Mozambique - Second Institutions and Economic Transformation Development Policy Financing Project

Overview & Synopsis

Ratings of the Mozambique Second Institutions and Economic Transformation DPF for Mozambique were as follows: overall outcome was moderately satisfactory; relevance of prior actions was satisfactory; achievement of objectives (efficacy) was moderately satisfactory; Bank performance was satisfactory. Clear reform ownership and coordination are essential for cross-cutting measures; reforms progressed where a lead institution or senior champion was empowered, but lagged when responsibilities were fragmented, suggesting future operations should designate a clear lead agency, establish explicit coordination arrangements, and assign accountability for delivery. Reform ambition must align with institutional capacity, political commitment, and the most binding constraints; a broad agenda diluted impact and omitted urgent macro-fiscal pressures such as the wage bill, indicating that future DPFs, especially in fragility, conflict, and violence contexts, should be more selective, prioritize politically feasible actions targeted to binding constraints, and match them to implementation capacity with strong analytical underpinnings and complementary instruments. Politically difficult fiscal reforms should be frontloaded and paired with sustained technical assistance to reduce reversal risks; delaying high-impact actions on pensions and fiscal discipline exposed the program to electoral cycles and policy reversals, underscoring the need to sequence early, high-leverage measures with continuous technical support and close donor coordination to sustain outcomes. Recommendations for the next phase include maintaining engagement under a credible macroeconomic framework, frontloading sensitive fiscal measures while reinforcing safeguards, and strengthening implementation capacity. Priority reforms should focus on restoring fiscal sustainability and resilience by containing the wage bill, improving pension sustainability, and reinforcing fiscal rules; advancing private sector–led structural transformation in sectors such as agribusiness, tourism, and energy; and enhancing human capital and skills to enable inclusive participation in emerging sectors. Implementing cost-reflective electricity tariffs with affordability provisions and completing the regulatory cycle will be critical, alongside sustained application of the new water lease model and tariff principles to preserve service sustainability. Operationalizing climate-smart public investment management and the updated forest governance framework should continue to embed resilience and attract climate finance. Preserving the rules-based management of resource revenues through the Sovereign Wealth Fund and linking allocations to fiscal rules will help buffer shocks. Strengthening data and monitoring systems, particularly for procurement efficiency and climate-smart investment tracking, will improve results measurement and reinforce accountability. High-level political commitment and coordinated support across government and partners will be necessary to sustain and deepen the reforms.