What You Need to Know
The International Monetary Fund (IMF) has warned that Mozambique needs to implement ambitious financial measures to alleviate its worsening debt crisis. The country’s financial deficit is projected to decrease, but rising interest payments threaten future stability. The IMF emphasizes the need for effective fiscal management and improved debt administration to restore sustainability.
Africa-Press. The International Monetary Fund has warned that Mozambique needs to implement ambitious measures to stabilize its finances and mitigate the worsening debt crisis, delays in repayments, and limited external financing, which are burdening the economy.
The financial deficit is expected to have decreased to 4.5% of GDP last year, down from 6.2% in 2024, due to reduced spending on goods, services, and capital projects. However, rising interest payments threaten to exacerbate the deficit in the coming years.
In a report following its annual review of Mozambique’s situation, the IMF noted that local banks, the primary buyers of government debt, have reached their repayment capacity, while net external financing has turned negative.
Directors emphasized the urgent need for ambitious and effective fiscal measures to help reduce financing needs and restore debt sustainability, calling for a curb on wage spending, an expansion of the tax base, and improved debt management.
Mozambique’s only dollar-denominated bonds have faced pressure since President Daniel Chapo indicated in January the possibility of renegotiating the debt.
The president did not specify whether the bonds would be included in the renegotiation but mentioned a focus on debt discussions with “international partners” once a new agreement with the IMF is reached.
The IMF warned of risks associated with tight monetary conditions, noting that the efforts of the Bank of Mozambique to stabilize inflation and manage foreign currency shortages have left little room for further monetary easing.
The IMF also stressed the need for greater exchange rate flexibility to support external adjustment and growth. While there is optimism surrounding the resumption of a major liquefied natural gas project and Mozambique’s removal from the “grey list” of the Financial Action Task Force, the IMF highlighted the negative risks stemming from public debt burdens, security challenges, natural disasters, and institutional fragility.
Mozambique has faced significant economic challenges in recent years, particularly related to its debt levels and financial management. The country has struggled with high deficits and limited external financing, which have exacerbated its economic difficulties. The IMF’s involvement highlights the urgency for Mozambique to adopt reforms that can stabilize its economy and restore investor confidence.
