Mozambique Economy - overview

Factbook > Countries > Mozambique > Economy

Economy - overview: At independence in 1975, Mozambique was one of the world's poorest countries. Socialist policies, economic mismanagement, and a brutal civil war from 1977 to 1992 further impoverished the country. In 1987, the government embarked on a series of macroeconomic reforms designed to stabilize the economy. These steps, combined with donor assistance and with political stability since the multi-party elections in 1994, propelled the country’s GDP from $4 billion in 1993, following the war, to about $35 billion in 2016. Fiscal reforms, including the introduction of a value-added tax and reform of the customs service, have improved the government's revenue collection abilities.

In spite of these gains, more than half the population remains below the poverty line. Subsistence agriculture continues to employ the vast majority of the country's work force. Citizens rioted in September 2010 after fuel, water, electricity, and bread price increases were announced. In an attempt to lessen the negative impact on the population, the government implemented subsidies, decreased taxes and tariffs, and instituted other fiscal measures.

A substantial trade imbalance persists, although aluminum production from the Mozal Aluminum Smelter has significantly boosted export earnings in recent years. In 2012, the Mozambican Government took over Portugal's last remaining share in the Cahora Bassa Hydroelectricity Company, a significant contributor to the Southern African Power Pool. The government has plans to expand the Cahora Bassa Dam and build additional dams to increase its electricity exports and fulfill the needs of its burgeoning domestic industries.

Mozambique's once substantial foreign debt was reduced through forgiveness and rescheduling under the IMF's Heavily Indebted Poor Countries (HIPC) and Enhanced HIPC initiatives. However, in 2016, information surfaced revealing that the Mozambican Government was responsible for over $2 billion in government-backed loans originally secured between 2012-2014 by state-owned defense and security companies without parliamentary approval or national budget inclusion, which prompted the IMF and international donors to halt direct budget support to the Government of Mozambique. This sizable external debt burden, donor withdrawal, elevated inflation, and currency depreciation contributed to weak growth in 2016 and forebode weaker economic growth in the next few years.

Mozambique grew at an average annual rate of 6%-8% in the decade leading up to 2015, one of Africa's strongest performances, but growth slowed in 2016 to about 3.5% as low commodity prices reduced export earnings. However, many forecasts predict an increase in growth in 2017 as coal exports grow. Two major international consortiums are seeking approval to develop massive natural gas deposits off the coast of Cabo Delgado province, in what has the potential to become the largest infrastructure project in Africa. The government predicts sales of liquefied natural gas from these projects could generate several billion dollars in revenues annually sometime after 2022.

Definition: This entry briefly describes the type of economy, including the degree of market orientation, the level of economic development, the most important natural resources, and the unique areas of specialization. It also characterizes major economic events and policy changes in the most recent 12 months and may include a statement about one or two key future macroeconomic trends.

Source: CIA World Factbook - This page was last updated on July 9, 2017

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