Overview

Mozambique’s gross domestic product (GDP) growth rate slowed in 2015 as the economy adjusted to lower world commodity prices and decreased inflows of Foreign Direct Investments (FDI). Real GDP growth is expected to continue decelerating through 2016 and into 2017 at 6%, driven by falling exports revenues, rising import costs and reduced FDI. Weak external demand conditions and low commodity prices are anticipated to continue over 2016-2017, and then recover gradually by mid-2017 in line with world forecasts.

Inflation accelerated in the second half of 2015, as rising food costs and the depreciation of the metical drove an increase in consumer prices. The deterioration of the external accounts caused the metical to depreciate in 2015, exacerbating inflationary pressures. The consumer price index (CPI) inflation rate reached 11.1% in December 2015, up from 1.1% a year earlier. This coincided with almost a 70% depreciation of the metical against the US dollar and a roughly 40% depreciation against the South African rand. Over the longer term the continued depreciation of the real exchange rate could help stimulate nontraditional exports given adequate investment in complementary infrastructure.

The government adjusted its fiscal stance in 2015 and adopted tighter monetary policies from October through December of 2015. The fiscal adjustment has focused on cuts to public investment financing through the budget, in contrast to previous years where allocations to public investment substantially increased. Current expenditures increased by 11% between January and September 2015, year-on-year, while capital expenditures shrank by nearly 40%. In terms of monetary policy, the central bank has increased the rates of compulsory reserves and interbank rates.

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 after the 5th peaceful election process, Mozambique’s fourth president came into office: Mr Filipe Nyusi; the winning ruling party Frelimo candidate of October 2014 general elections. His party 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. However, it has disputed the results as fraudulent and has proposed a further decentralization of the current political system. Recent events point to a deteriorating peace in Mozambique with Renamo waging a low level insurgence as means to put pressure on the government to concede on some of its demands, chiefly the possibility to name provincial governors in six Northern provinces where it claims to have won the elections.

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 country ranked 178th out of 187 countries in the most recent Human Development Index (HDI). The adult literacy rate is 56%, and average life expectancy at birth is just 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. 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: Apr 07, 2016

World Bank Group (WBG) Assistance

Since 1984, the 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, to the current Country Partnership Strategy (CPS) for FY2012-2015, which involves close collaboration with the government, development partners, civil society and private sector to ensure sustainable and inclusive growth. The WBG is currently updating its operational strategy, renamed Country Partnership Framework. It has just completed its Systematic Country Diagnostic (SCD), an important first step towards the strategy, which is now in final consolidation and expected to be concluded by end of May 2016.  

 World Bank Group (WBG) Support

The WB portfolio for Mozambique as of March 2016 consists of 22 International Development Association (IDA) funded projects and a net commitment of about $1.7 billion. The portfolio covers the great majority of sectors, also known as Global Practices (GP) with the water GP receiving the largest commitment of financial support (18%), followed by transport and information and communication GP (15%), education GP (14%) and social, urban, rural and resilience GP (12%).

World Bank Group Non-Lending

Mozambique benefits from an important number of analytic works and technical assistance that are prepared in collaboration with the Mozambique government, development partners, and other stakeholders, and are widely disseminated once completed. The financing for these studies is from the World Bank’s administrative budget as well as from other development partners.

The International Finance Corporation, IFC

IFC’s strategy 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 SME management capacity building. In FY16, IFC committed a total of $47.5 million in investments and had a total outstanding porfolio of $107 million across the financial sector, agriculture, natural resources and manufacturing sectors.

The Multilateral Investment Guarantee Agency, MIGA

MIGA’s current gross exposure in Mozambique is $38.8 million (net exposure $26.6 million), across mining, agribusiness, manufacturing, infrastructure and oil and gas sectors. 

Last Updated: Apr 07, 2016

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 of Mozambique 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.

Through the Mining and Gas Technical Assistant (MGTAP) project, the World Bank helped strengthen the capacity and governance systems of key institutions that manage mining and hydrocarbon sectors in Mozambique through governance capacity-building and reform. MAGTAP became effective in August 2013. Some results highlights include the following: a new mining and petroleum sector laws and new mining and petroleum fiscal laws were passed by the 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 is proceeding with supporting 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 (4 grants to date starting 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.

The Mozambique Trans-frontier Conversation Project objective was to achieve growth in community-private sector led environmentally and socially sustainable tourism in Trans-frontier Conservation Areas (TFCA). It was implemented by the Ministry of Tourism, and benefited local communities in four large Trans-frontier Conservation Areas – in the provinces of Maputo, Gaza, Inhambane and Manica in Mozambique. Today, Mozambique receives over 200,000 visitors annually to its Conservation Areas. The country has also leveraged over $3 million in nature-based private investments and increased the network of conservation areas by almost 200,000 hectares targeted at biodiversity critical areas as one of the project outcomes.

The Mozambique Water Services and Institutional Support (WASIS) Project supported reforms which 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.

Through 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: Apr 07, 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.

The WBG partnership includes financing to civil society groups through the Global Partnership for Social Accountability, as well as support to member of the parliament (MPs) in the form of access capacity through conferences and peer learning opportunities with other countries’ MPs.

Last Updated: Apr 07, 2016


LENDING

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

*Amounts include IBRD and IDA commitments