Mozambique

Mozambique borders Tanzania, Malawi, Zambia, Zimbabwe, South Africa, and Swaziland. Its long Indian Ocean coastline (of 2,500 kilometers) faces east to Madagascar. About 70% of its population of 28 million (2016) live and work in rural areas. It is endowed with ample arable land, water, energy, as well as mineral resources and newly discovered natural gas offshore; three deep seaports; and a relatively large potential pool of labor. It is also strategically located, with four of the six countries it borders landlocked and hence dependent on it as a conduit to global markets. Mozambique’s strong ties to the region’s economic engine, South Africa, underscore the importance of its economic, political, and social development to the stability and growth of Southern Africa as a whole.

Political Context

The Front for the Liberation of Mozambique (Frelimo) and the Mozambican National Resistance (Renamo) remain the country’s main political forces, followed by the Mozambique Democratic Movement (MDM). While Frelimo won the most recent presidential elections in 2014, and retains a comfortable majority in parliament, the two main opposition parties have both gained ground. Renamo, former rebel group, has maintained its militia after the peace accord of 1992 and from time to time parts of the central region register sporadic armed conflict. Peace talks are underway, and as a result the President announced (February 2018) a breakthrough agreement in the form of a constitutional amendment submitted to the parliament for ratification Discussions aimed at integrating Renamo fighters in the army are continuing.

Economic Outlook

Mozambique continues to suffer from the effects of the 2016 hidden debt crisis. Real gross domestic product (GDP) growth decelerated to 3.7% in 2017, down from 3.8% in 2016 and well below the 7% GDP growth achieved on average between 2011 and 2015. Small and medium enterprises have fallen back and their capacity to generate jobs has been restricted even further. Growth is expected to remain relatively flat at around 3% in the medium-term.

Inflation has eased to 7%, supported by a more stable currency, the metical,and falling food prices. Post- El Niño agricultural output growth contributed to this trend, as did lower food inflation.

Debt levels remain unsustainably high. External debt declined from 103.7% of GDP at end-2016 to an estimated 85.2% by end-2017, mainly due to the appreciation of the metical. In the meantime, central government domestic debt levels have increased due to budget financing needs. Mozambique continues to be in default of its Eurobond and the two previously undisclosed loans. The government has launched discussions with creditors on a possible restructuring but this process will likely take time to bear fruit.

Development Challenges

The main challenges are restoring macroeconomic stability and reestablishing confidence through improved economic governance and increased transparency, including the transparent handling of the hidden debts investigation. Moreover, structural reforms are needed in support of the currently struggling private sector.

Another major challenge for the economy is to diversify away from the current focus on capital-intensive projects and low-productivity subsistence agriculture toward a more diverse and competitive economy, all the while strengthening the key drivers of inclusion, such as improved quality education and health service delivery, which could in turn improve social indicators.

(World Bank, April 2018)

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