Mozambique's overall macroeconomicperformance in recent years has been impressive.Macroeconomic stability, a sustained structural reformeffort, substantial foreign aid flows and, until recently, abenign international environment has generated an averageannual real gross domestic product (GDP) growth rate of 7½percent for most of the past decade. While inflation hasbeen relatively high (around 10 percent annually) andvolatile in recent years, reflecting the predominance offood (52 percent) and energy (23 percent) in the consumerbasket, underlying inflationary pressures appear to becontained. As a result, the banking sector's soundness,in particular asset quality, improved substantially. Betweenend-2003 and 2008, non-performing loans (NPLs) for thesystem as a whole declined dramatically (from 14.4 to 2.9percent), largely reflecting the restructuring of problembanks and assets and a supportive macroeconomic environment.This Financial Sector Assessment (FSA) focuses on the keydevelopmental challenges still facing the Mozambicanfinancial sector. Section two provides an assessment of thestructure and performance of the banking sector and the mainimpediments to financial deepening and outreach. Sectionthree presents the state of development and key challengesin the pension and insurance sectors, respectively. Sectionfour assesses the payments system infrastructure.
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