Outlook for 2011-12

• The ruling party, Frente de Libertação de Moçambique (Frelimo), will dominate politically in 2011-12. However, if the president, Armando Guebuza, tries to change the constitution to run for another term, the party could split.
• Bloody riots that erupted in September 2010 in the capital, Maputo, indicate that the biggest risk to social stability is rapid consumer price inflation, which global commodity price rises could stoke.
• The Economist Intelligence Unit forecasts a fiscal deficit equivalent to 6% of GDP in 2011, narrowing to 5% of GDP in 2012 as subsidies are unwound to take advantage of lower global commodity prices.
• Real GDP growth is expected to remain brisk in 2011-12, averaging 7.4% a year, on the back of increasing inflows of foreign aid and foreign direct investment into minerals and infrastructure mega-projects.
• In line with the latest outlook for global commodity prices and expected losses to local agricultural output resulting from flooding, inflation is forecast to average 7.5% in 2011, before easing to 5% in 2012.
• Given our recent upward revision to forecast global oil prices, we now expect the current-account deficit to widen to 15.7% of GDP in 2011 (12.8% previously), before narrowing to 12% of GDP in 2012 (9.6% previously).

Monthly review

• New legislation relating to state benefits for veterans of the civil war, which ended in 1994, has stirred up old grievances between Frelimo and the main opposition party, Resistência Nacional de Moçambique (Renamo).
• Renamo has boycotted a recent parliamentary session discussing constitutional reform. The party fears that Frelimo hopes to change the constitution to allow Mr Guebuza to stand for re-election.
• The government has announced that it is considering renegotiating extant contracts for the mega-projects, which are funded by foreign direct investment, to increase their contribution to the economy and public finances.
• The annual negotiations between the government, unions and employers have resulted in higher minimum wage rates in all sectors. However, in real terms, most rises are small and wage levels remain very low in general.
• Following the latest annual review of the government's and donors' performance, a total of US$689m in budgetary aid has been pledged for 2011.
• A Brazilian firm, Vale, has begun production at its coalmine in Moatize, Tete province. Coal exports are due to start by July this year. Vale initially plans to produce 1m tonnes of coal in 2011, rising to 11m tonnes by 2014.