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Mozambique

Mozambique

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Key Facts

  • Capital: Maputo
  • Region: Southern Africa
  • Official languages: Portuguese
  • Independence Day: June 25, 1975
  • Area: 801,590 sq km
  • Population (2018): 29.5 million
  • REC membership: SADC
  • WTO membership: August 26, 1995
  • GDP (2018): US$ 14.717 billion
  • GNI per capita (2018): US$ 460
  • Currency: Mozambican metical

Economic overview

Mozambique faced an economic slowdown in 2019, mainly due to the negative impact of cyclones Idai and Kenneth, with GDP estimated to grow by 1.9%. Economic activity slowed in 2016-18, to an average of 3.7%, compared with 6.7% for 2015. This reduction resulted mostly from a decline in public and foreign direct investment.

Inflation dropped to 3.9% in 2018 and 3.4% in 2019, reversing the high level reached in 2016 and 2017. Limited currency fluctuations since June 2017, stable food prices, and monetary tightening have supported the low inflation. The Bank of Mozambique has cautiously relaxed its monetary policy, bringing the basic interest rate down by more than 1,000 basis points since it reached its 23.25% year-on-year peak in 2016. The fiscal deficit remained fairly high, at 6.4% in 2019, given the high interest rate’s impact on debt repayments.

The current account deficit widened to 54.2% of GDP in 2019, against 29.5% in 2018. Higher imports, mainly pushed by the large investment projects needs for capital goods and services, drove this deficit. FDI and external loans partly financed the deficit, while international reserves fell to a still-comfortable $3.2 billion by August 2019.

Poverty, although reduced from 52.8% in 2003 to 46.1% in 2015, is still high, with nearly 80% of the poor living in rural areas distant from basic public services. Mozambique registered 20.7% unemployment in 2015, with youth unemployment at 30%.

GDP is expected to grow by 5.8% in 2020 and 4.0% in 2021. With offshore gas discoveries estimated at 180 trillion cubic feet, the country has the opportunity to diversify the economy while enhancing its resilience and competitiveness. The gas sector could upgrade subsistence agriculture into agribusiness, support Mozambique’s electrification through different energy solutions, and foster other industries such as fertilizers, fuels, and metal-mechanic. It could also enhance macroeconomic stability, with higher revenues contributing to fiscal surpluses and a sovereign wealth fund buffering external shocks.

Infrastructure needs for natural resource-related projects could also trigger a cycle of private and public-private investments. Some state-owned enterprises, particularly those for infrastructure, are well suited to partner with local and international investors on delivering such projects. Amplifying this potential, the government signed the third and “final” peace agreement with the opposition, paving the way for the demobilization and social reintegration of armed troops.

Mozambique’s budgetary deficit, expected to be 4.5% of GDP in 2020 and 4.3% in 2021, raises debt sustainability concerns. Major donors suspended budget support to Mozambique in May 2016 after the disclosure of “hidden debt,” and the country has been in official default since February 2017. The country is reducing its debt-to-GDP ratio, improving tax collection, and reaching debt restructuring agreements.

Mozambique is expected to run current account deficits averaging 65% of GDP in 2020-21. Gas exploration projects can add further vulnerability in the current account, as they increase the volume of imports substantially to operate the new fields. It adds further challenges on financing deficit pressures and managing international reserves.

Low skill levels hinder employment and productivity, while the fast-growing population pushes unemployment rates higher, particularly for youth. This gap reduces local companies’ ability to enjoy technology spillovers and connections to global value chains. With 30% of the population connected, low electrification further limits economic growth.

Last updated: April 2020