Mozambique’s Soaring Deficit in 2024 Highlights External Strain Amid FDI Boom in Extractives

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Mozambique’s external sector came under heightened pressure in 2024, with the combined current and capital account deficit widening to USD 2.23 billion, equivalent to 10.1% of GDP, according to the Bank of Mozambique’s Annual Balance of Payments Bulletin 2024. This marks a 26.4% year-on-year increase, emphasising growing imbalances in the country’s external accounts.

The main contributor was a deeper current account deficit, which rose to USD 2.49 billion, up 13.2% from the previous year. The Bank attributes this trend to both structural weaknesses and external pressures. A 37% spike in the primary income deficit, driven by higher dividend repatriations and interest payments on foreign debt, was a key factor. At the same time, the services account deficit grew by 11%, reflecting Mozambique’s continued dependence on foreign expertise in areas like logistics, finance, and consultancy. Meanwhile, current transfers—largely remittances and aid—fell by 18.3%, eroding a traditional cushion for household spending and public finances.

Despite these challenges, the bulletin noted a significant upside: foreign direct investment (FDI) surged to USD 3.55 billion in 2024, up 41.6% from the previous year. Around 87.2% of these inflows targeted the extractive industries, especially natural gas and mineral projects, with South Africa, the Netherlands, Mauritius, and Italy leading investment sources.

Thanks to this investment surge, the overall balance of payments remained positive, registering a surplus of USD 211 million. This helped raise gross international reserves to USD 3.8 billion—enough to cover 5.2 months of imports, excluding major projects—a level seen as adequate by international benchmarks.

However, Mozambique’s net international investment position (NIIP) continued to worsen. Net external liabilities rose by 2.61% to USD 71.3 billion, suggesting that foreign obligations are growing faster than the country’s external assets. The Bank warned that persistent NIIP deterioration could heighten Mozambique’s exposure to refinancing risks and global market volatility.

While rising FDI points to investor confidence in the nation’s natural resource potential, the heavy concentration in extractives increases Mozambique’s vulnerability to commodity price swings. Analysts argue that diversifying investment into other sectors and strengthening export capacity are critical to achieving long-term external stability.

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Going forward, Mozambique’s economic resilience will depend on how well it converts investment into inclusive growth. Policy priorities include boosting domestic production, enhancing institutional capacity, and promoting export-driven industrial development to reduce structural vulnerabilities and ensure a more sustainable external position.