The latest World Bank (WB) report projects a reduction in the country’s poverty rate, which is expected to fall from 73.4 per cent in 2023 to 70.9 per cent in 2026. The forecast points to stable economic growth of 5 per cent in the medium term, driven mainly by large capital-intensive projects in the country, according to the Carta de Moçambique portal .
According to the report, economic growth should be sustained by investments in megaprojects, which have a significant impact on the economy. However, fiscal space remains restricted, with a large part of the labour force concentrated in agriculture and low-productivity services.
In 2023, real GDP grew by 5 per cent, benefiting especially from the production of liquefied natural gas (LNG) at the Coral South offshore facility. Despite this, the country faces considerable fiscal pressures due to the high public sector wage bill and the rising cost of servicing the debt.
The World Bank emphasises that the expansion of the agricultural and services sectors, particularly the transport sector, also contributed to economic growth, helping to compensate for lower industrial and construction activity. Inflation, which peaked at 9.8 per cent in 2022, moderated to 7.1 per cent in 2023, facilitating a reduction in the poverty rate to 73.4 per cent.
“More than 90 per cent of tax revenues in 2021-22 were absorbed by wage and debt service costs, thus limiting the resources available for public investment and social spending. The restrictions on financing Mozambique’s development needs are further accentuated by the lack of access to international financial markets, the high risk of sovereign over-indebtedness and high interest rates,’ the document states.
The challenges faced by the country are compounded by fragility and conflict, as well as high vulnerability to climate shocks. The World Bank recommends that Mozambique seizes the opportunity to implement reforms that broaden the economic base and promote sustainable growth, with an emphasis on resources and job creation.
To improve spending efficiency and debt management, it is crucial to strengthen fiscal discipline and gain credibility in the financial markets. The report highlights that the benefits of future LNG revenues can be optimised through a robust fiscal framework and the appropriate use of the recently created Sovereign Wealth Fund.
The report also reveals that total expenditure increased by 14 per cent in the third quarter of 2023 due to wage pressures and election-related spending. Revenue growth was a modest 6 per cent, due to the reduction in the VAT rate to 16 per cent. Public debt fell from 95 per cent of GDP in 2022 to around 91 per cent in 2023, but domestic debt increased to 27 per cent of GDP.
‘The forecast for the coming years indicates a reduction in expenditure from 31.3 per cent of GDP in 2023 to 26.5 per cent in 2026, as a result of measures to control the wage bill, such as limiting hiring and auditing the public sector workforce.’
The current account deficit fell from 365.8 billion meticais (5.8 billion dollars) to 69.4 billion meticais (1.1 billion dollars) between the first three quarters of 2022 and 2023, due to a combination of reduced imports and increased LNG exports. This deficit was financed mainly through trade credits and foreign direct investment.
The forecast for the coming years indicates a reduction in spending from 31.3 percent of GDP in 2023 to 26.5 percent in 2026, as a result of measures to control the wage bill, such as limiting hiring and auditing the public sector workforce. Public debt should stabilise at around 92% of GDP in the medium term, but Mozambique will continue to face a high risk of over-indebtedness in the short term.
The current account deficit is expected to increase, reaching an average of 44.1 per cent of GDP between 2024 and 2026, driven by LNG-related imports. Gross reserves are expected to remain at adequate levels, around 3.5 billion dollars (221.9 billion meticais), which is equivalent to almost four months of imports, excluding megaprojects.
