## GROWTH CHALLENGES AND POLICY PRIORITIES

## Source details

**Canonical URL:** [GROWTH CHALLENGES AND POLICY PRIORITIES](https://www.imf.org/-/media/files/publications/cr/2026/english/1mozea2026002-source-pdf.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/cr/2026/english/1mozea2026002-source-pdf.pdf.md)
- [Structured JSON version](/-/media/files/publications/cr/2026/english/1mozea2026002-source-pdf.pdf.json)

---

### A. Introduction
- After a decade and a half of robust growth averaging nearly 8 percent annually, Mozambique’s economy has experienced a sharp slowdown since 2016.
- The analysis examines growth performance, job creation, structural transformation and diversification, agricultural productivity, informality, physical infrastructure and human capital, credit to the private sector, governance, and a forward-looking reform agenda.

### B. Growth Performance — Key findings
- Real GDP growth:
  - 2000–2015: average of 7.9 percent per year.
  - 2016–2024: average annual growth of 2.9 percent.
- The 2016 hidden debt scandal (including about US$1.4 billion borrowing by two SOEs) brought external financing to a standstill and was a major shock.
- Deceleration was broad-based; services accounted for half of the decline.
- Population growth remained broadly similar across periods; per capita GDP growth stalled compared to the 5.2 percent annual pace during 2000–2015.
- Poverty rose from about 45 percent in 2014 to about two thirds of the population by the latest estimates.
- Growth decomposition: much weaker contributions from capital accumulation and total factor productivity since 2016.

### C. Job Creation — Demographics, needs, and risks
- Demographics:
  - Median age: about 17 years.
  - Fertility rates: roughly 5 children per woman.
  - Nearly 45 percent of the population is under the age of 15.
  - Population growth approaching 3 percent per year.
- Job needs:
  - IMF staff estimate Mozambique will need to create around 0.55 million new jobs annually by 2030 to employ new entrants.
- Employment-growth linkage:
  - Mozambique generated only one-fourth as many jobs per unit of per capita GDP growth as emerging markets outside Sub-Saharan Africa.
  - Within Sub-Saharan Africa, Mozambique’s job creation capacity is slightly above fragile and conflict-affected states and low-income countries, but below the regional average of one-third.
- Risk:
  - Large capital-intensive LNG projects offer limited employment opportunities, underscoring urgency for a job-rich growth model.

### D. Structural Transformation and Diversification
- Sectoral shifts since the 2000s:
  - Primary sector’s share declined.
  - Secondary sector expanded—driven by extractives rather than manufacturing.
- Agriculture’s share fell from about one-third of GDP in 2000 to one-quarter in 2024, offset by mining growth.
- Manufacturing has been contracting since the 2000s.
- Rising reliance on extractives and upcoming LNG projects raise concerns about inclusive job creation.

### E. Productivity in Agriculture
- Agriculture:
  - Accounts for roughly one-quarter of GDP.
  - Employs three quarters of the workforce.
- Land use:
  - Only about 12 percent of Mozambique’s land area is currently under cultivation (Bratley and Meyer-Cirkel 2025).
- Constraints for smallholders:
  - Limited access to inputs, finance, and irrigation; inadequate preparedness for climate shocks (UNU-WIDER 2025).
- Result:
  - Productivity levels well below comparable countries; targeted modernization and resilience-building interventions required.

### F. Informality
- Informal sector size and employment:
  - Informal sector estimated to be about one third of GDP (Medina and Schneider 2018).
  - Source of employment for about 95 percent of the workforce (ILO).
- Characteristics:
  - Most informal jobs are low-paying, insecure, and less productive.
  - Fewer than one-third of manufacturing firms operate fully formally.
  - Transition rates from informal to formal status remain low (Adom 2025).
- Opportunity:
  - Some informal jobs provide training, better wages, and relatively high productivity, acting as stepping stones to formal employment (Danquah et al. 2021).
- Policy implication:
  - Harness potential of informal sector while promoting gradual formalization.

### G. Physical Infrastructure and Human Capital — Fiscal context and constraints
- Human development:
  - Mozambique ranked 182nd out of 193 nations in the 2023 UNDP Human Development Index.
  - Weak education and health outcomes, limited access to electricity, significant gender disparities, and persistently high poverty rates.
- Fiscal constraints (2024):
  - Current expenditures: 26.4 percent of GDP.
  - Public wage bill: 14.4 percent of GDP.
  - Interest payments: 4.1 percent of GDP.
  - Domestically financed capital expenditures: 3.1 percent of GDP.
  - Social transfers to the most vulnerable fell from 0.7 percent of GDP in 2019 to 0.1 percent in 2024.
- Access to reliable electricity is a major impediment to firm growth according to survey data.
- Policy implication:
  - Reprioritize public spending toward infrastructure, education, health, and social protection to harness the demographic dividend.

