The economic week was marked by significant updates on several of Mozambique’s macroeconomic indicators, including the evolution of international reserves, the performance of the Gross Domestic Product (GDP), the outlook for inflation and the risks associated with the political instability affecting the country since the October elections.
International Reserves at Comfortable Levels
The Bank of Mozambique (BoM) announced that in October, Net International Reserves (NIR) stood at 3.7 billion dollars (around 236.2 billion meticals), enough to cover five months of imports, excluding major projects, and 3.2 months of total imports.
During the BoM’s 49th Consultative Council, Governor Rogério Zandamela emphasised that the current level of reserves reflects prudent management and ensures the smooth functioning of the economy, even in the face of the economic and social challenges facing the country. Zandamela reaffirmed his commitment not to use the reserves recklessly. ‘We’re not going to ‘burn’ reserves. They are still there to allow our country and our institutions to function normally,’ he said.
GDP Growth Driven by Primary Sector
The National Statistics Institute (INE) revealed that Mozambique’s GDP grew by 3.68 per cent in the third quarter of 2024, driven above all by the primary sector, which expanded by 6.4 per cent. Within this sector, the extractive industry stood out with growth of 13.62 per cent, while agriculture showed a more modest increase of 2.23 per cent.
With this performance, accumulated GDP growth up to September stood at 3.80 per cent, and the government’s annual projections point to 5.5 per cent by 2024. However, Mozambican President Filipe Nyusi admitted that the post-election demonstrations underway since October could lead to a revision of these targets if tensions are not resolved quickly.
Inflationary Pressures and Interest Rate Reductions
While the economy is making progress, the inflationary scenario presents future challenges. Oxford Economics predicts that average inflation in Mozambique will rise from 3.1 per cent in 2024 to 4.9 per cent in 2025, due to the gradual devaluation of the metical and pressure on food prices. Despite this forecast, the Bank of Mozambique recently reduced the benchmark interest rate (MIMO) from 13.5 per cent to 12.75 per cent, justifying the measure with the consolidation of controlled inflation in the medium term.
According to Oxford Economics, the central bank could make further moderate interest rate cuts in the first half of 2025, but growing inflationary pressures will limit a more aggressive monetary policy.
Political Risks Threaten Growth and Investment
The political and social instability triggered by the general elections on 9 October continues to worry investors and rating agencies. Fitch Ratings has warned that the conflicts could negatively impact the country’s fiscal stability and economic growth. Since the announcement of the election results, which declared Daniel Chapo the winner with 70.67 per cent of the vote, demonstrations and clashes have taken place, affecting the normal functioning of the economy, especially in the capital, Maputo.
Fitch stressed that the instability could lead to deviations from the fiscal targets established in the IMF programme, which would compromise the continuity of disbursements under the 456 million dollar Extended Credit Facility (around 29.1 billion meticals). Despite this, the agency believes that the main multilateral lenders, such as the IMF and the African Development Bank, will continue to support the country, as long as tensions are brought under control.
On the other hand, the impact of instability could affect strategic projects, such as those related to liquefied natural gas (LNG) in the Rovuma basin, which are essential for economic growth in the medium and long term. Fitch pointed out that the redeployment of security resources to deal with the protests in Maputo could jeopardise security in Cabo Delgado, where the natural gas projects are located.
Outlook for the end of the year
Despite the challenges, the economic week showed signs of resilience in the Mozambican economy, with a solid performance in the primary sector and international reserves at comfortable levels. However, the immediate future will depend on the country’s ability to stabilise the political and social scenario, guaranteeing progress on structuring projects and meeting the economic targets set for 2025.
Text: Felisberto Ruco
