## sipea2026014 — Growth Challenges and Policy Priorities in Mozambique

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---

### Introduction
- Mozambique experienced a sharp slowdown after a decade and a half of robust growth averaging nearly 8 percent annually prior to 2016.
- The paper examines underlying factors behind the post-2016 shift and outlines policy priorities to restore inclusive, sustainable growth.

### Growth Performance
- Key historical growth figures:
  - Real GDP growth averaged 7.9 percent per year between 2000 and 2015.
  - Average annual growth plunged to 2.9 percent during 2016-2024.
  - Per capita GDP growth was 5.2 percent annually during 2000-2015.
- Poverty and composition:
  - Poverty now affects about two thirds of the population, compared to about 45 percent in 2014.
- Drivers of the slowdown:
  - The deceleration was broad-based, with services accounting for half of the decline.
  - Growth decomposition indicates weaker contributions from capital accumulation and total factor productivity since 2016.
- Relevant shock:
  - In 2016, previously undisclosed debt that included borrowing of about US$1.4 billion by two SOEs (Proindicus and MAM) came to light, which brought external financing to a standstill.

### Job Creation
- Demographics and labor market pressure:
  - Median age is about 17 years.
  - Fertility rates remain high at 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-creation needs and gaps:
  - IMF staff estimate Mozambique will need to create around 0.55 million new jobs annually by 2030 to employ new entrants to the workforce.
  - 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.
- Structural constraint:
  - Large capital-intensive LNG projects on the horizon offer limited employment opportunities, reinforcing the urgency for a job-rich growth model.

### Structural Transformation and Diversification
- Sectoral shifts:
  - The primary sector’s share declined since 2000 while the secondary sector expanded.
  - Expansion of the secondary sector was driven by extractives rather than manufacturing.
  - Agriculture’s contribution fell from about one-third of GDP in 2000 to one-quarter in 2024.
  - Manufacturing has been contracting since the 2000s.
- Policy implication:
  - Rising reliance on extractives and upcoming LNG projects raise concerns about job creation and inclusive growth.

### Productivity in Agriculture
- Agriculture’s economic importance:
  - Agriculture accounts for roughly one-quarter of GDP and three quarters of the workforce.
- Key structural constraints:
  - Only about 12 percent of Mozambique’s land area is currently under cultivation (Bratley and Meyer-Cirkel 2025).
  - Farming is dominated by smallholders with limited access to inputs, finance, and irrigation and inadequate preparedness for climate shocks (UNU-WIDER 2025).
- Outcome:
  - Productivity levels in agriculture remain well below those of comparable countries.
- Policy implication:
  - Unlocking the sector’s potential requires modernization of farming practices, expanded access to resources, and enhanced resilience to environmental risks.

### Informality
- Size and employment role:
  - The informal sector is estimated at about one third of GDP (Medina and Schneider 2018).
  - Informality is the source of employment for about 95 percent of the workforce (ILO).
- Characteristics and dynamics:
  - Most informal jobs are low-paying, insecure, and less productive than formal employment.
  - Fewer than one-third of manufacturing firms operate fully formally.
  - Transition rates from informal to formal status remain low (Adom 2025).
  - Some informal jobs provide training, better wages, and relatively high productivity, serving as stepping stones to formal employment (Danquah et al. 2021).
- Policy implication:
  - Harnessing potential in the informal sector while promoting gradual formalization is essential for inclusive growth.

### Physical Infrastructure and Human Capital
- Human development indicators:
  - Mozambique ranked 182nd out of 193 nations in the 2023 UNDP Human Development Index.
  - Indicators reflect weak education and health outcomes, limited access to electricity, significant gender disparities, and persistently high poverty rates.
- Specific constraints:
  - Access to reliable electricity acts as a major impediment to firm growth.
  - Adolescent fertility remains high.
- Fiscal constraints on investment:
  - In 2024, current expenditures reached 26.4 percent of GDP.
    - Public wage bill accounted for 14.4 percent of GDP.
    - Interest payments accounted for 4.1 percent of GDP.
  - Domestically financed capital expenditures remained at just 3.1 percent of GDP.
  - Social transfers to the most vulnerable fell from 0.7 percent of GDP in 2019 to 0.1 percent of GDP in 2024.
- Policy implication:
  - Reprioritizing public spending toward infrastructure, education, health, and social protection is needed to foster inclusive growth.

### Credit to the Private Sector
- Financial development history:
  - Credit to the private sector expanded from 9 percent of GDP in 2001 to 32 percent in 2015, supporting growth during 2000–2015.
- Post-2016 dynamics:
  - Since 2016 total credit has stagnated, with a sharp shift toward government borrowing and away from the private sector.
  - The crowding-out effect undermines the finance–growth nexus and highlights the need to tackle fiscal dominance.
- Firms’ access to finance:
  - Many firms report limited access to credit as a major constraint to their operations.
- Visual highlights (Figure 7 summary):
  - Credit expansion has stalled since 2016.
  - Credit to the government crowded out lending to the private sector.

