It has been a season of exuberance in Mozambique. Commencement of liquefied natural gas (LNG) exports in November 2022 ignited hopes of an economic renaissance for one of the world’s poorest nations, which has been caught in a public debt straitjacket amounting to $15.2 billion or more than 100% of GDP.
Amidst the enthusiasm, Mozambique is opting to tread carefully in hopes of avoiding the “resource curse” that has blighted so many resource-rich African nations. Recognizing its 150 trillion cubic feet of proven natural gas reserves could prove a double-edged sword, Mozambique is setting up a sovereign wealth fund to manage the projected $91.7 billion in the coming decades, according to the Finance Ministry.
The government intends to direct 40% of annual gas revenues to the sovereign wealth fund and 60% to the state budget for 15 years. Afterwards, it will be a 50/50 split. The fund will be administered by the Bank of Mozambique.
But the devil could be in the details, such as the fund’s command structure. Robert Besseling, chief executive of Pangea-Risk, a Mauritius-based risk and intelligence firm, reckons the fund will centralize oversight and spending authority with a few select individuals. Going by a history tainted by corruption and lack of transparency, this poses inherent risks for Mozambique, he argues.
“Angola’s sovereign wealth fund is an example of past misuse of spending,” he notes. For Mozambique, economic restructuring, fiscal austerity, and following through on its commitments under a three-year, $60.6 million IMF extended credit facility, are most critical.
If responsibly managed, the gas bonanza could be a game changer. Gas revenues offer the biggest hope for repaying a $900 million eurobond that starts maturing in March 2028. The revenues will be used to invest in economic development, job creation, and poverty alleviation.
But the promise of LNG-anchored economic transformation depends on demand remaining high. Currently, demand in European markets is at peak, but a supply glut could trigger a plunge in prices. Then there is the threat that long-term renewables pose. This gas windfall, in other words, is not a guarantee for struggling Mozambique.