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.
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.
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