Mozambique experienced economic growth between 1975 and 1980. Due to the war with Renamo, however, and inadequate planning, the economy declined dramatically between 1980 and 1993. Chissano's single most important domestic policy initiative was to end the war, a process which produced important spillover benefits for Mozambique including political and constitutional reforms.
The 1990 constitutional reforms were a direct result of years of war and were aimed at creating a climate favorable to new policy initiatives. The avowedly Marxist Frelimo adopted free market policies, instituted land reforms, and privatization. In the aftermath of these changes Mozambique's economy began to recover. The International Monetary Fund (IMF) approved the government's reconstruction and reform program through its poverty reduction and growth facility (PRGF). Growth from the middle 1990s was strong, and as of 2000 new confidence in the economy was attracting foreign direct investment (FDI). Two large-scale projects, the expansion of the Mozal aluminum smelter and the construction of a gas export pipeline to South Africa will account for US $1.5 billion over 2002-03. In 2001, Mozambique registered its first trade surplus with the European Union (EU).
In spite of FDI, agriculture, fisheries, transportation, and local manufacturing have been lagging behind. Two-thirds of the population lives in poverty owing to drought, chronic underdevelopment, and war. Moreover, devastating floods in February and March 2000 affected over a million people destroying economic infrastructure and thousands of hectares of crops and livestock. AIDS also continued to ravage the nation, with over 12% of the population infected. In his 2002 end of the year address, Chissano addressed the epidemic and called for an end to discrimination against victims as well as prevention of the disease, "drugs are just a panacea, While this disease remains incurable, the most viable treatment is prevention."
Despite these constraints, real GDP growth was expected to remain high in 2002-03, averaging 9%, and with the government's predicted tight management of the money supply, inflation was expected to hit 8% in 2002 and drop to 5% in 2003.