Malawi vs. Mozambique

Landlocked Malawi ranks among the world's least developed countries. The country's economic performance has historically been constrained by policy inconsistency, macroeconomic instability, poor infrastructure, rampant corruption, high population growth, and poor health and education outcomes that limit labor productivity. The economy is predominately agricultural with about 80% of the population living in rural areas. Agriculture accounts for about one-third of GDP and 80% of export revenues. The performance of the tobacco sector is key to short-term growth as tobacco accounts for more than half of exports, although Malawi is looking to diversify away from tobacco to other cash crops.

The economy depends on substantial inflows of economic assistance from the IMF, the World Bank, and individual donor nations. Donors halted direct budget support from 2013 to 2016 because of concerns about corruption and fiscal carelessness, but the World Bank resumed budget support in May 2017. In 2006, Malawi was approved for relief under the Heavily Indebted Poor Countries (HIPC) program but recent increases in domestic borrowing mean that debt servicing in 2016 exceeded the levels prior to HIPC debt relief.

Heavily dependent on rain-fed agriculture, with corn being the staple crop, Malawi's economy was hit hard by the El Nino-driven drought in 2015 and 2016, and now faces threat from the fall armyworm. The drought also slowed economic activity, led to two consecutive years of declining economic growth, and contributed to high inflation rates. Depressed food prices over 2017 led to a significant drop in inflation (from an average of 21.7% in 2016 to 12.3% in 2017), with a similar drop in interest rates.

At independence in 1975, Mozambique was one of the world's poorest countries. Socialist policies, economic mismanagement, and a brutal civil war from 1977 to 1992 further impoverished the country. In 1987, the government embarked on a series of macroeconomic reforms designed to stabilize the economy. These steps, combined with donor assistance and with political stability since the multi-party elections in 1994, propelled the country's GDP, in purchasing power parity terms, from $4 billion in 1993 to about $37 billion in 2017. Fiscal reforms, including the introduction of a value-added tax and reform of the customs service, have improved the government's revenue collection abilities. In spite of these gains, about half the population remains below the poverty line and subsistence agriculture continues to employ the vast majority of the country's work force.

Mozambique's once substantial foreign debt was reduced through forgiveness and rescheduling under the IMF's Heavily Indebted Poor Countries (HIPC) and Enhanced HIPC initiatives. However, in 2016, information surfaced revealing that the Mozambican Government was responsible for over $2 billion in government-backed loans secured between 2012-14 by state-owned defense and security companies without parliamentary approval or national budget inclusion; this prompted the IMF and international donors to halt direct budget support to the Government of Mozambique. An international audit was performed on Mozambique's debt in 2016-17, but debt restructuring and resumption of donor support have yet to occur.

Mozambique grew at an average annual rate of 6%-8% in the decade leading up to 2015, one of Africa's strongest performances, but the sizable external debt burden, donor withdrawal, elevated inflation, and currency depreciation contributed to slower growth in 2016-17.

Two major International consortiums, led by American companies ExxonMobil and Anadarko, are seeking approval to develop massive natural gas deposits off the coast of Cabo Delgado province, in what has the potential to become the largest infrastructure project in Africa. . The government predicts sales of liquefied natural gas from these projects could generate several billion dollars in revenues annually sometime after 2022.