The international ratings agency said that floods confirmed in the northern and central parts of the Mozambique, which killed 159 people and affected nearly 150,000 in the past month, will not only negatively affect GDP in 2015 but also put increased pressure on the government’s fiscal position, exacerbating its upward debt trajectory in recent years.
“The government’s debt levels will continue rising: since 2011, general government debt has risen by more than a third and will now likely exceed our forecast of 58.3 per cent of GDP this year as a result of the higher budget deficit and lower GDP growth figure. At this level, Mozambique’s general government indebtedness is high relative to many regional and rating peers,” said the agency in a statement.
(READ MORE: Mozambique's Real GDP projected at 7.5 per cent in 2014 & 2015)
Moody’s said that the floods have caused severe damage to infrastructure in the Zambezia province as well as diminished agricultural output and household consumption.
Mozambique’s agricultural sector accounts for roughly 30 per cent of GDP and employs nearly 80 per cent of the labour force
The continued rainfall has damaged roads and bridges in Zambezia, cutting access by land to almost 70 per cent, and has also left power lines and electricity towers in several parts of northern Mozambique without power.
“Because insurance penetration is relatively underdeveloped in this part of the world, we expect a sizable portion of the damage bill for public infrastructure to fall on the government. Damage to uninsured private property will directly reduce wealth levels in a country where per capita income -- at 1,046 US dollars in Purchasing Power Parity terms -- is already among the lowest of Moody’s-rated sovereigns,” continued the statement.
Moody’s added that the storms are unlikely to subside until the end of the rainy season in March. Investment in the country’s extractive industry may also be delayed, compounding the effect of falling commodity prices on capital expenditure.
(READ MORE: Madagascar seeks international aid after tropical storm kills 68)
However, the agency believes that the slowdown will not be as severe as in 2000 when severe flooding slowed GDP growth to 1.5 per cent from an average growth rate above 10 per cent for the three years prior.
“The Mozambican National Disaster Management Institute estimates that the cost of flood relief operations alone is 126,000 US dollars a day, and could easily balloon beyond initial estimates of nine to 11 million US dollars for crisis response alone,” said Moody’s.
“Given the country’s relatively high reliance on aid (nearly a third of the government budget is derived from international donor assistance), we expect the Mozambican government to ask donor countries for additional assistance in the near future.”
Moody’s believes however that even with additional funds, efforts to rebuild flood damaged areas will be slow due to Mozambique’s relatively low institutional strength, resulting in a minimal positive effect on GDP growth.