The DSA presented in this document is based on the standard low-income countries (LIC) DSA framework. See “Staff Guidance Note on the Application of the Joint Bank-Fund Debt Sustainability Framework for Low-Income Countries” (http://www.imf.org/external/pp/longres.aspx?id=4827) and World Bank Report No. ACS6956, 10/23/13). Under the Country Policy and Institutional Assessment (CPIA), Mozambique is rated as a medium performer, albeit close to the threshold of 3.75 for strong performers, with an average rating of 3.71 during 2010–12; the DSA uses the indicative threshold for medium performers.
See IMF Country Report No. 13/200.
Further analysis will be conducted at the time of the next review to evaluate the nature and extent of vulnerabilities
Likewise, the risk of BOP pressures emerging as a direct result of megaproject-related investment activity is considered to be low. Care will have to be taken in the long term, however, once revenues from these ventures materialize, as these may be volatile reflecting world commodity prices and in relation to imports. Moreover, large natural resource exports then also hold competitiveness risks emerging from a possible exchange rate appreciation, which will have to be carefully managed.
The impact the of the standard shocks in the DSA template is heightened by the fact that the standard stress tests revert to historical values, which are significantly different from current and expected values because of the structural change in the Mozambican economy resulting from the large-scale exploitation of coal and natural gas since 2011.
The scenario in which variables are at their historical levels has been omitted given that it generates negative debt as a result of the large changes in variables in the baseline arising from LNG activities.
This breach, however, should not be overemphasized as a fall in FDI would likely be linked to lower imports rather than higher borrowing as implicitly assumed in the standard shock scenario.
At Mozambique’s CPIA rating, the indicative public debt benchmark signaling higher risk of debt distress lies between 56 and 74 percent for the PV of debt-to-GDP ratio. See IMF, 2012, “Revisiting the Debt Sustainability Framework for Low-Income Countries.”
To provide this illustration, the “Fix Primary Balance” scenario was adapted for this analysis from the standard of fixing the primary balance at 2012, instead fixing the primary balance at its 2013-15 average value in percent of GDP. This change was implemented, because the 2012 primary balance is low compared to those in the near future for two reasons: (i) because of windfall revenues in 2012, and (ii) because major investment projects are only starting.
Moreover, these indicators do not account for other buffers, such as comfortable levels of international reserves relative to non-megaproject imports.