Mozambique’s economy has begun recovering from the shock caused by the COVID-19 pandemic. Real GDP growth is projected to increase from an annual average of 1.1% for 2019 to 2021, to 3.8% in 2022. Inflation is projected to increase from an annual average of 3.9% for 2019 to 2021, to 8.5% in 2022. The elevated inflation is caused by the sanctions against Russia which have increased the price of crucial imports. In the medium-term period from 2023 to 2025, real GDP growth is projected to increase to an annual average of 6.1%. Meanwhile, inflation is projected to decrease to an average of 6.7% over the medium-term from 2023 to 2025.
The Government of Mozambique’s debt has begun moderating after increasing in 2020. Mozambique’s gross public debt is projected to decrease from an annual average of 105.8% of GDP for 2019 to 2021, to 102.0% of GDP in 2022. The decrease in public debt is largely due to the recovery in real economic growth and the Government of Mozambique implementing fiscal austerity as the economy recovers from the shock caused by the global lockdown response to the COVID-19 pandemic. The fiscal deficit is projected to widen from an annual average of -2.9% of GDP for 2019 to 2021, to -3.0% in 2022. This shows the countercyclical fiscal stance taken by the government despite spending outpacing revenue growth. In the medium-term period from 2023 to 2025, the fiscal deficit is projected to narrow to an annual average of -2.7% of GDP. Therefore, public debt is projected to decrease to an average of 89.4% of GDP over the medium-term from 2023 to 2025.
Mozambique’s external sector was negatively affected by the COVID-19 pandemic in 2020 but the sector is projected to deteriorate even though commodity prices have rebounded, which should improve export earnings. Mozambique’s current account deficit is projected to widen from an annual average of -USD 3.5 billion (approx. -23.0% of GDP) for 2019 to 2021, to -USD 8.1 billion (approx. -44.9% of GDP) in 2022. In the medium-term period from 2023 to 2025, the current account deficit is projected to narrow to an annual average of -USD 8.1 billion (approx. -37.9% of GDP). This illustrates a persist deterioration in the current account balance despite the current rebound in commodity prices which is primarily driven by the impact of sanctions against Russia. Therefore, Mozambican authorities will have to take a proactive approach to macroeconomic management to avoid depreciation of the MZN given the uncertainty of how long the conflict and sanctions will last. The impact of the Russia-Ukraine conflict on capital markets, specifically the withdrawal of capital from emerging markets, will also become a major concern for the balance of payment and the MZN exchange rate given that Mozambique’s attractiveness to foreign capital has been marred by the insurgence in Cabo Delgado.
Mozambique is scheduled to hold its national elections in 2024 and the election campaigning cycle is still a long way ahead. Incumbent President H.E. Filipe Jacinto Nyusi is not eligible for re-election given that he is serving a second term in office. The current political climate remains relatively calm despite pressures caused by the slow economic recovery and the humanitarian crisis caused by the insurgence in Cabo Delgado. The SADC Mission in Mozambique (SAMIM) was deployed on 15 July 2021 to support the Government of Mozambique with combating terrorism and acts of violent extremism in Cabo Delgado. Since its deployment, SAMIM has achieved a number of milestones, including recapturing villages, dislodging terrorists from their bases and seizing weapons and warfare material; which has contributed to creating a relatively secure environment for safer passage of humanitarian support. Mozambicans have gained confidence in SAMIM forces given the more secure environment which has allowed internally displaced people to return to their normal lives. President H.E. Filipe Jacinto Nyusi will also seek to build on the relative stability created by the SAMIM forces in order to resume operations of the natural gas mega projects. President Nyusi will also seek to gain further humanitarian support from SADC members before the end of his term as the outgoing Chairperson of SADC.