Overview

Economic Outlook

World Bank projections place growth at 3.6% for 2016, with significant downward risks. Despite these unfavorable short-term prospects, long-awaited LNG investments will shape the recovery with growth projected to reach 6.9% by 2018 as the two Rovuma basin gas mega-projects come on stream. Foreign Direct Investment (FDI) inflows will support the external position, with international reserves expected to recover, although at a slow pace, to 3.3 months cover for non-mega-project imports by 2018.

The discovery in April 2016 of previously undisclosed debt worth $1.4 billion, 10.7%  of Mozambique’s gross domestic product (GDP), combined with the impact of the exchange rate depreciation, has led to a substantial increase in debt ratios and the debt service burden. As a result, the fiscal position is likely to remain under stress until the end of the decade. The startup of gas mega projects will not yield significant fiscal revenues before the large external debt obligations fall due. Some respite to government finances might come in the form of mega-project linked capital gains taxes, but amounts and prospects are uncertain. Hence reforms aimed at deep fiscal consolidation will be required and remain a priority in the medium term.

The authorities face hard choices in pursuing a recovery and reestablishing confidence. A thorough review of the state enterprise sector, including liquidation and sale of un-strategic assets, should be considered as an option to increase government resources and reduce fiscal risks. Reengagement with the IMF and the donor community will also be crucial in reinforcing government finances which are crippled by the country’s debt burden. Concrete steps in transparency and accountability for the hidden loans would be an important milestone, including an independent international audit. In the short term, adverse climatic conditions, brought on by La Nina, are a risk. Should this materialize, the costs of flood damage and impact on food production would pose a major challenge to food security and livelihoods, especially in rural areas.

Political Overview

The 1992 peace agreement marked the transition from civil war to peace, culminating in the country’s first democratic elections of 1994 and the emergence of the Front for the Liberation of Mozambique (FRELIMO) as the dominant political force in the country, a fact that still holds true today. 

In January of 2015 Mozambique’s fourth president, Filipe Nyusi, came into office following FRELIMO’s strong showing in the October 2014 general elections. FRELIMO also secured a strong majority in the parliament, with 144 seats out of 250 in total, though in sharp decline compared to the previous election in 2009 when it garnered 75% of the vote. Renamo, the former rebel-group-turned-opposition party, more than doubled its seats in the national parliament. Recent events point to a deteriorating peace in Mozambique with Renamo waging a low-level insurgency. Talks are under way with the support of international mediation but have not produced a cessation of hostility as yet. 

Development Challenges

Mozambique’s rapid economic expansion over the past decades has had only a moderate impact on poverty reduction, and the geographical distribution of poverty remains largely unchanged. Mozambique also needs to improve its social indicators. The 2015 Human Development Index put at the bottom of the ranking (180 out of 188 countries and territories). The adult literacy rate is 56%, and average life expectancy at birth is 50.3 years. Mozambique faces other challenges such as increasing malnutrition, and stunting. Malaria remains the most common cause of death, responsible for 35% of child mortality and 29% for the general population. HIV prevalence among adults shows a downward trend, stabilizing at a relatively high rate of 11.5%. The social progress index for access to improved sources of water and sanitation ranks Mozambique 128th and 119th, respectively, out of 135 countries. Indeed, Mozambique has one of the lowest levels of water consumption in the world despite being endowed with a variety of water sources. As a response to such challenges, the Mozambican authorities have considered the social sectors as top priorities and funding has been increasing for those sectors in general. 

Last Updated: Oct 04, 2016

Since 1984, the World Bank Group (WBG) has been providing development assistance to Mozambique in accordance with the country’s needs and priorities, from economic stabilization in the 1980s, to post-war reconstruction in the early 1990s, to a comprehensive support strategy in the late 1990s. The current strategy, renamed Country Partnership Framework (2016-20), involved close collaboration with the government, development partners, civil society and private sector, and is due for release in the last quarter of 2016 calendar year.

World Bank Group (WBG) Support

International Development Association, IDA- As of September 2016, Mozambique’sIDA portfolio consists of 21 IDA-funded projects with a net commitment of about $1.78 billion, of which $877.62 million has been disbursed. Mozambique also benefits from 24 additional operations in the form of Recipient Executed Trust Fund (RETFs). The RETFs represent a total commitment of $173.85 million, of which 56.82 million has been disbursed. In addition, the country is benefiting from financing of nine  regional projects in a total amount of $233.3 million allocated to Mozambique, in the areas of Agriculture, Education, Environment & Natural Resources, Health, Nutrition & Population and Transport & ICT. The portfolio covers the great majority of sectors, also known as Global Practices (GP) with water receiving the highest share in terms of commitment (22%), followed by Transport & ICT GP (14%), Education GP (14%) and Social, Urban, Rural and Resilience GP (12%). The above is complemented and informed by analytical work and technical assistance prepared in collaboration with the government of Mozambique, development partners, and other stakeholders, and are widely disseminated once completed.

