The World Bank, one of five international organizations that provides leveraged loans to developing countries, is currently undergoing public consultations on its revised Country Partnership Framework for Mozambique, to be implemented between 2023 and 2027. The consultations are intended to define a consensual programme that will improve the country’s infrastructure, productivity, and competitiveness. Mozambique is currently grappling with a rise in the number of kidnappings, and Islamic State-linked insurgencies.
While the World Bank has been very helpful to Mozambique, the government’s economy remains vulnerable to the challenges that exist in the country. The government is undergoing reforms that are affecting economic growth, particularly in the health and education sectors. In addition, the government has made significant progress on addressing gender violence and advancing women’s rights. The World Bank, however, warns that despite these recent positive developments, there remain some risks that may affect the country’s growth. These include rising import prices resulting from the Ukraine conflict, COVID infection waves, and insurgency in the north.
In the country’s Country Economic Update (2022), the World Bank highlights the need for structural reforms. In the medium term, the country needs to diversify its economy and foster inclusive growth. The focus of policy reforms should be on improving economic governance and reestablishing confidence among citizens. The government should also consider using mobile technology to boost inclusion and promote economic growth. All these efforts are necessary for Mozambique’s long-term success.
Although the country continues to face significant fiscal pressures, the growth is expected to accelerate in the medium term. Real GDP growth is expected to average 5.7 percent between 2022 and 2024. The launch of LNG production by Italy’s Eni is expected to help drive growth in the country. A few key sectors are expected to contribute to this growth. The new LNG project will help Mozambique’s economy recover.
Agriculture remains the primary economic activity in Mozambique. With the country’s agroecological diversity, agricultural production can be a sustainable source of growth, food security, and poverty reduction. Despite its challenges, agricultural growth is reducing poverty faster than any other sector in Mozambique. In addition, while agriculture continues to be a major driver of growth, Mozambique’s productivity remains low by regional standards. The country’s cereal yield per hectare is among the lowest in the region.
The recent COVID-19 shock interrupted the momentum of fiscal consolidation, forcing the government to implement an emergency fiscal stimulus in order to boost the economy. Despite this stimulus, the fiscal deficit continued to rise, reaching 5.9 percent of GDP in 2020 and 6.6 percent of GDP by 2022. This is a result of an increase in one-time mining revenues and stricter enforcement of tax laws. However, public debt continues to rise, rising to an estimated 79 percent of GDP in 2022. The rising debt and depreciation of the currency are contributing factors to this high level.
While the economy grew 2.1 percent in the year following the insurgency, the economy continues to remain vulnerable. However, the gradual lifting of containment measures has boosted private consumption and bolstered the recovery of the services sector. While this recovery was broadly based, the growth in the manufacturing and extractives sectors has not been strong enough, and new infections of COVID-19 have weighed on the overall performance.