Outlook for 2011-12

• The ruling party, Frente de Libertação de Moçambique (Frelimo), is set to remain hegemonic in 2011-12, but there is a risk of internal splits emerging as candidates to succeed Armando Guebuza as president in 2014 emerge.
• The risk of widespread social unrest, particularly in poor urban areas, cannot be discounted, particularly given the outlook for sharp rises in global food prices in 2011.
• Policy will be guided by the three-year policy support instrument with the IMF and the five-year strategy paper, Programa Quinquenal do Governo para 2010-14. Both target poverty reduction and economic diversification.
• The fiscal deficit in 2011 is forecast at the equivalent of 5% of GDP, falling to 4.4% of GDP in 2012 as subsidies are unwound. The deficit will be funded overwhelmingly by concessional loans from donors.
• 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.
• Owing to the lower growth estimate for 2010, the current-account deficit is forecast to narrow from 13.7% of GDP in 2010 (previously 11.9%) to 12.8% of GDP in 2011 and 9.6% of GDP in 2012 (previously 11.2% and 9% respectively).

Monthly review

• The government has announced plans to purchase another 222 buses to operate routes in the capital, Maputo, and has preliminarily agreed to build a train route linking Maputo with the suburb of Matola.
• The IMF has made a broadly positive assessment of Mozambique's economic policy performance following a mission to the country that concluded on April 7th, as part of the annual Article IV consultations.
• The government announced on March 29th that it would abolish the controversial subsides for fuel and wheat flour. It intends to replace these with more targeted-albeit still very costly-programmes.
• The government has said that it will push ahead with plans to redevelop a former military airbase at Nacala, in Nampula province, into an international airport, despite the apparent lack of tourist or business demand locally.
• Plans to build several new cement factories have been announced, which could triple national production of the commodity to meet soaring demand.