international capital markets, and conces- sional financing remains limited. The gov- MOZAMBIQUE Key conditions and ernment’s capacity to finance development is heavily constrained, worsened by wage, challenges pension, and debt-service costs that absorb 90 percent of total revenues. Table 1 2022 Economic growth slowed down in recent Mozambique needs to diversify its sources Population, million 33.0 years owing to multiple shocks, including of growth and jobs. Sustained, broad- GDP, current US$ billion 17.9 the hidden debt crisis, the escalation of based, and inclusive growth will require GDP per capita, current US$ 543.5 insurgency in northern Mozambique, raising agricultural productivity and accel- a 64.6 International poverty rate ($2.15) tropical cyclones, and the COVID-19 pan- erating economic transformation by bol- a 83.1 demic. The country is endowed with rich stering the services sector and strengthen- Lower middle-income poverty rate ($3.65) a 54.0 natural resources, but widespread pover- ing intersectoral links. Policy priorities in- Gini index School enrollment, primary (% gross) b 118.4 ty and inequality, vulnerability to climate clude enhancing macroeconomic stability, Life expectancy at birth, years b 61.2 shocks, and fragility and conflict pose improving governance, strengthening re- Total GHG emissions (mtCO2e) 109.4 substantial development challenges. The silience to shocks, and leveraging private economy’s dual focus on labor-intensive, sector potential. In the short to medium Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2014), 2017 PPPs. low-productivity agriculture and capital- term, Mozambique needs to improve the b/ Most recent WDI value (2020). intensive extractives, with weak sectoral business environment, expand private fi- links, constraints inclusive development. nancing, and enhance labor market perfor- About two thirds of the population re- mance. Supporting access to skilled labor main poor, and inequality is among the requires alleviating restrictions on the re- highest in Sub-Saharan Africa. cruitment of foreign labor and encourag- Economic recovery has strengthened, With over half a million people entering the ing knowledge transfer programs. growth reached 4.1 percent in 2022, dri- labor force but only 25,000 new formal jobs ven by strong export performance and each year, creating more and better jobs is a services, as mobility fully resumed. pressing need for Mozambique. However, Growth is expected to accelerate further the private sector’s potential to create jobs Recent developments and transform the economy is hampered by in the medium term, supported by lique- regulatory bottlenecks, large infrastructure The economy is recovering from the pan- fied natural gas (LNG) production and deficits, and the high cost of credit. Lending demic, with growth increasing from 2.3 good agricultural performance. As a re- interest rates in Mozambique are among the percent in 2021 to 4.1 percent in 2022. Ser- sult, poverty is projected to fall from 64.3 highest in Sub-Saharan Africa, reflecting a vices and agriculture performed well, thin financial sector, rising government do- thanks to higher farm productivity and the percent in 2022 to 60.6 percent by 2025. mestic borrowing, and high credit risks. The full resumption of mobility. Increased ex- However, medium-term prospects are global economic slowdown and elevated in- ternal demand and prices for Mozam- subject to substantial downside risks, in- flation led to a further rise in the cost of cred- bique’s key export commodities (notably, cluding Russia’s invasion of Ukraine, it, limiting growth opportunities outside ex- coal and aluminum) have supported the tractives. Mozambique is at high risk of debt recovery further. However, inflation hit a natural hazards, and conflict in the north. distress, with the country lacking access to five-year high as global fuel and food FIGURE 1 Mozambique / Real GDP growth and FIGURE 2 Mozambique / Actual and projected poverty contributions to real GDP growth rates and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 10 100 25000 90 8 80 20000 6 70 4 60 15000 50 2 40 10000 0 30 20 5000 -2 10 -4 0 0 2014 2016 2018 2020e 2022e 2024f 2008 2010 2012 2014 2016 2018 2020 2022 2024 Agriculture Extractives Manufacturing International poverty rate Lower middle-income pov. rate Services Tax GDP Real GDP pc Source: World Bank estimates. Source: World Bank. Notes: see Table 2. MPO 1 Apr 23 prices surged, and adverse weather re- higher fuel and food import bills. The ex- As revenue grows, the fiscal deficit is pro- duced domestic food production, dispro- ternal financing gap was covered by World jected to decline to an average of 3.8 per- portionally affecting the poor. In response Bank Development Policy Financing, In- cent between 2023 and 2025. In the short to the inflation hike, the Bank of Mozam- ternational Monetary Fund credits, debt, term, revenue increases will be under- bique raised policy interest rates by 400 and a drawdown in reserves. Gross inter- pinned by collections from LNG resource basis points to 17.3 percent in 2022. The national reserves fell from US$3.3 billion revenue and increased grants. The fiscal nominal and real effective exchange rates in 2021 to US$2.5 billion (equivalent to 3.4 outlook also hinges on successfully imple- remained stable, reflecting a comfortable months of non-megaproject imports), as menting the fiscal consolidation program. supply of foreign currency. Low per capita the central bank covered foreign currency However, considerable challenges remain, income growth and high inflation have un- needs for fuel imports. notably the upfront costs of the ongoing dermined poverty reduction, with the wage bill reform and elections in 2024. If number of poor rising by half a million be- the wage bill continues to grow at the cur- tween 2021 and 2022. rent pace, the overall fiscal deficit could Expenditure pressures persist owing to Outlook reach 5 percent of GDP in the medium higher spending associated with ongoing term. Unplanned fiscal financing needs wage bill reforms, debt service, and social Medium-term prospects remain positive, will likely be met by domestic financing, transfers. The overall fiscal deficit in- but downside risks are substantial. Real adding to the high debt burden. The creased from 4.8 percent of GDP in 2021 GDP growth is expected to accelerate, av- country will remain at high risk of debt to 5.9 percent in 2022. Revenue perfor- eraging 6.2 percent between 2023-2025 as distress, but debt is deemed sustainable mance remains strong thanks to im- the offshore Coral South LNG terminal in a forward-looking sense. proved income tax collection, and cou- reaches full capacity and the Area 1 LNG The CAD is poised to increase, projected at pled with the under-execution of capital project resumes. High commodity prices 29.3 percent of GDP in the medium term, as spending and budget support, moderated will continue to favor export growth. As LNG projects advance. Total imports of fiscal pressures. Public debt has been de- international oil prices decline, inflation is goods are expected to average 45 percent of clining, but domestic debt has continued also projected to decline, averaging 7.4 GDP over 2023-25, from 30 percent in to rise, with the government resorting to percent between 2023 and 2025. Poverty is 2019-21, largely due to LNG-related im- the expensive domestic debt market to projected to fall from 64.3 to 63.5 percent ports. Gas exports will partly offset this in- cover financing needs. between 2022 and 2023. Downside risks, crease. Trade credits and foreign direct in- The current account deficit (CAD) in- including a protracted war in Ukraine, a vestment will continue to be the main fi- creased from an average of 23.6 percent of continued rise in fuel prices, and natural nancing sources for the CAD. Gross reserves GDP over 2017-21 to 36 percent in 2022, hazards, could lower medium-term GDP are expected to stay at the equivalent of 4 reflecting LNG equipment imports, and growth to 4.5 percent. months of imports, excluding megaprojects. TABLE 2 Mozambique / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022e 2023f 2024f 2025f Real GDP growth, at constant market prices -1.2 2.3 4.1 5.0 8.3 5.3 Private Consumption -2.2 17.3 2.9 0.9 13.1 4.4 Government Consumption -19.1 -7.8 17.2 -18.9 -3.9 -4.0 Gross Fixed Capital Investment 60.9 32.5 -6.4 10.3 2.5 10.5 Exports, Goods and Services -14.9 23.8 10.2 19.5 4.7 5.1 Imports, Goods and Services 0.0 37.2 1.9 3.3 4.1 5.0 Real GDP growth, at constant factor prices -1.8 2.3 4.1 5.0 8.3 5.3 Agriculture 3.6 3.7 4.4 4.5 3.4 3.9 Industry -5.7 1.6 3.8 9.4 33.3 13.0 Services -2.9 1.9 4.2 3.4 0.5 1.8 Inflation (Consumer Price Index) 3.1 5.7 9.8 7.3 7.5 7.4 Current Account Balance (% of GDP) -27.4 -22.8 -36.0 -14.5 -34.5 -38.8 Net Foreign Direct Investment Inflow (% of GDP) 21.5 32.2 10.5 18.9 16.9 11.6 a Fiscal Balance (% of GDP) -5.3 -4.8 -5.9 -4.4 -3.7 -3.3 Revenues (% of GDP) 27.7 27.0 28.9 26.8 25.7 26.9 Debt (% of GDP) 118.9 106.4 102.7 101.6 101.2 100.2 a Primary Balance (% of GDP) -2.2 -2.1 -2.4 -1.4 -0.6 -0.6 b,c International poverty rate ($2.15 in 2017 PPP) 64.5 64.7 64.3 63.5 61.7 60.6 b,c Lower middle-income poverty rate ($3.65 in 2017 PPP) 83.0 83.2 82.9 82.4 81.2 80.5 GHG emissions growth (mtCO2e) 1.0 1.4 0.0 1.0 2.9 2.7 Energy related GHG emissions (% of total) 8.5 9.2 8.7 8.8 10.1 11.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Figure includes once-off capital gains revenues in 2017, estimated at 2.7 percent of GDP. b/ Calculations based on 2014-IOF. Actual data: 2014. Nowcast: 2015-2022. Forecasts are from 2023 to 2025. c/ Projection using neutral distribution (2014) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 2 Apr 23