The World Bank provides a variety of financial products, technical advice, and analysis to address development challenges, helping countries find solutions to achieve sustainable and inclusive development. As one of the world’s largest sources of funding and knowledge for developing countries, the World Bank Group’s (WBG) five institutions share a commitment to reducing poverty, increasing shared prosperity, and promoting sustainable development.
Mozambique has access to a suite of financial instruments from the World Bank Group[1]. The choice of financial instruments depends on the country’s needs and the specific development challenge to be addressed. The financial instruments (complemented by non-lending[2] activities) are subject to periodic reviews in view of their improvement based on lessons learned across several borrowing countries.
There are essentially three categories of financial products used in Mozambique, and across most of IDA recipient countries in Sub Saharan Africa, as follows:
1. Investment Lending, also known as Investment Project Financing (IPF) provides financing to governments for activities that create the physical and social infrastructure necessary to reduce poverty and create sustainable development. The bulk of IDA funding to Mozambique comes in the form of IPF, representing approximately 90% of the $5.1 billion of World Bank committed funds to the country as of September 2022.
IPF is used in all sectors, notably in infrastructure (water, energy, road), human development, agriculture, and public administration sectors. IPF focuses on the medium to long-term (5-to-10-year horizon) and supports a wide range of activities including capital-intensive investments, agricultural development, service delivery, credit and grant delivery [including micro-credit], community-based development, and institution building.
World Bank IPF not only supplies borrowing countries with low-cost and much-needed financing but also serves as vehicle for a more sustained global knowledge transfer and technical assistance to developing countries. This includes support to analytical and design work in the conceptual stages of project preparation, technical support and expertise (including in the areas of project management and fiduciary and environmental and social activities) during implementation, and institution building throughout the project implementation.
1.1. Multiphase Programmatic Approach (MPA) financing allows countries to structure a long, large, or complex engagement as a set of smaller linked operations (or phases), under one program. Mozambique benefits from one MPA operation. The current MPA for Mozambique unlocks an indicative financing envelope of $850 million in support of the country’s road sector. The Mozambique’s MPA has an expected duration of ten years. As part of its deployment, the Bank approved in August 2022 $400 million to finance the design and rehabilitation of safer and more climate resilient roads in Mozambique. A total of 508 kilometers of selected priority road sections will benefit from rehabilitationand include the following locations: Metoro – Pemba (94 kilometers) in the Cabo Delgado province; Gorongosa – Caia Lot 1 (0-84 kilometers), Gorongosa – Caia Lot 2 (84-168 kilometers), and Inchope – Gorongosa (70 kilometers) in the Sofala province; and Chimuara – Nicoadala Lot 1 (0-88 kilometers) and Chimuara – Nicoadala Lot 2 (88-176 kilometers) in the Zambezia province. Other activities funded by the project will help promote community engagement and women’s empowerment; improve road safety management, institutional development, and project management; and develop a contingent emergency response.
The MPA approach encourages learning and adaptation to better match borrowing more closely with financing needs, allowing more efficient use of financial resources for both the Bank and clients, and allowing projects to respond to changing country circumstances. This “adaptive approach” also strengthens the potential for crowding in other sources of capital to support development objectives.
2. Development Policy Financing (DPF) provides budget support to governments for policy and institutional reforms through non-earmarked general budget financing that is subject to the borrower's own implementation processes and systems. The Bank's use of DPF in a country is determined in the context of its Country Engagement. The DPF Policy emphasizes country ownership and alignment, stakeholder consultation, donor coordination, and results.
The World Bank has resumed regular budget support operations with the August 2022 approval of the first installment ($300 million) of a three-year programmatic DPF. The operation will support Mozambique’s economic recovery from COVID-19 and address institutional bottlenecks through the implementation of reforms, while providing an injection of much-needed financing to offset recent fiscal constraints.
DPF funds are made available to recipient countries based on:
- Maintenance of an adequate macroeconomic policy framework, as determined by the Bank with inputs from IMF assessments.
- Satisfactory implementation of the overall reform program.
- Completion of a set of critical policy and institutional actions agreed between the Bank and the country (also known as Prior Actions).
Typically, DPFs support actions (reforms) aimed at strengthening public financial management, improving the business and investment climate, addressing bottlenecks to improve service delivery to the most vulnerable, and actions aimed at diversifying the economy. The Bank determines whether specific policies supported by the operation are likely to have significant poverty and social impacts, especially on poor people and vulnerable groups, and whether specific country policies supported by the operation are likely to cause significant effects on the borrower country's environment, forests, and other natural resources.
3. Program-for-Results Financing (PforR), introduced in 2012 links disbursement of World Bank funds directly to the delivery of defined results, helping countries improve the design and implementation of their own development programs and achieve lasting results by strengthening institutions, enhancing systems, and building capacity. Current PforR projects in Mozambique include the $96 million Disaster Risk Management and Resilience Program and $170 million Primary Health Care Strengthening Program.
PforR’s unique features include using a country’s own institutions and processes. This approach helps build capacity within the country, enhances effectiveness and efficiency, and leads to achievement of tangible, sustainable program results.
Other financial instruments
Trust Funds – The WBG uses Trust Funds(TFs), a financing arrangement set up with contributions from one or more development partner, to complement core funding from the WBG in support of development goals. Mozambique is one of the top ten recipients of TFs which play a key role in leveraging World Bank resources particularly across the health, energy, and fragility agendas. As of September 2022, the World Bank portfolio in Mozambique includes 23 recipient-executed TFs supporting key programs and projects, executed by the Government of Mozambique, with an approximate value of $500 million.
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[1] Together, the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA) form the World Bank, which provides financing, policy advice, and technical assistance to governments of developing countries. IDA focuses on the world’s poorest countries, while IBRD assists middle-income and creditworthy poorer countries. World Bank funding to Mozambique comes primarily from IDA. The other three institutions of the World Bank Group, the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency, and the International Center for Settlement of Investment Disputes (ICSID) focus on strengthening the private sector in developing countries. Of these three, Mozambique makes use of the services of IFC and MIGA. IFC funding in Mozambique have been instrumental to leveraging IDA funding in strategic sectors such as energy, including renewables.
[2] Non-lending portfolio [Advisory Services and Analytics (ASAs)] have been an integral and complimentary part of the World Bank financing envelop to Mozambique. The non-lending portfolio represents a combination of hands-on technical assistance, results evaluations, policy notes and broader reports that support the ongoing program and dialogue and inform preparation of future operations where knowledge gaps exist.