World Bank approves US$300m grant to promote sustainable economic growth in Mozambique

The operation supports the authorities in their reform efforts to promote sustainable and inclusive economic growth.

The World Bank Board of Directors approved today a US$300 million grant in support of the Mozambique Institutions and Economic Transformation Development Policy Financing (DPF) operation. This is the first in a series of three programmatic operations and supports a robust set of reforms aimed at strengthening institutions and laying the foundations for a sustained growth and economic transformation.

"This operation supports the country's recovery from COVID-19 and structural reforms to foster sustained growth while providing much-needed financing to alleviate recent fiscal constraints," noted Idah Z. Pswarayi-Riddihough, World Bank Country Director for Mozambique, Madagascar, Comoros, Mauritius, and Seychelles. "This operation couldn't come at a better moment as Mozambique's economy is still reeling from the compounded effects of COVID-19, the protracted slowdown triggered by the hidden debt crisis, and the devastation caused by the tropical cyclones of 2019."

The operation supports the authorities in their reform efforts to promote sustainable and inclusive economic growth. The reforms supported by this DPF are organized around three pillars:

The first pillar supports structural reforms to strengthen budgetary institutions and transparency. It consists of two prior actions: enhancing the regulatory and institutional framework for sound and transparent resource revenue management; and improving public procurement governance and transparency. Together, these measures will address critical transparency and institutional weaknesses that undermine the governance and management of limited public resources. Transparency measures under this pillar include enshrining into law recent steps made to increase transparency such as the publication of fiscal risk statements and debt reports covering Liquified Natural Gas (LNG) and State-Owned Enterprises related debt, to name a few.

The second pillar addresses business environment and financial access constraints to support private sector development. It comprises two prior actions: simplification of the legal and regulatory requirements to open and operate businesses, improving the investment climate and incentivizing firm development and job creation; and lifting of legal and regulatory restrictions to promote financial access. More specifically, this pillar includes a review of the 1993 Investment Law and the 2005 Commercial Code, which could result in further simplification and digitalization of procedures, expected to accelerate approval processes. The DPF also supports legal amendments to simplify identification requirements for people with low income and low financial risks who wish to open a bank account. The reforms are expected to expand access to financial services, particularly for low-risk micro, small and medium enterprises, and for women, while maintaining a clear and sound framework to guard against illicit activity.

The third and final pillar builds on Mozambique's climate change commitments to support a more resilient and greener growth path, addressing utility sector constraints that limit Mozambique's productive potential. It features three prior actions: reforms that strengthen Public Investment Management (PIM) systems by introducing a climate-smart PIM framework, fostering greener and more resilient investments; introducing measures to support the development of a tariff methodology and new tariff structure to enhance the financial sustainability of the public utility and reduce uncertainties for private investors; and enhancing financial sustainability and service delivery and resilience in the water sector.

"The DPF leverages and complements ongoing and planned World Bank Group (WBG) funded projects and operations in Mozambique, including the Prevention and Resilience Allocation (PRA), which seeks to help Mozambique address the drivers of conflict across the country. All prior actions and triggers are anchored in the World Bank's ongoing technical assistance, and knowledge, including the findings of the recently published Country Economic Memorandum," added Fiseha Haile, the World Bank Senior Economist and the operation's task team leader.

This operation is in line with the overall WBG Country Partnership Framework with Mozambique and is closely in sync with the government of Mozambique's five-year development plan and National Development Strategy (2022-2032). It specifically supports three elements of the plan: (i) governance and inclusion; (ii) greater private sector participation to improve job creation and productivity; and (iii) sustainable management of natural resources and the environment.

The World Bank Board of Directors approved today a US$300 million grant in support of the Mozambique Institutions and Economic Transformation Development Policy Financing (DPF) operation. This is the first in a series of three programmatic operations and supports a robust set of reforms aimed at strengthening institutions and laying the foundations for a sustained growth and economic transformation.

"This operation supports the country's recovery from COVID-19 and structural reforms to foster sustained growth, while providing much-needed financing to alleviate recent fiscal constraints," noted Idah Z. Pswarayi-Riddihough, World Bank Country Director for Mozambique, Madagascar, Comoros, Mauritius, and Seychelles. "This operation couldn't come at a better moment as Mozambique's economy is still reeling from the compounded effects of COVID-19, the protracted slowdown triggered by the hidden debt crisis, and the devastation caused by the tropical cyclones of 2019."

The operation supports the authorities in their reform efforts to promote sustainable and inclusive economic growth. The reforms supported by this DPF are organized around three pillars:

The first pillar supports structural reforms to strengthen budgetary institutions and transparency. It consists of two prior actions: enhancing the regulatory and institutional framework for sound and transparent resource revenue management; and improving public procurement governance and transparency. Together, these measures will address critical transparency and institutional weaknesses that undermine the governance and management of limited public resources. Transparency measures under this pillar include enshrining into law recent steps made to increase transparency such as the publication of fiscal risk statements and debt reports covering Liquified Natural Gas (LNG) and State-Owned Enterprises related debt, to name a few.

The second pillar addresses business environment and financial access constraints to support private sector development. It comprises two prior actions: simplification of the legal and regulatory requirements to open and operate businesses, improving the investment climate and incentivizing firm development and job creation; and lifting of legal and regulatory restrictions to promote financial access. More specifically, this pillar includes a review of the 1993 Investment Law and the 2005 Commercial Code, which could result in further simplification and digitalization of procedures, expected to accelerate approval processes. The DPF also supports legal amendments to simplify identification requirements for people with low income and low financial risks who wish to open a bank account. The reforms are expected to expand access to financial services, particularly for low-risk micro, small and medium enterprises, and for women, while maintaining a clear and sound framework to guard against illicit activity.

The third and final pillar builds on Mozambique's climate change commitments to support a more resilient and greener growth path, addressing utility sector constraints that limit Mozambique's productive potential. It features three prior actions: reforms that strengthen Public Investment Management (PIM) systems by introducing a climate-smart PIM framework, fostering greener and more resilient investments; introducing measures to support the development of a tariff methodology and new tariff structure to enhance the financial sustainability of the public utility and reduce uncertainties for private investors; and enhancing financial sustainability and service delivery and resilience in the water sector.

"The DPF leverages and complements ongoing and planned World Bank Group (WBG) funded projects and operations in Mozambique, including the Prevention and Resilience Allocation (PRA), which seeks to help Mozambique address the drivers of conflict across the country. All prior actions and triggers are anchored in the World Bank's ongoing technical assistance, and knowledge, including the findings of the recently published Country Economic Memorandum," added Fiseha Haile, the World Bank Senior Economist and the operation's task team leader.

This operation is in line with the overall WBG Country Partnership Framework with Mozambique and is closely in sync with the government of Mozambique's five-year development plan and National Development Strategy (2022-2032). It specifically supports three elements of the plan: (i) governance and inclusion; (ii) greater private sector participation to improve job creation and productivity; and (iii) sustainable management of natural resources and the environment.