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Balance of Payments and International FDI Position in Mozambique: FY2019/20

Mozambique BoP and FDI Position: FY2019/20

Mozambican merchandise export earnings have been volatile and growing faster than imports during the period from 2015 to 2018. The slower export earnings have deteriorated Mozambique’s current account balance. The balance of payments has been volatile but gross official reserves have increased slightly due to the persistent capital and financial account surplus despite the decreasing inward foreign direct investment (FDI) inflows and increased the outward FDI outflows. These capital flows have been adverse for Mozambique’s balance of payments and deteriorated the country’s net international FDI position. Nonetheless, Mozambique’s balance of payments is projected to recover to surplus from 2020 onwards, which is projected to support growth of gross official reserves in the medium-term.

 

Figure 1: Current Account Balance in Mozambique (2016-2024)

Current Account Balance in Mozambique (2016-2024)

Source: IMF 2019, Mozambique 2019 Article IV Consultation. Note: (*) Figures from 2019 onwards are projections.

 

Total merchandise imports to Mozambique increased to USD 6.8 billion in 2018, from an annual average of USD 6.3 billion for 2015 to 2017[1]. Exports increased to USD 5.2 billion in 2018, from an annual average of USSD 3.8 billion for 2015 to 2017[2]. The slower growth in exports has deteriorated Mozambique’s current account deficit from a deficit averaging -USD 3.7 billion (approx. -29.8% of GDP) for 2016 to 2018, to a deficit of -USD 8.8 billion (approx. -58.0% of GDP) in 2019[3]. Mozambique’s balance of payments and gross official reserves have been volatile due to the slower growth in export earnings and the consistently growing capital and financial account surplus.

 

Figure 2: Capital and Financial Account Balance in Mozambique (2016-2024)

Capital and Financial Account Balance in Mozambique (2016-2024)

Source: IMF 2019, Mozambique 2019 Article IV Consultation. Note: (*) Figures from 2019 onwards are projections.

 

Mozambique’s capital and financial account surplus increased from a surplus (net inflows) averaging USD 3.7 billion (approx. 29.6% of GDP) for 2016 to 2018, to a surplus of USD 8.2 billion (approx. 54.4% of GDP) in 2019[4]. As a result, Mozambique’s balance of payments improved from an average of -USD 274.7 million (approx. -2.2% of GDP) for 2016 to 2018, to a deficit of -USD 546.0 million (approx. -3.6% of GDP) in 2019[5]. Gross official reserves increased from USD 2.0 billion in 2016 to USD 3.1 billion in 2018, before decreasing to USD 2.9 billion in 2019[6]. During this period, Mozambique experienced persistent inward FDI inflows.

 

Figure 3: Gross Official Reserves and Balance of Payment in Mozambique (2016-2024)

Gross Official Reserves and Balance of Payment in Mozambique (2016-2024)

Source: IMF 2019, Mozambique 2019 Article IV Consultation. Note: (*) Figures from 2019 onwards are projections.

 

Inward FDI inflows decreased from USD 3.9 billion in 2015 to USD 2.3 billion in 2017, before recovering to USD 2.7 billion in 2018[7]. As a result, Mozambique’s inward FDI stock increased from an average of USD 34.3 billion for 2015 to 2017, to USD 40.6 billion in 2018[8]. Mozambicans’ investments abroad have been volatile as inward FDI to the country persisted.

 

Figure 4: Inward Foreign Direct Investment in Mozambique (2015-2018)

Inward Foreign Direct Investment in Mozambique (2015-2018)

Sources: UNCTAD 2019, UNCTADStat Database.

 

Outward FDI outflows increased from USD 1.5 million in 2015 to USD 26.0 million in 2017, before decreasing to net repatriations of -USD 18.8 million in 2018[9]. As a result, Mozambique’s outward FDI stock decreased from an average of USD 129.0 million for 2015 to 2017, to USD 8.9 million in 2018[10]. These capital flows have improved Mozambique’s balance of payment and deteriorated the country’s net international FDI position.