### Governance
- Governance, transparency, accountability, and strengthening the rule of law are critical to fostering a predictable business environment, attracting investment, and creating jobs.
- Mozambique lags regional peers in corruption and governance indicators.
- Private sector growth and sustainable resource management are only possible with:
  - strong commitments and continued efforts toward decisive implementation of the anti-corruption framework;
  - stronger accountability institutions;
  - enhanced judicial integrity and independence; and
  - improved protection and enforcement of property rights and contracts.
- Survey data from different years showed that improving governance is considered to be vital to unleashing the growth potential for many firms in Mozambique.
- Visual highlights (Figure 8 summary):
  - Mozambique lags regional peers in corruption perceptions.
  - Mozambique also lags regional peers in governance indicators.
  - Note: Corruption perceptions index scale 0-100, 100=lowest level of perceived corruption.
  - Note: On the right-hand side, percentile rank (0 -100) indicates the global rank of country, 100=highest rank.

### Way Forward — Key Priorities to Turn Demographic Wave into a Dividend
- Facilitate economic diversification and structural transformation toward labor-intensive sectors such as agro-processing, tourism, and modern services.
- Boost agricultural productivity through better inputs, mechanization, irrigation, finance, and infrastructure.
- Leverage informality while incentivizing formalization and scaling youth skills programs.
- Tackle fiscal dominance and prioritize growth-friendly spending on infrastructure, education, health, and social protection.
- Expand access to finance via mobile banking, microfinance, and legal reforms ensuring the use of land as collateral.
- Improve the business environment through institutional reforms, digitalization, and streamlined procedures.

*Prepared by Can Sever; IMF Selected Issues Paper (SIP/2026/014), completed January 28, 2026.*

### Section 1

### Growth Challenges and Policy Priorities in Mozambique

### A. Introduction
- Mozambique experienced a sharp slowdown after a decade and a half of robust growth averaging nearly 8 percent annually prior to 2016.
- The paper examines underlying factors behind the post-2016 shift and outlines policy priorities to restore inclusive, sustainable growth.

### B. Growth Performance
- Key historical growth figures:
  - Real GDP growth averaged 7.9 percent per year between 2000 and 2015.
  - Average annual growth plunged to 2.9 percent during 2016-2024.
  - Per capita GDP growth was 5.2 percent annually during 2000-2015.
- Poverty and composition:
  - Poverty now affects about two thirds of the population, compared to about 45 percent in 2014.
- Drivers of the slowdown:
  - The deceleration was broad-based, with services accounting for half of the decline.
  - Growth decomposition indicates weaker contributions from capital accumulation and total factor productivity since 2016.
- Relevant shock:
  - In 2016, previously undisclosed debt that included borrowing of about US$1.4 billion by two SOEs (Proindicus and MAM) came to light, which brought external financing to a standstill.

### C. Job Creation
- Demographics and labor market pressure:
  - Median age is about 17 years.
  - Fertility rates remain high at 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-creation needs and gaps:
  - IMF staff estimate Mozambique will need to create around 0.55 million new jobs annually by 2030 to employ new entrants to the workforce.
  - 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.
- Structural constraint:
  - Large capital-intensive LNG projects on the horizon offer limited employment opportunities, reinforcing the urgency for a job-rich growth model.

### D. Structural Transformation and Diversification
- Sectoral shifts:
  - The primary sector’s share declined since 2000 while the secondary sector expanded.
  - Expansion of the secondary sector was driven by extractives rather than manufacturing.
  - Agriculture’s contribution fell from about one-third of GDP in 2000 to one-quarter in 2024.
  - Manufacturing has been contracting since the 2000s.
- Policy implication:
  - Rising reliance on extractives and upcoming LNG projects raise concerns about job creation and inclusive growth.

### E. Productivity in Agriculture
- Agriculture’s economic importance:
  - Agriculture accounts for roughly one-quarter of GDP and three quarters of the workforce.
- Key structural constraints:
  - Only about 12 percent of Mozambique’s land area is currently under cultivation (Bratley and Meyer-Cirkel 2025).
  - Farming is dominated by smallholders with limited access to inputs, finance, and irrigation and inadequate preparedness for climate shocks (UNU-WIDER 2025).
- Outcome:
  - Productivity levels in agriculture remain well below those of comparable countries.
- Policy implication:
  - Unlocking the sector’s potential requires modernization of farming practices, expanded access to resources, and enhanced resilience to environmental risks.

