Mozambique flag Mozambique: Economic and Political Overview

The economic context of Mozambique

Economic Indicators

Mozambique’s economy recorded average growth rates above 7% of GDP over the period 2000-2016, supported by foreign investment, the rapid growth of the mining sector, and the increase in coal and hydrocarbon reserves. However, the economy has slowed down, impacted by a sovereign debt crisis, the passage of tropical cyclones, and more recently the Covid-19 pandemic and the war in Ukraine. For the first time in thirty years, GDP contracted in 2020, but the country resumed its growth path straight after. The IMF anticipates Mozambique's real GDP growth to sustain its strength, averaging 4.8% over 2024-2025, following an estimated 5.9% in 2023. The robust economic momentum in 2023 stemmed from the increasing output of ENI's Coral South floating LNG project, whereas growth in the non-extractive sector has continued to slow down. However, the outlook for the extractive sector remains robust, as significant LNG projects are expected to resume activities due to sustained improvements in security conditions in the north.

Following fiscal slippages in 2022, authorities have enacted robust corrections to realign fiscal policy. The domestic primary balance was forecasted at 0.8% of GDP in 2023. Fitch anticipates the fiscal deficit to continue narrowing, reaching 2.6% in 2024 and 2.0% in 2025. This improvement is primarily attributed to a further 1.2 percentage point reduction in expenditure on employees' compensation over the period. Concerning the general government debt-to-GDP ratio, the IMF predicts an increase to 92.4% by the end of 2024, before it decreases to 90.2% in 2025, from 89.7% at the end of 2023. This decline is mainly attributed to robust nominal GDP growth over the period, as well as from an out-of-court agreement between Mozambique and creditors from the Proindicus loan, one of the three state-owned enterprises implicated in the "hidden debt scandal". Inflation – estimated at 7.4% in 2023 – is set to marginally ease over the forecast horizon, landing at 6.2% in 2025. The decrease in inflation, coupled with nominal interest rates remaining relatively stable, has led to both policy and market interest rates rising to elevated levels in real terms. This has resulted in very stringent financial conditions. In January 2024, the central bank reduced its key policy rate by 75 basis points to 16.5%, after a 400 basis point increase from January to September 2022, bringing the rate to 17.5%. The authorities are committed to an ambitious reform program focusing on establishing a sovereign wealth fund to transparently manage LNG wealth, mobilizing additional tax revenue, and strengthening public financial management and governance (IMF). Among the main challenges identified by the IMF are adverse climate events, a fragile security situation, governance weaknesses, and debt vulnerabilities.

Unemployment rate was estimated at 3.8% in 2022 according to the World Bank (modeled ILO estimate). However, the informal is still prominent and youth unemployment levels are above 30%. Social inequalities are increasing and a large part of the population lives in poverty (over 63% according to AFDB), especially in rural areas. The northern province of Cabo Delgado, where more than 800,000 people have been displaced due to terrorism, has been particularly affected by increased food insecurity (IMF).

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 18.4121.3522.9825.2126.67
GDP (Constant Prices, Annual % Change) 4.46.05.05.04.0
GDP per Capita (USD) 558630659703724
General Government Gross Debt (in % of GDP) 99.391.996.994.791.4
Inflation Rate (%) 9.86.14.45.55.1
Current Account (billions USD) -6.38-2.35-8.88-10.82-11.80
Current Account (in % of GDP) -34.7-11.0-38.7-42.9-44.2

Source: IMF – World Economic Outlook Database, October 2021

Main Sectors of Industry

Mozambique is rich in natural resources and produces a large variety of agricultural products. It has significant coal and gas reserves and hydroelectric potential, and possesses the world’s largest reserves of tantalite. It is among the largest producers of cassava and oilseeds (FAO). Although agriculture employs 70% of the country's active population, it represents 26.5% of GDP (World Bank, latest data available). Most agricultural production comes from family farms, but the sector is particularly vulnerable to natural disasters such as droughts and floods. The main crops in the country are corn, cassava, beans, rice, and a variety of vegetables and oilseeds.

Mozambique’s natural resources include recently discovered gas and coal, high-quality iron ore, gold, bauxite, graphite, marble, and the rare mineral tantalite. The mining sector holds substantial potential for revenue generation and foreign investment. The manufacturing sector is still weak (9% of GDP) and is dominated by the production of the Mozal aluminium smelter. Overall, the industrial sector contributes to 22.8% of the country's GDP and employs 9% of the active population.

The service sector represents 40.6% of GDP and accounts for more than one-fifth of total employment (21%). Tourism is the main industry, although it is still performing well below its potential. In addition to expanding financial services, the tertiary sector has a growing number of micro-scale retail businesses. The banking sector is primarily controlled by foreign-owned financial institutions, with 19 commercial banks among the total of 40 financial institutions. The major players include Millennium BIM (with Portuguese and Mozambican shareholders), BCI (with Portuguese and Mozambican shareholders), and Standard Bank (with South African shareholders). Together, these three banks account for over 70% of all financial assets, including deposits and loans.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 70.3 9.3 20.5
Value Added (in % of GDP) 27.5 21.9 40.1
Value Added (Annual % Change) 4.4 3.9 4.4

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:
51,6/100
World Rank:
153
Regional Rank:
36

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 
 

Country Risk

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Latest Update: May 2024

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