Mozambique will begin constructing its first large-scale solar plant in 2017 after Norwegian state-owned firm Scatec Solar signed an US$80 million deal with support from the International Finance Corporation (IFC) and the World Bank.
The 40 Megawatt plant, based in Mozambique’s coastal province of Zambézia, aims to supply the country’s national grid with enough electricity to power around 175,000 households, the company disclosed in a statement.
But while oil and gas-rich Mozambique makes strides towards renewable energy generation, its creditor the International Monetary Fund (IMF) has called for an independent audit of its mounting debt burden. Its national government has admitted it must restructure the country’s debt or face the withdrawal of several of its major international aid donors, which alongside the IMF, finance around a quarter of Mozambique’s national budget.
An IMF spokesperson told Development Finance: “Given the current high level of debt to GDP, it is important that future borrowing plans remain prudent and that new debt is contracted at concessional terms and targeted towards financing Mozambique’s development goals.”
Mozambique is currently set to accumulate debt worth more than twice its GDP by the end of the year, according to its finance ministry. Meanwhile the United Nations says action must be taken to tackle the country’s worst drought in 35 years, which has left around 1.5 million Mozambicans hungry and in need of aid.
A pivot towards solar power could start to reverse recent poor growth in Mozambique, which began as a result of the drop in oil prices in 2014. The country’s subsequently poor track record on carbon emissions also stands to improve on this score, though future investment in renewable energy depends on the government’s ability to avoid a fiscal crisis.
The IFC told Development Finance it intends to collaborate in the construction of the Scatec Solar plant, though has committed no financing to the project so far.
Mozambique has been one of the world’s fastest-growing economies in recent years, expanding 6.3 percent in 2015 on figures aggregated by the World Bank. Per capita growth soared from 2001 until 2015 when a fall in commodity prices and rise in interest rates brought household wealth to three-year low.
The IMF has said an audit will determine whether a debt restructuring for Mozambique its currently feasible. In April 2016, the fund suspended aid to the country after uncovering more than US$1 billion in undeclared government debt.