major macro economic indicators
|2017||2018||2019 (e)||2020 (f)|
|GDP growth (%)||3.7||3.4||2.3||4.5|
|Inflation (yearly average, %)||15.4||3.9||2.7||4.1|
|Budget balance (% GDP)||-3.8||-5.1||-6.6||-5.5|
|Current account balance (% GDP)||-18.5||-30.3||-36.2||-40.8|
|Public debt (% GDP)||105.6||108.9||111.0||116.8|
(e): Estimate. (f): Forecast.
- Favourable geographical location: long coastline, proximity to South African market
- Significant mineral (coal), agricultural and hydroelectric potential
- Huge offshore gas fields discovered in 2010
- Under-diversified; dependent on commodity prices (aluminium, coal)
- Inadequate transport and port infrastructure, which constrains the country’s commodity export capacities
- Banking system constrained by government financing needs
- Unstable political and security environment
- Weak governance
- Difficult climatic conditions
Rebounding in the aftermath of the cyclones
After being slowed in 2019 by the effects of Cyclones Idai and Kenneth, activity is expected to recover in 2020. Reconstruction efforts in the aftermath of the storm damage should support public investment. It is set to benefit in 2020 from the return of a number of international donors, after being constrained since the sovereign default that followed the 2016 revelation of USD 1.4 billion in hidden debts. Private investment should also be an important driver of growth thanks to the flows generated by the development prospects for offshore liquefied natural gas (LNG) reserves, with, for example, export terminal investments planned by Anadarko and Exxon Mobil. However, the Islamist insurgency in the Cabo Delgado region, which is key to LNG projects, or a potential escalation of domestic political instability could slow investment. The contribution of foreign trade is expected to be affected by increased imports of capital goods for reconstruction and LNG projects, but also by a likely weakening of Indian and Chinese demand for coal and aluminium, which together account for more than 50% of export receipts. Monetary easing measures, which allowed credit growth to return to positive territory in 2019 after two years of contraction, and relatively low inflation, should enable private consumption to contribute to the acceleration of activity. However, domestic demand will continue to be constrained by reduced incomes owing to the poor 2019 agricultural year (cyclones and drought).
Persistent budgetary constraints, despite the restructuring agreement
After widening because of lower tax revenues in cyclone-affected areas and increased reconstruction-related spending beginning in 2019, the budget deficit is expected to narrow in 2020, mainly due to support for reconstruction assistance. Fiscal consolidation, including efforts to rationalize expenditure, in particular the State wage bill, and improve revenue collection, will probably be pursued. However, reconstruction needs, increasing debt service and the precarious financial situation of state-owned companies will put pressure on public spending. The restructuring agreement with holders of the defaulted Eurobond, concluded in September 2019, will reduce the debt burden on the public finances, but the country remains largely deprived of external financing because of the stock of arrears. Deficit financing is therefore expected to rely on domestic and concessional borrowing.
In 2020, the large current account deficit is expected to continue to widen due to LNG projects. The services account will be particularly affected by the technical services related to the implementation of these projects, while the trade balance will be impacted by the capital goods import bill. Reconstruction efforts will also affect these two accounts to a lesser extent. The repatriation of foreign companies’ profits and debt interest payments will result in an income deficit again. Conversely, the transfer surplus is expected to benefit from external grants, but will not be sufficient to cover the current account deficit. FDI and project financing associated with LNG projects should make it possible to finance the deficit. Although foreign exchange reserves (equivalent to less than four months of imports) and the metical have stabilised, the large current account deficit leaves the country exposed to external shocks.
Elections undermine political stability
The official results of the presidential, legislative and provincial elections held on October 15, 2019 confirmed the domination of the Mozambique Liberation Front (Frelimo). The party, which has been in power since the country gained its independence in 1975, won 184 of the 250 seats in the assembly, while President Filipe Nyusi was re-elected for a second term with 73% of the vote. However, the elections were marred by accusations of fraud and violence, undermining attempts to find a peaceful resolution to the tensions inherited from the post-independence civil war (1975-1992) between Frelimo and the Mozambique National Resistance (Renamo), which won 60 seats. Renamo, which rejected the 1992 peace agreement to take up arms again between 2013 and 2016, saw its appeal against the election results thrown out by Mozambique’s constitutional court. Meanwhile, an insurgency begun by an armed wing of Renamo, following the signature in August 2019 of a new peace deal between the two parties after an uneasy three-year truce, could grow and lead to renewed violence. Public frustration with corruption and mismanagement of public finances and limited economic opportunities will persist, increasing the risk of protests. Calls for President Nyusi’s resignation also emerged after allegations in a US court, in November 2019, that he received a bribe related to the debt scandal. Political risk is further fuelled by an Islamist insurgency that began in October 2017 in Cabo Delgado province in the north of the country. The unstable political environment contributes to the perception of a poor business climate (138th out of 190 countries in the Doing Business 2020 ranking).
Last update : February 2020