Mozambique Economic Outlook

  • Mozambique’s GDP growth declined in 2015 to 6.3% because of lower export earnings and public expenditure but is expected to expand to 6.5% in 2016.
  • Amid government-opposition political tensions, improved financial management and public expenditure are needed to counter growing inequalities.
  • The number of Mozambicans in cities will rise from 31% now to 40% by 2040 and they will need better transport and facilities.

After a decade of average annual economic growth above 7%, Mozambique saw a slowdown to 6.3% in 2015 as the country faces defining economic and political challenges. The slower gross domestic product (GDP) growth was due to lower than expected exports and a decrease in public expenditure and foreign direct investment. A reduced influx of hard currency assisted the devaluation of the metical (MZN) against the US dollar and pressured the balance of payments. This was halted only by a USD 282.9 million standby credit facility agreement with the International Monetary Fund in December 2015. The budget deficit was reduced from 6.6% in 2014 to 5.4% in 2015. The main short-term challenge is to regain growth momentum while ensuring fiscal and debt sustainability. Predicted GDP growth of 6.5% in 2016 and 7.5% in 2017 hinges on the advancement of gas and coal production projects and attracting foreign investment.

President Filipe Nyusi’s government faces many challenges. Negotiations between the authorities and liquefied natural gas (LNG) operators on new projects have taken longer than expected. This has held up final investment decisions now expected in late 2016. Lower oil and gas prices are a further concern for the development of the projects. The political situation remains uncertain with renewed low intensity conflict between the government and RENAMO opposition party, which refuses to recognise the result of the 2014 presidential election. The government is struggling to repay a bond issued for the Empresa Mocambicana de Atum (EMATUM) state tuna company. This will require some kind of restructuring. Finally, the currency’s devaluation is expected to spike up inflation, affecting living conditions for the wider population.

Data has revealed rising household expenditure since 2009, but Mozambique’s ranking dropped in the United Nations Development Programme’s 2015 Human Development Index. It showed rising disparities between regions and stressed the underdevelopment of rural areas.

The urban population is growing strongly but still represents less than a third of the total population. Rural population growth is bigger in absolute terms. Urban unemployment is higher than in rural areas and a large part of the city population is not reaching its full economic potential. Public policy in general considers urbanisation as a challenge, rather than an opportunity, focusing on rural development. Nonetheless, progressively more recognition is being given to structured urbanisation. The first post-independence new city developments are being designed and implemented.