The International Finance Corporation, IFC-  IFC’s approach is to focus on a strategic industries, namely, Agribusiness, Forestry, Mining, Energy, Industry and Financial Services and its interventions will address the cross-cutting issues of: (i) supporting the mobilization of both local and foreign direct investment to key sectors of the economy; (ii) strengthening private sector access to finance; (iii) supporting the development of infrastructure; (iv) improving the investment climate; and (v) strengthening small and medium enterprises (SME) management capacity building. In FY16, IFC committed a total of $47.5 million in investments and had a total outstanding portfolio of $107 million across the financial sector, agriculture, natural resources and manufacturing sectors.

The Multilateral Investment Guarantee Agency, MIGA -- MIGA currently has three active projects under guarantee in Mozambique, for an aggregate total of $115 million in Gross Exposure.

Last Updated: Oct 04, 2016

Financial inclusion to improve growth inclusiveness -- With support from the World Bank, Mozambique now has a new financial inclusion strategy, designed to increase access to financial services from 24% to 60% of the population by 2022. Launched by the government in July 2016, the strategy provides a road map for public and private institutions to support greater financial inclusion in the country. The strategy, which sets out a detailed three-year action plan of government reforms, is a result of a longstanding collaboration between the government and the World Bank. Mozambique is also among the 25 countries the World Bank Group (WBG) and partners have prioritized in the Universal Financial Access by 2020 initiative. The goal of this initiative is to enable access to a transaction account to store money, and send and receive payments by adults who aren’t part of the formal financial system.

Economic inclusion of the most vulnerable - With a population of about five million, Zambezia province is the second most populous province in Mozambique and the poorest with a poverty rate of close to 70%. To help foster economic inclusion in the province. Through the Social Protection Project, the government receives $50 million in World Bank funding to provide temporary income support to extremely poor households in Zambezia and elsewhere and help put in place the building blocks for a social safety net system in the country. The program is directly benefiting 8,500 people countrywide.

Reforms in the mining sector --The World Bank has been supporting Mozambique in its mineral sector reforms and geological research since the 2000s – 16 years of collaboration which has seen the first mines being set up (Moma, Moatize, Benga), the first gas being extracted (Sasol), and new discoveries taking place in a variety of commodities – gas, coal, gold, graphite, heavy mineral sands and, recently diamonds too. The Mozambique Mining and Gas Technical Assistance Project (MAGTAP), focuses  on further improving governance of the sector to make it more sustainable in the long run, better prepared for shocks which are inevitable, and linking it with the overall economy and productive sectors. Through MAGTAP, the World Bank helped strengthen the capacity and governance systems of key institutions that manage mining and hydrocarbon sectors in the country through governance capacity-building and reform. Results highlights include new mining and petroleum sector laws, and new mining and petroleum fiscal laws which were passed by Parliament in July and August 2014, respectively. This progress can be in part attributed to the overall Bank support through various trust funds and policy dialogue. With adoption of the laws, the Ministry of Mineral Resources continues to support regulations, including an update of mining licensing and cadaster procedures with support of MAGTAP. The World Bank also supports the Extractive Industry Transparency Initiative (EITI) thru a series of EITI grants (four grants to date starting in 2010), as well as a component under MAGTAP.  EITI is a policy support trigger in World Bank Poverty Reduction Support Credits, known as PRSC series.

Supporting water sector - The Mozambique Water Services and Institutional Support Project (WASIS) supported reforms aimed at consolidating water supply operations and increasing coverage in large urban centers and small towns through implementation of services under a delegated management framework. Infrastructure investments, coupled with the institutional support activities, have significantly improved water service coverage and quality standards in 13 cities, directly benefiting 779,912 people in urban areas and 57,115 people in small towns.

Supporting the health sector - The Health Services Delivery Project is providing finance, among other things, to a rural health training institute to train qualified health workers to help tackle the human resource shortage in some of the most underserved regions in the country which account for almost half of the country’s total 25 million people. Some noteworthy results of that component of the project include 351 new health professionals trained to date. Given the high rate of malnourishment among children in rural areas in particular, the project is also training nutritionists in the City of Quelimane, center of Mozambique, who will be deployed across the country.

Last Updated: Oct 04, 2016

The World Bank Group (WBG) works closely with other development partners to improve the quality and effectiveness of development assistance to Mozambique. Fundamental to the World Bank’s assistance strategy for Mozambique is the provision of general budget support to implement key policy and institutional reforms under the country’s poverty reduction plan. The budget support program is now on its tenth operation and it is closely aligned through a common performance framework with the general budget support activities of other development partners, including European Union, United Kingdom, among others. Collaboration with development partners has also focused on education, health, roads, and fiduciary and monitoring and evaluation.

Last Updated: Oct 04, 2016


LENDING

Mozambique: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments