May 2, 2023
Mozambique's economic history is marred by significant structural weaknesses that have resulted in recurring disappointments and setbacks. Examples of these include the 2016 “Hidden Debt Scandal” (which caused the IMF to abandon its program and IDA to suspend budgetary support), long-lasting unrest in the Cabo Delgado province, and low resilience against weather events/climate change, leading to substantial infrastructure damages during seasonal cyclones.
The country's economic outlook heavily depends on the success of upcoming LNG projects, which have the potential of boosting the economy in terms of GDP, external balance, and fiscal revenues. However, these projects have a history of postponement, lately because of the security situation near the gas fields. The first (smallest) project started in late 2022, two years later than planned. The IMF currently expects the larger project to come online in 2027, compared to the previously (in 2019) projected 2024.
The following chart highlights this history of disappointment. In the past few years, the IMF forecast very high growth to be around the corner, and it has not been, so far.
Headline real GDP growth is one measure of future performance, another one is Total Factor Productivity, which tries to estimate how efficiently the capital and labor inputs are used. On this measure, the IMF also looks optimistic regarding Mozambique (as it does about most countries, see our analysis). This expectation may be overly optimistic, not only because it is significantly higher than Mozambique's historical performance but also because it is at the top of the range of the performance of its regional peers over the IMF's forecast horizon (together with the Central African Republic and Niger).
This optimism is critical as the IMF program anticipates significant fiscal consolidation in the coming years while maintaining relatively loose conditions on FX reserves (lower than 3 months of imports) with the expectation that everything will proceed smoothly.
We remain more cautious in our outlook due to persistent structural issues that continue to constrain non-commodity growth, as seen in Mozambique's virtually unchanged GDP per capita for the last 15 years. These issues include worsening democratic conditions and an overall poor economic transformation, as indicated in the BTI Index. While the upcoming LNG projects have the potential to bring significant economic growth (if and when they are realized), the country needs to address its structural issues to ensure sustained and broad-based economic development.