major macro economic indicators
|2014||2015||2016 (e)||2017 (f)|
|GDP growth (%)||7.4||6.6||3.0||3.5|
|Inflation (yearly average) (%)||2.3||2.4||22.0||18.0|
|Budget balance (% GDP)||-10.7||-7.4||-5.8||-6.0|
|Current account balance (% GDP)||-38.2||-39.0||-33.5||-40.0|
|Public debt (% GDP)||62.4||86.0||112.6||103.2|
(e) Estimate (f) Forecast
* Including grants
- Enviable geographic location: long coastline, proximity to the South African market
- Considerable mineral (coal), agricultural and hydroelectric wealth
- Major gas reserves discovered off shore in 2010
- Supported by foreign financial donors and investors (FDIs) with finance for mining and gas industry infrastructure (suspended since November 2016)
- Limited diversification; dependence on commodity prices (aluminium, coal)
- Inadequate transport and port infrastructure seriously limiting the ability to export commodities
- Highly dependent on international aid and the South African economy
- Poor governance
After slowing sharply in 2016, growth is expected to stabilise in 2017
Industrial activity, especially coal mining, has undergone a sharp slowdown. Coal transportation through the Sena railway line to the port of Beira was suspended for several months, following the attacks by the armed faction of the main opposition party (Renamo). However the extractive industry could benefit from the upcoming capacity expansion of the railway line linking the mines in the centre of the country with the port of Nacala, commissioned in mid-2015. Construction, traditionally a major contributor to the Mozambican economy, is likely to suffer from the expected decline in public investment. This is due in particular to the suspension of multilateral aid following the revelation in April 2016 of a significant amount of debt ($ 1.4 billion, or about 10.7% of GDP) concealed by the government. The resumption of donor payments will be conditional upon the conclusion of a private debt restructuring agreement. The IMF declared its readiness to help the government renegotiate its debt. In addition, foreign direct investment flows in the extractive sector are hampered by low commodity prices and unfavourable regulatory and political environments. Finally, private consumption is likely to be curbed by still high inflation, fuelled by the impact of drought on food prices, the hike in some public sector tariffs (electricity in particular) and the effects of the depreciation of the metical.
Considerable efforts to control the public finances in a context of strongly rising debt
Since the sharp deterioration in the fiscal balance in 2014, the government has continued with its fiscal consolidation policy. This fiscal position may be difficult to hold, with international aid currently suspended. Even if talks with donors restart, government guarantees on loans to state-owned enterprises increase the risk of sovereign default. The measures intended to widen the tax base and improve tax collection, as well as efforts to rein in spending would not prevent a worsening of the fiscal balance.
At the same time, public debt (mostly external) has reached record levels and the government defaulted on interest payment in January 2017. The hoped-for debt restructuring, probably subject to the implementation of more extensive fiscal consolidation measures, would be positive for the country.
The high structural current account deficit, associated with the country's huge need for imported goods and services to develop its infrastructures (gas, transport) may increase in 2017. Exports of mining products (aluminium and coal) will not increase in a context of weak growth in external demand and still low commodity prices. Imports will be sustained by the need for equipment, contributing to the increasing deficit. The depreciation of the metical has accelerated following the debt scandal, resulting in high imported inflation, leading the authorities to tighten their monetary policy. These downward pressures on the currency are likely to continue due to the twin deficits, the aversion to emerging risk and the freeze on financial assistance by international organisations. Inflows of foreign direct investments may prove insufficient to support the currency.
A worsening political situation and weak governance
Since the October 2014 parliamentary elections, Frelimo - the ruling party since 1994 - has had to contend with very sharp opposition from Renamo, the main opposition force. Renamo acts both in parliament and on the ground, where it takes the form of a guerrilla in the provinces where it is firmly settled and claims the exercise of provincial power. Discontent within civil society remains a source of political instability, even though the government is ready to take actions should there be any unrest.
The business climate in Mozambique remains difficult. The country's performance on governance according to the World Bank index is generally below that of its main neighbours (with the exception of Zimbabwe). The country has dropped in the rankings, especially regarding the rule of law (168th out of 209 countries in 2015 compared with 129th in 2010), the fight against corruption, and, above all, political stability.
Last update : March 2017