 

Figure 5: Outward Foreign Direct Investment from Mozambique (2015-2018)

Outward Foreign Direct Investment from Mozambique (2015-2018)

Sources: UNCTAD 2019, UNCTADStat Database.

 

Mozambique’s balance of payment has been supported by the improved capital and financial account surplus despite the widening current account deficit in the period from 2015 to 2018. Outward FDI flows have been volatile as inward FDI inflows persisted. Mozambique’s net international FDI position deteriorated from net liabilities amounting to an average of -USD 37.3 billion (approx. -296.7% of GDP) for 2015 to 2017, to net liabilities amounting -USD 43.4 billion (approx. -301.3% of GDP) in 2018[11].

 

Figure 6: International Foreign Direct Investment Position in Mozambique (2015-2018)

International Foreign Direct Investment Position in Mozambique (2015-2018)

Sources: UNCTAD 2019, UNCTADStat Database.

 

At these levels Mozambique’s foreign liabilities are unsustainable as a proportion of GDP and the country will be under significant pressure to increase its exports in order to balance its international payments. Given the relatively narrow domestic capital markets, Mozambique should focus on attracting inward FDI in sectors that will expand its productive capacity and diversify its exports because the country is still heavily dependent on raw commodity exports. Nevertheless, Mozambique’s balance of payments surplus is projected to recover to a surplus from 2022 onwards, which is projected to support growth of gross official reserves in the medium-term.

 

Improvements in the capital and financial account surplus should support a recovery in Mozambique’s balance of payments despite the widening current account deficit in the forward-looking medium-term. The current account deficit is projected to widen from a deficit of -USD 8.8 billion (approx. -58.0% of GDP) in 2019 to an average of -USD 11.9 billion (approx. -61.2% of GDP) from 2020 to 2024[12]. Mozambique’s capital and financial account balance is projected to improve to a surplus (net inflows) averaging USD 11.9 billion (approx. 61.1% of GDP) from 2020 to 2024[13]. Therefore, the balance of payment is projected to recover from a deficit of -USD 132.0 million in 2020 to a surplus of USD 59.0 million in 2024, which is equivalent to an average deficit of -USD 4.8 million (approx. -0.1% of GDP)[14]. Thus, Mozambique’s gross official reserves are projected to increase from USD 3.0 billion in 2020, to USD 3.5 billion in 2024[15].

 


[1] UNCTAD 2019. UNCTADStat Database, United Nations Conference on Trade and Development: Geneva. Available At: https://unctadstat.unctad.org/ [Last Accessed: 8 March 2020].
[2] UNCTAD 2019. UNCTADStat Database, ibid.
[3] IMF 2019. Mozambique 2019 Article IV Consultation, International Monetary Fund: Washington, D. C. Available At: https://www.imf.org/ [Last Accessed: 8 March 2020].
[4] IMF 2019. Mozambique 2019 Article IV Consultation, ibid.
[5] IMF 2019. Mozambique 2019 Article IV Consultation, ibid. There are relatively significant errors and omissions in Mozambique’s balance of payments data equivalent to -USD 3.6 million in 2016, -USD 578.0 million in 2017, and -USD 262.0 million in 2018.
[6] IMF 2019. Mozambique 2019 Article IV Consultation, ibid.
[7] UNCTAD 2019. UNCTADStat Database, ibid.
[8] UNCTAD 2019. UNCTADStat Database, ibid.
[9] UNCTAD 2019. UNCTADStat Database, ibid.
[10] UNCTAD 2019. UNCTADStat Database, ibid.
[11] UNCTAD 2019. UNCTADStat Database, ibid.
[12] IMF 2019. Mozambique 2019 Article IV Consultation, ibid.
[13] IMF 2019. Mozambique 2019 Article IV Consultation, ibid.
[14] IMF 2019. Mozambique 2019 Article IV Consultation, ibid.
[15] IMF 2019. Mozambique 2019 Article IV Consultation, ibid.

 

 


Siya Biniza

Role: Executive Director
Contact: siya@politicaleconomy.org.za
Siya is a Political Economist specialising in Development Finance, Industrial Development, and Regional Integration...

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