Mozambique

Located in Southern Africa, Mozambique borders six countries and has a 2,700 km-long coastline on the Indian Ocean, which strategically positions it to serve landlocked neighbors. It is endowed with vast natural assets, including offshore gas reserves, mineral deposits, arable land, hydropower potential, and rich biodiversity. Yet, despite these advantages, many of its 33 million people, two thirds of whom live in rural areas, lack access to basic services and meaningful economic opportunities.

Growth remains constrained by a combination of immediate economic pressures and longstanding structural challenges. These include mounting macro-fiscal imbalances, such as liquidity constraints and foreign exchange shortages, weak governance, inadequate infrastructure, low levels of human capital and skills, a constrained business environment, vulnerability to external shocks, deep-seated institutional fragility and conflict and pronounced spatial disparities.

The country continues to face an eight-year conflict in the gas-rich north that remains volatile, with ongoing low-level attacks by the Islamic State of Mozambique (ISM) across the province of Cabo Delgado and into the neighboring provinces of Niassa and Nampula. Mozambique is also facing broader social discontent as illustrated by the disputed 2024 general elections that triggered widespread violence.

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Economic activity contracted by 0.5% in 2025, reflecting post-election unrest, rising fiscal pressures, and foreign exchange shortages. Inflation rose to 4.4%, driven by higher food prices, but remained below the Central Bank’s 5 % target. In response, the Central Bank cut its policy rate from 17.25% in January 2024 to 9.25% by January 2026 and reduced reserve requirements on local currency deposits from 39 to 29 % in 2025. However, credit to the private sector declined from 19.3 % of GDP in November 2023 to 16.5 % in November 2025. Total revenue fell from 27.1 % of GDP in 2024 to 26.2 % in 2025, reflecting lower grants and VAT revenue. Expenditures declined from 33.3 to 30.3 % of GDP, mainly due to cuts in public investment. While this reduced the fiscal deficit from 6.1 to 4.1 % of GDP, it constrained capital spending, service delivery, and other growth-enhancing spending.

GDP growth is projected to recover gradually, reaching 0.9 % in 2026 and 2.5 % by 2028, supported by a recovery in agriculture and services and the resumption of Liquifies Natural Gas (LNG) construction. Inflation is expected to rise to 7.5 % in 2026, driven by flood-related food supply disruptions and higher fuel and shipping costs linked to the Middle East conflict. The fiscal deficit is projected to widen to 5.2 % of GDP in 2026, reflecting modest revenue recovery and higher spending driven by rising wages and capital investment. Medium-term fiscal consolidation hinges on containing the wage bill, amid risks from global and climate shocks, LNG project delays, security issues in the North, and fiscal and foreign-exchange pressures.

Poverty has increased sharply—an additional 7 million people have been pushed into poverty, with the national poverty rate rising from 48.4 % in 2014/15 to 62.9 % in 2022. This is attributed to the hidden debt crisis, COVID-19, and natural disasters. Persistently low agricultural productivity continues to hinder poverty reduction.

Mozambique Economic Updates

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Building a more resilient and inclusive economic model is critical to create jobs, reduce poverty and inequality, and withstand future shocks. Priorities include containing the wage bill, improving spending efficiency and revenue mobilization, strengthening debt management, and improving the business environment, and ensuring effective LNG revenue management. Investments in education, health, infrastructure, access to finance, regulatory reforms, and reduced regional disparities are key to driving job creation, structural transformation, and resilience.

Since 2015, Mozambique has faced persistent shocks, including the hidden debt crisis, cyclones, COVID-19, an insurgency in the North, and recent post-electoral unrest. Growth remains fragile and dependent on extractives, while real GNI per capita fell by 0.1% between 2016 and 2024.

Agriculture employs over 70% of the population but suffers from low productivity, climate vulnerability, and weak investment. Rural poverty is entrenched, and informality dominates, accounting for over 80% of employment.

