Real GDP growth was an estimated 3.5% in 2018, a dramatic decline from the average of 7% during 2004– 15. The decline was due to decreased public investment and a 23% decrease in foreign direct investment in 2015–17.
The fiscal deficit was an estimated 6.7% of GDP in 2018, up from 5.5% in 2017. Since the discovery of hidden debt in 2016, Mozambique has been in default. Major donors suspended aid to the country, so it had to implement fiscal measures to gradually reduce public debt.
Following high inflation and a rapidly depreciating exchange rate during 2016–17, the Bank of Mozambique eased monetary policy, lowering the benchmark lending rate to 18% in August 2018. However, the decrease in inflation from 15.1% in 2017 to an estimated 4.6% in 2018 led to high real interest rates, resulting in a contraction in credit demand by the private sector.
The current account deficit increased slightly to an estimated 23.1% in 2018, from 20.4% in 2017, due mainly to an increased nonmegaproject trade deficit. (Megaprojects include the Mozal aluminum smelter, the Temane gas projects in Inhambane, and the Moma titanium ore and heavy sands project in Nampula.) Nonmegaproject goods imports—80% of total goods imports—grew by an estimated 24% in 2018. Rising prices for key imports such as fuel and food also underlie growing import spending. International reserves are expected to remain at around 7 months of non-megaproject imports in 2018–19.
Tailwinds and headwinds
Growth is projected to be 4.5% in 2019 and 5.0% in 2020, driven by agriculture, which is continuing to recover from the 2015–16 regional drought, and extractive industries, with coal exports continuing to expand. There are also bright prospects of increased foreign direct investment in gas-related megaprojects in the Rovuma Basin in 2019.
Mozambique is also addressing several of the African Development Bank’s High 5s. For “Feed Africa,” Mozambique’s National Development Strategy aims to increase employment by enhancing productivity and competitiveness in agribusiness and value chain development. For “Industrialize Africa,” the government has negotiated the development of an onshore $24 billion liquefied natural gas plant, permitting the creation of downstream value chains and the establishment of an industrial base for fertilizers, gas-to-liquids, and gas-to-power. For “Integrate Africa,” Mozambique’s growing contribution to the Southern Africa Power Pool could be enhanced with future gas and energy projects. And for “Improve the Quality of Life for the People of Africa,” the government will continue to focus on reducing malaria, HIV, and infant and maternal mortality and will increase education spending to 5.9% of GDP in 2018—more than other countries in the region.
Downside risks to Mozambique’s economic growth include rising prices for key imports such as fuel and food and economic difficulties in South Africa, Mozambique’s second largest export destination. Mozambique’s public debt is in distress. Failure to agree on restructuring debt and restoring investor confidence could deepen economic hardship and slow growth. High reliance on borrowing, largely domestic, has not only crowded out private investment but also led to debt distress. Key policy priorities could include an active debt management strategy to restore confidence and measures to stimulate economic growth and employment creation. Finally, Mozambique is prone to natural disasters, such as storms, floods, droughts, and earthquakes.
Guide to Buying Bonds
Procedure for market participation
Banks or licensed stockbrokers are able to seek authorization from the Central Bank to participate in the Treasury securities market.
The financial settlement of transactions undertaken by the Banco de Moçambique is done on the third business day (T +3 system), at 8 pm. This includes the crediting or debiting the accounts of stock exchange operators and other intermediaries and authorized intermediaries.
The withholding tax on government and corporate bonds for foreign investors is 20%.
Openness to international investors
Law on Investment, No 3/93, created in 1993 (amended in 1993 and in 1995) is the one that governs foreign and domestic investment. There is no restriction concerning foreign ownership or foreign control of companies. Foreign investors may invest in the local stock exchange market; restrictions apply only on repatriation of funds. Residents are also allowed to hold foreign currency accounts in the foreign currency.
Foreign capital and domestic capital are treated equally in most cases, but getting proposed new investments approved by the government can be time-consuming. Although much of the economy is open to foreign investment, certain sectors are subject to specific performance requirements. Bureaucracy can be burdensome, and the legal system is inefficient and antiquated. Regulations can be applied inconsistently, and the system is prone to corruption.
Restrictions on foreign exchange and profit repatriation
Exchange control regulations need prior approval for the externalization of funds affecting convertibility, other than trade transactions, which should be supported by a full set of supporting documentation. In 2008, the Mozambican parliament passed new foreign exchange legislation that ensured the liberalization of all current account transactions. This made it possible for locals to make payments abroad without having to obtain permission from the central bank. However, capital transfers restrictions are still in force are subject to authorization from the central bank. There is no tax on currency transactions and the bid/offer spread is permitted to reach maximum 2%.
The domestic currency (Metical - MZn) is not convertible, either internationally or regionally. The Banco de Moçambique provides the necessary foreign currency (USD) as part of its intervention strategy and when need be. It is important to note that the limited supply of FX reserves may result in difficulties and delays in obtaining hard currency to satisfy the repatriation of funds.
Profit repatriation is guaranteed by the same law that rules investment in Mozambique, the Law on Investment, No 3/93. Non-residents and travelers can import any amount of foreign currency against declaration. However, only foreign currency previously declared may be re-exported. Payments and transfers are subject to maximum amounts (US$ 5,000), above which they must be approved by the central bank.
On September 2013, Moody’s assigned B1 to Mozambique’s issuer default, with a stable outlook.
On July 2013, Fitch upgraded Mozambique foreign currency issuer default ratings to B+ (from B) and affirmed the local currency issuer default rating at B+. On August 2013, S&P maintained the rating on Mozambique local foreign currency debt at B.
List of Primary Dealers
The primary dealers authorised by the Banco de Moçambique are the following: