised revenues highlights Mozambique’s vulnerability to variations in gas production and exports, underlining the pressing need for sound fiscal management.

Fluctuations in the hydrocarbon sector, combined with the lack of sensitivity analyses of production volumes, make it difficult to identify and implement the fiscal adjustments needed to maintain economic stability.

With the expectation of collecting revenues estimated at 4,056 million Meticais annually between 2023 and 2025 with the start of natural gas production, the state is faced with a duality of opportunities and challenges. Although these revenues represent an economic boost, the fiscal risks associated with volatility in production and financing choices could negatively impact the country’s financial stability.

Prudent management of the fiscal risks linked to gas revenues is crucial for Mozambique’s economic stability. Realistic projections, sensitivity analyses, transparency in public finances and balanced financing strategies are essential to mitigate the challenges presented by the volatile nature of the hydrocarbon sector.


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