major macro economic indicators
|2014||2015||2016 (f)||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||-4.0|
|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
- 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, activity is expected to pick up in 2017
Industrial activity, especially coal production, has undergone a marked slowdown. Operation of the Sena railway line transporting coal to the port of Beira has been suspended since the summer of 2016, following the attacks by the armed faction of the main opposition party (Renamo). However the extractive industry could feel the benefits of the new railway line linking the mines in the centre of the country with the port of Nacala, commissioned in mid-2015. Flows of foreign direct investments and finance are likely to be heavily impeded by the revelation in April 2016 of a significant amount of debt (USD 1.4 billion or about 10.7% of GDP) concealed by the government from multilateral financial institutions. In October 2016, the IMF declared its readiness to help the government renegotiate its debt with its creditors. The exchanges with funders would resume subject to a debt restructuration agreement.
The expected drop in public capital spending is, moreover, expected to put pressure on the construction sector, traditionally a major contributor to the Mozambican economy. Weak external demand and the still low prices for the country's main export commodities (aluminium and coal) are also likely to limit the contribution of exports to growth. 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 increases 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 worsening of the fiscal balance.
At the same time, public debt (mostly external) has reached record levels and the government may face difficulties to meet payments due 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 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. The authorities have accordingly tightened monetary policy. These downward pressures on the currency are likely to continue due to the combination of the twin deficits, the aversion to emerging risk and the freeze on financial assistance by international organisations. Inflows of foreign direct investments are not expected 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 lively opposition from Renamo. Tensions between the governing party and the opposition have sharpened to the point of becoming violent. Discontent within civil society remains a source of political instability, even though the government is ready to take steps 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 : January 2017