The International Monetary Fund (IMF) has warned that Mozambique’s high debt burden is severely constraining government financing, projecting a gradual fiscal adjustment but flagging persistent risks from interest payments and a vulnerable external position.
In a report following a recent staff visit, the IMF Executive Board stated that Mozambique faces “increasingly difficult financing conditions.” The government’s reliance on domestic bank borrowing—the primary source for funding large fiscal deficits—has stagnated due to delays in debt servicing, while net external financing has turned negative. This environment is expected to drive the fiscal deficit down to 4.5% of GDP in 2025 from 6.2% in 2024, mainly through cuts in capital and goods and services spending.
However, the IMF projects that primary fiscal deficits will hover around 2% of GDP until 2029, with a likely increase due to rising interest costs. Economic growth is forecast to remain modest at approximately 2% annually, constrained by weak credit expansion, though the mining sector provides some support.
The institution also anticipates inflation will exceed the Bank of Mozambique’s single-digit target in the medium term, partly fueled by monetary financing of deficits. On a positive note, the IMF cited low current inflation, adequate foreign exchange reserves, the resumption of TotalEnergies’ liquefied natural gas (LNG) project, and Mozambique’s removal from the Financial Action Task Force grey list as encouraging developments.
The LNG sector is seen as a major medium-term opportunity, with production slated to begin in 2030. Until then, the current account deficit is projected to stay elevated, reflecting imports for the project and foreign debt service obligations.
The IMF did not announce a new loan program. Instead, it called for “fiscal consolidation” to reduce financing needs and restore debt sustainability. Specific measures include controlling payroll expenditure, broadening the tax base, improving public financial management, addressing fiscal risks from state-owned enterprises and the pension system, and strengthening debt transparency. The Fund also emphasized protecting vulnerable groups during adjustment.
Additionally, the IMF recommended greater exchange rate flexibility to help the economy absorb external shocks and support growth, alongside structural reforms focused on governance, transparency, and improving the business environment for private investment. A more flexible currency is viewed by the Fund as necessary to address foreign exchange shortages, though such a move could increase import prices and complicate inflation control.
The report underscores the challenging balancing act facing Mozambique: implementing tough fiscal and structural reforms to secure long-term stability while managing short-term social and inflationary pressures. The path forward hinges on the government’s ability to execute the IMF’s recommended adjustments ahead of anticipated LNG revenues.