### H. Credit to the Private Sector
- Credit dynamics:
  - Credit to the private sector expanded from 9 percent of GDP in 2001 to 32 percent in 2015.
  - Since 2016, total credit has stagnated.
  - Shift toward government borrowing has crowded out private sector lending.
- Impact:
  - Weakens the finance–growth nexus; many firms report limited access to credit as a major constraint.
- Policy implication:
  - Tackle fiscal dominance to encourage banks to finance the private sector.

### I. Governance — Key governance shortfalls
- Mozambique lags regional peers in corruption perceptions and governance indicators.
- Needs:
  - Decisive implementation of the anti-corruption framework.
  - Stronger accountability institutions.
  - Enhanced judicial integrity and independence.
  - Improved protection and enforcement of property rights and contracts.
- Survey evidence:
  - Improving governance is considered vital to unleashing growth potential for many firms in Mozambique.

### J. Way Forward — Core objective and cross-cutting reform priorities
- Core objective:
  - Turn the demographic wave into a dividend by adopting policies that support a broad-based, job-intensive, private sector-led growth model.
- Cross-cutting reform priorities implied by the analysis:
  - Promote economic diversification away from extractives and toward job-rich sectors.
  - Create an environment conducive to job-rich growth, including support for manufacturing and inclusive agricultural development.
  - Modernize agriculture, expand access to inputs, finance, and irrigation, and strengthen climate resilience.
  - Expand access to finance for the private sector by addressing fiscal crowding-out.
  - Strengthen governance, transparency, accountability, and rule of law to attract investment and improve resource management.
  - Reprioritize public spending to raise domestically financed capital expenditures and social transfers to support infrastructure, education, health, and social protection.

### Section 2 — Key priorities (concise)
- Facilitating economic diversification and structural transformation toward labor-intensive sectors such as agro-processing, tourism, and modern services;
- Boosting agricultural productivity through better inputs, mechanization, irrigation, finance, and infrastructure;
- Leveraging informality while incentivizing formalization and scaling youth skills programs;
- Tackling fiscal dominance and prioritizing growth-friendly spending on infrastructure, education, health, and social protection;
- Expanding access to finance via mobile banking, microfinance, and legal reforms ensuring the use of land as collateral; and
- Improving the business environment through institutional reforms, digitalization, and streamlined procedures.

*Prepared by Can Sever (AFR); based on information available as of January 28, 2026.*

### Section 1

### GROWTH CHALLENGES AND POLICY PRIORITIES

### A. Introduction
- After a decade and a half of robust growth averaging nearly 8 percent annually, Mozambique’s economy has experienced a sharp slowdown since 2016.
- The analysis examines growth performance, job creation, structural transformation and diversification, agricultural productivity, informality, physical infrastructure and human capital, credit to the private sector, governance, and a forward-looking reform agenda.

### B. Growth Performance
- Real GDP growth:
  - 2000–2015: average of 7.9 percent per year.
  - 2016–2024: average annual growth of 2.9 percent.
- The 2016 hidden debt scandal (including about US$1.4 billion borrowing by two SOEs) brought external financing to a standstill and was a major shock.
- Deceleration was broad-based; services accounted for half of the decline.
- Population growth remained broadly similar across periods; per capita GDP growth stalled compared to the 5.2 percent annual pace during 2000–2015.
- Poverty rose from about 45 percent in 2014 to about two thirds of the population by the latest estimates.
- Growth decomposition: much weaker contributions from capital accumulation and total factor productivity since 2016.

### C. Job Creation
- Demographics:
  - Median age: about 17 years.
  - Fertility rates: roughly 5 children per woman.
  - Nearly 45 percent of the population is under the age of 15.
  - Population growth approaching 3 percent per year.
- Job needs:
  - IMF staff estimate Mozambique will need to create around 0.55 million new jobs annually by 2030 to employ new entrants.
- Employment-growth linkage:
  - Mozambique generated only one-fourth as many jobs per unit of per capita GDP growth as emerging markets outside Sub-Saharan Africa.
  - Within Sub-Saharan Africa, Mozambique’s job creation capacity is slightly above fragile and conflict-affected states and low-income countries, but below the regional average of one-third.
- Risk: Large capital-intensive LNG projects offer limited employment opportunities, underscoring urgency for a job-rich growth model.