Weak infrastructure, low human capital, and business environment constraints limit productivity, private investment and structural change. Fiscal pressures have intensified, with public debt assessed as ‘in distress’ and ‘unsustainable’. In 2025, wages and interest absorbed 88% of tax revenue, severely limiting space for infrastructure and social spending.

Human capital constraints — including a low Human Capital index of 0.36 — further weigh on inclusion and productivity. Skills shortages, limited labor-market access, and persistent gender inequalities, including high fertility, adolescent pregnancy, maternal and child mortality, and gender-based violence, undermine economic potential. High underemployment and inequality constrain inclusion, while limited access to basic education, health services and social safety nets deepens spatial inequalities and fragility.

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The Country Partnership Framework (CPF) for FY26-31 marks a renewed commitment to inclusive development and job-rich economic transformation, aiming to unlock economic opportunities and expand access to quality employment for the growing youth population, leveraging the country’s natural resources and strategic location to catalyze growth and regional integration. Aligned with national priorities, the CPF supports Mozambique’s efforts to accelerate economic transformation, strengthen institutional capacity, and broaden opportunities. Central to the strategy is revitalizing key economic corridors—which connect people, markets, and industries across Mozambique and Southern Africa.

Under the CPF,Mozambique secured stepped up IDA financing to address conflict risks, throughthe Prevention and Resilience Allocation, including a compact endorsed by the Council of Ministers, with four goals: strengthening institutions and securing macroeconomic, social stability; ensuring inclusive, equitable service delivery at local levels; promoting transparency,  inclusion in access to and management of extractives and natural resources; supporting peace and security.

CPF outcomes:

• ·      Improved Macro-Fiscal Stability - Reforms to reduce debt risks, enhance public financial management, and improve business environment
• Better Skilled Workforce - Foundational learning, vocational training, and health to boost employability for youth and women
• Improved Energy Access, Powered Economic Corridors - Expanding access to electricity, building transmission infrastructure
• Increased Private-Sector-Led Jobs in Agribusiness, Tourism - Mobilizing private capital, strengthening value chains to create 800,000 new or better jobs

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Jobs - Youth employment has been strengthened through the Harnessing the Demographic Dividend Project which delivered services to 20,000 youth, financed 500 youth‑led SMEs and 3,000 micro‑entrepreneurs, and created 6,000 jobs. Trade and connectivity investments are creating/improving 14,000 jobs, and the Economic Linkages for Diversification Project supports 10,000 MSMEs.

Energy - The Energy for Alland Sustainable Energy and Broadband Access in Rural Mozambique projects connected 4 million people, while ASCENT Mozambique aims to reach 5 million more through on and off-grid solutions. Major transmission investments advance under the Temane Regional Energy Project and the Mozambique-Malawi Interconnector.

Education and Skills - The MozLearning Project improved education quality and access for 8 million students. MozSkills expanded higher education to 54,600 students, developed 80+ TVET qualifications, certified 3,136 trainers, and extended digital access for 180,000. The Eu Sou Capaz Program supported 700,000 girls to stay in school, reducing dropouts by 29%.

Water/WASH - Water and sanitation services expanded nationwide. Clean water reached 120,000 more people, improved sanitation benefited 100,000 residents and 145,000 students, and the Águas Seguras Program extended services to 500,000 people in Nampula/Zambezi. Tariff reforms generated $5.3 million for municipal services.

Health - Health investments expanded access in the North, reaching 1.2 million people through 80 facilities and 1,000 community health workers. Community services grew by 13%, reaching 2.5 million households, and emergency preparedness is being strengthened through surveillance, labs, and digital systems.

Agriculture - The Sustainable Rural Economy Program supported 221,000 households, boosted incomes by 85%, diversified livelihoods by 65%, raised productivity in value chains by 50%, and expanded forestry planting across 2,540 hectares and conserved 148,000 hectares.

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