* GDP forecast to expand by 8 pct this year
* Current account deficit forecast to hit 43 pct
* Presidential elections scheduled for Oct. 15
(Adds detail, background, quotes)
By Helen Nyambura-Mwaura
JOHANNESBURG, March 16 Mozambique's overall
budget deficit is projected to widen to 9.5 percent this year
from 3 percent in 2013, the International Monetary Fund said, as
the country continues its spending-driven quest for economic
In a report published on its website, the IMF said the
mineral-rich southern African country's economy could grow by
more than 8 percent this year after expanding by about 7 percent
in 2013, but warned that the deficit level is unsustainable.
The growth forecast is in line with that of the Mozambique
central bank, but the IMF said the country would also have to
increase spending to cover costs associated with electoral
reform after a visit to the country by one of its staff
The former Portuguese colony is holding elections on Oct. 15
to appoint a successor to President Armando Guebuza, who is
barred from contesting after two terms in office. The ruling
Frelimo party this month picked Defence Minister Filipe Nyusi as
its presidential candidate.
Frelimo, the former liberation movement that has ruled since
Mozambique's independence in 1975, this year agreed to expand
the electoral commission after its composition was criticised by
the opposition for favouring Frelimo.
The IMF's budget deficit projection takes into account a
one-off tax revenue windfall equal to 4 percent of annual
economic output in 2013 and another expected bonanza this year
equivalent to 2.9 percent of GDP.
"This deficit level is not sustainable over the medium term,
especially as windfall revenue is not likely to recur," the IMF
Mozambique's hopes rest largely on its coal and gas
resources, with 150 trillion cubic feet of offshore gas
discovered so far - enough to supply Germany, Britain, France
and Italy for 15 years.
The government and international energy companies that have
been drilling exploration wells have estimated that there may be
potential to double that estimate.
Mozambique's north-central Tete province also has some of
the world's largest untapped reserves of thermal coal for power
generation and coking coal for steel production, with some of
these deposits already being mined for export.
The IMF projected the current account deficit reaching 43
percent in 2014, reflecting imports for large foreign investment
projects. Central bank governor Ernesto Gove had told Reuters in
February he expected it to reach 36 percent of GDP this year.
In its report, the IMF team said it hoped the country would
closely monitor and report on the operations of a new
state-controlled company, the Mozambican Tuna Company (EMATUM),
which issued $850 million in government-guaranteed bonds last
Western donor governments had expressed concern about the
transparency of the bond issue, which Mozambican ministers said
would be used to buy French-built tuna fishing boats, marine
patrol vessels and costal radar.
Some donors had questioned whether these should be
priorities for a country that is still receiving hundreds of
millions of dollars of foreign aid to combat poverty two decades
after the end of a devastating civil war.
"The mission welcomes the authorities' recent adoption of an
action plan on fiscal transparency," the IMF said. "It envisages
close monitoring of and reporting on EMATUM's operations, which
will be critical in assessing the associated fiscal risks.
Members of the opposition group Renamo, Frelimo's old civil
war foe which became a political party when Mozambique embraced
multi-party politics after the conflict ended, carried out armed
attacks last year in parts of central and southern Mozambique.
The Renamo raids raised security worries over big
investments from Brazil's Vale, London-listed Rio
Tinto, Italy's Eni and U.S. oil group Anadarko
(Reporting by Helen Nyambura-Mwaura; Editing by Pascal Fletcher
and David Goodman)