### D. Structural Transformation and Diversification
- Sectoral shifts since the 2000s:
  - Primary sector’s share declined.
  - Secondary sector expanded—driven by extractives rather than manufacturing.
- Agriculture’s share fell from about one-third of GDP in 2000 to one-quarter in 2024, offset by mining growth.
- Manufacturing has been contracting since the 2000s.
- Rising reliance on extractives and upcoming LNG projects raise concerns about inclusive job creation.

### E. Productivity in Agriculture
- Agriculture:
  - Accounts for roughly one-quarter of GDP.
  - Employs three quarters of the workforce.
- Land use: Only about 12 percent of Mozambique’s land area is currently under cultivation (Bratley and Meyer-Cirkel 2025).
- Constraints for smallholders: limited access to inputs, finance, and irrigation; inadequate preparedness for climate shocks (UNU-WIDER 2025).
- Result: Productivity levels well below comparable countries; targeted modernization and resilience-building interventions required.

### F. Informality
- Informal sector size and employment:
  - Informal sector estimated to be about one third of GDP (Medina and Schneider 2018).
  - Source of employment for about 95 percent of the workforce (ILO).
- Characteristics:
  - Most informal jobs are low-paying, insecure, and less productive.
  - Fewer than one-third of manufacturing firms operate fully formally.
  - Transition rates from informal to formal status remain low (Adom 2025).
- Opportunity: Some informal jobs provide training, better wages, and relatively high productivity, acting as stepping stones to formal employment (Danquah et al. 2021).
- Policy implication: Harness potential of informal sector while promoting gradual formalization.

### G. Physical Infrastructure and Human Capital
- Human development:
  - Mozambique ranked 182nd out of 193 nations in the 2023 UNDP Human Development Index.
  - Weak education and health outcomes, limited access to electricity, significant gender disparities, and persistently high poverty rates.
- Fiscal constraints (2024):
  - Current expenditures: 26.4 percent of GDP.
  - Public wage bill: 14.4 percent of GDP.
  - Interest payments: 4.1 percent of GDP.
  - Domestically financed capital expenditures: 3.1 percent of GDP.
  - Social transfers to the most vulnerable fell from 0.7 percent of GDP in 2019 to 0.1 percent in 2024.
- Access to reliable electricity is a major impediment to firm growth according to survey data.
- Policy implication: Reprioritize public spending toward infrastructure, education, health, and social protection to harness the demographic dividend.

### H. Credit to the Private Sector
- Credit dynamics:
  - Credit to the private sector expanded from 9 percent of GDP in 2001 to 32 percent in 2015.
  - Since 2016, total credit has stagnated.
  - Shift toward government borrowing has crowded out private sector lending.
- Impact: Weakens the finance–growth nexus; many firms report limited access to credit as a major constraint.
- Policy implication: Tackle fiscal dominance to encourage banks to finance the private sector.

### I. Governance
- Mozambique lags regional peers in corruption perceptions and governance indicators.
- Needs: decisive implementation of the anti-corruption framework, stronger accountability institutions, enhanced judicial integrity and independence, improved protection and enforcement of property rights and contracts.
- Survey evidence: Improving governance is considered vital to unleashing growth potential for many firms in Mozambique.

### J. Way Forward
- Core objective: Turn the demographic wave into a dividend by adopting policies that support a broad-based, job-intensive, private sector-led growth model.
- Cross-cutting reform priorities implied by the analysis:
  - Promote economic diversification away from extractives and toward job-rich sectors.
  - Create an environment conducive to job-rich growth, including support for manufacturing and inclusive agricultural development.
  - Modernize agriculture, expand access to inputs, finance, and irrigation, and strengthen climate resilience.
  - Expand access to finance for the private sector by addressing fiscal crowding-out.
  - Strengthen governance, transparency, accountability, and rule of law to attract investment and improve resource management.
  - Reprioritize public spending to raise domestically financed capital expenditures and social transfers to support infrastructure, education, health, and social protection.

*Prepared by Can Sever (AFR); based on information available as of January 28, 2026.*

### Section 2

### 1mozea2026002-source-pdf - Section 2

### Key priorities
- Facilitating economic diversification and structural transformation toward labor-intensive sectors such as agro-processing, tourism, and modern services;
- Boosting agricultural productivity through better inputs, mechanization, irrigation, finance, and infrastructure;
- Leveraging informality while incentivizing formalization and scaling youth skills programs;
- Tackling fiscal dominance and prioritizing growth-friendly spending on infrastructure, education, health, and social protection;
- Expanding access to finance via mobile banking, microfinance, and legal reforms ensuring the use of land as collateral; and
- Improving the business environment through institutional reforms, digitalization, and streamlined procedures.

*Source: 1mozea2026002-source-pdf - Section 2*

---


_Source: https://www.imf.org/-/media/files/publications/cr/2026/english/1mozea2026002-source-pdf.pdf_