Despite these challenges, Mozambique is expected to record growth of over 4% in the coming years, considering the major liquefied natural gas (LNG) project and increased government spending in key areas.

"We believe that the Mozambican economy will continue to recover, with the most notable growth expected to come from the transport and logistics sector. The increasing utilization of Mozambique's ports due to the extreme weather conditions in neighboring South Africa suggests that the transport and logistics sector will perform above average in the short to medium term. Primary industry is also expected to remain a key driver of economic growth, with the development of the energy sector and rising commodity prices driving export revenues," says Eugenia Ah-Hoy, Transport and Logistics Sector Manager at FNB Mozambique.

Whilst growth, challenges do exist across the economy. “The Mozambican economy has been affected by severe weather conditions over the past few years as cyclones have devasted different parts of the economy. Notwithstanding, the restrictions imposed during the pandemic further curtailed economic performance,” says Eugénia.

The monetary policy committee of Mozambique opted to hike interest rates by 200bp in March, a sign that the central bank is concerned about inflation. “Notably, the central bank targets single-digit inflation. This hike suggests that the central bank is convinced that inflation could edge over 10% in the short to medium term,” says Daniel Kavishe, RMB Africa economist.

So far, inflation has printed over 7.0% y/y in the first quarter, with food inflation having escalated. Moreover, petrol prices will put further pressure on overall inflation as well. While the government has reiterated that there are unlikely going to be any additional fuel price hikes, a view that could likely change given the volatility in international markets overall inflation is likely still expected to be high.
Broader challenges impacting global supply chain due to the war in Eastern Europe are a key risk to Mozambique’s economic inflation profile as CPI is expected to edge past 10% over the next few months.

In line with our view for IMF board approval to be obtained within the first half of this year, an Extended Credit Facility (ECF) to Mozambique was approved worth 340.8 million SDR (US$456m). According to the IMF board, “The three-year arrangement will help support the economic recovery and policies to reduce public debt and financing vulnerabilities, creating space for priority investments in human capital, climate adaptation and infrastructure.”