### F. Informality
- Size and employment role:
  - The informal sector is estimated at about one third of GDP (Medina and Schneider 2018).
  - Informality is the source of employment for about 95 percent of the workforce (ILO).
- Characteristics and dynamics:
  - Most informal jobs are low-paying, insecure, and less productive than formal employment.
  - Fewer than one-third of manufacturing firms operate fully formally.
  - Transition rates from informal to formal status remain low (Adom 2025).
  - Some informal jobs provide training, better wages, and relatively high productivity, serving as stepping stones to formal employment (Danquah et al. 2021).
- Policy implication:
  - Harnessing potential in the informal sector while promoting gradual formalization is essential for inclusive growth.

### G. Physical Infrastructure and Human Capital
- Human development indicators:
  - Mozambique ranked 182nd out of 193 nations in the 2023 UNDP Human Development Index.
  - Indicators reflect weak education and health outcomes, limited access to electricity, significant gender disparities, and persistently high poverty rates.
- Specific constraints:
  - Access to reliable electricity acts as a major impediment to firm growth.
  - Adolescent fertility remains high.
- Fiscal constraints on investment:
  - In 2024, current expenditures reached 26.4 percent of GDP.
    - Public wage bill accounted for 14.4 percent of GDP.
    - Interest payments accounted for 4.1 percent of GDP.
  - Domestically financed capital expenditures remained at just 3.1 percent of GDP.
  - Social transfers to the most vulnerable fell from 0.7 percent of GDP in 2019 to 0.1 percent of GDP in 2024.
- Policy implication:
  - Reprioritizing public spending toward infrastructure, education, health, and social protection is needed to foster inclusive growth.

### H. Credit to the Private Sector
- Financial development history:
  - Credit to the private sector expanded from 9 percent of GDP in 2001 to 32 percent in 2015, supporting growth during 2000–2015.
- Post-2016 dynamics:
  - Since 2016 total credit has stagnated, with a sharp shift toward government borrowing and away from the private sector.
  - The crowding-out effect undermines the finance–growth nexus and highlights the need to tackle fiscal dominance.
- Firms’ access to finance:
  - Many firms report limited access to credit as a major constraint to their operations.

### I. Governance
- (Content for this subsection begins at paragraph 12 in the source and continues beyond the provided excerpt; governance weaknesses and their impacts are identified as a theme to be evaluated.)

### J. Way Forward
- (Section J in the source presents a forward-looking agenda outlining cross-cutting reforms to promote economic diversification, job-rich growth, and institutional strengthening; detailed policy priorities appear in the sections above and in Section J of the full paper.)

*Prepared by Can Sever; IMF Selected Issues Paper (SIP/2026/014), completed January 28, 2026.*

### Section 2

### sipea2026014 - Section 2

### Governance, Transparency, Accountability, and Rule of Law
- Governance, transparency, accountability, and strengthening the rule of law are critical to fostering a predictable business environment, attracting investment, and creating jobs.
- Mozambique lags regional peers in corruption and governance indicators.
- Private sector growth and sustainable resource management are only possible with:
  - strong commitments and continued efforts toward decisive implementation of the anti-corruption framework;
  - stronger accountability institutions;
  - enhanced judicial integrity and independence; and
  - improved protection and enforcement of property rights and contracts.
- Survey data from different years showed that improving governance is considered to be vital to unleashing the growth potential for many firms in Mozambique.

### Credit to the Private Sector (Figure 7)
- Credit expansion has stalled since 2016.
- Credit to the government crowded out lending to the private sector.
- Sources cited: IFS; and IMF staff calculations.

### Corruption Perceptions and Governance Indicators (Figure 8)
- Mozambique lags regional peers in corruption perceptions.
- Mozambique also lags regional peers in governance indicators.
- Note: Corruption perceptions index scale 0-100, 100=lowest level of perceived corruption.
- Note: On the right-hand side, percentile rank (0 -100) indicates the global rank of country, 100=highest rank.
- These indicators are derived from perception-based data, estimates are subject to uncertainty, and should be considered carefully.
- Sources cited: Transparency International; World Governance Indicators; and IMF staff calculations.

### J. Way Forward — Key Priorities to Turn Demographic Wave into a Dividend
- Facilitate economic diversification and structural transformation toward labor-intensive sectors such as agro-processing, tourism, and modern services.
- Boost agricultural productivity through better inputs, mechanization, irrigation, finance, and infrastructure.
- Leverage informality while incentivizing formalization and scaling youth skills programs.
- Tackle fiscal dominance and prioritize growth-friendly spending on infrastructure, education, health, and social protection.
- Expand access to finance via mobile banking, microfinance, and legal reforms ensuring the use of land as collateral.
- Improve the business environment through institutional reforms, digitalization, and streamlined procedures.

*Source: sipea2026014 - Section 2*

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_Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2026/english/sipea2026014.pdf_