Global Financial Crisis Discussion Series. Paper 18: Mozambique Phase 2

Abstract

This paper assesses the impact to date of the global crisis in Mozambique by exploring the main transmission channels, namely, external trade, remittances and inflows of private and official capital, and further analysing subsequent impacts on several fiscal and monetary aspects, external balances, sector performance, investment and employment. The paper provides a critical analysis of the anti-crisis measures that the country has been taking and their potential impacts on the country’s growth prospects.

The growth rate in Mozambique fell from 6.8% in 2008 to an estimated 6.5% in 2009 (according to the government of Mozambique (GoM)), lower than the 7% growth rate projected for 2009 before the crisis.3

Given high inflows of aid and private capital, and weak linkages between private foreign investment and the economy as a whole, the negative impacts of the crisis have been transmitted to the economy mainly through external trade. Exports have suffered as a result of a high concentration on aluminium and on other primary commodities, such as seafood and cashew nuts, with high income and price elasticities of demand, and on commodities such as cane sugar and cotton fibre, which face high rates of substitution and imperfect markets (preferential markets, subsidised prices and so on). As a result of price and/or demand reduction, it is estimated that export values have decreased by one-fourth.

This paper also finds that the resilience of the economy to the crisis comes from its main structural weaknesses. Given that the policies adopted by the GoM to deal with the crisis and those projected for 2010 do not address these structural problems, the paper concludes by agreeing with the IMF (2009) statement that, while Mozambique has weathered the global crisis relatively well, it will also benefit less from the global recovery.

Citation

Castel-Branco, C. and Ossemane, R. Global Financial Crisis Discussion Series. Paper 18: Mozambique Phase 2. ODI, London, UK (2010) 27 pp.

Global Financial Crisis Discussion Series. Paper 18: Mozambique Phase 2

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