The International Monetary Fund (IMF) Executive Board has concluded its 2025 Article IV consultation with Mozambique without endorsing a new loan or programme, dealing a significant blow to President Daniel Chapo’s economic strategy. The Board’s decision, announced on 17 February, aligns with the hardline stance taken by an IMF mission in November 2024, which called for substantial policy adjustments.
Central to the IMF’s position are demands for a major currency devaluation, fiscal consolidation, and public sector wage bill containment. Mozambique’s exchange rate has been fixed at approximately 63.9 meticais per US dollar for five years, a level the IMF and analysts consider overvalued. A more realistic rate, estimated near 90 meticais per dollar, would correct market distortions. Currently, the strong metical keeps imports artificially cheap, undermining local production in sectors like agriculture. For instance, Mozambique imported $441 million worth of rice and $220 million of cooking oil in 2024, commodities that are also produced domestically. A market-driven exchange rate could reduce these imports, stimulate local farming, and create jobs, though entities linked to the ruling Frelimo party control the lucrative food import market.
The Board’s statement stressed that “a clear communication of reform objectives would be critical to ensure stakeholder buy-in and help build public trust.” It reiterated the need to broaden the tax base, enhance public financial management, address fiscal risks from state-owned enterprises, and improve debt transparency, while protecting vulnerable groups. These reforms face political obstacles. Critics argue that recent measures, such as a revised public sector salary scale, have been implemented without sufficient transparency and often benefit party elites. The government’s ability to enact deep reforms is complicated by widespread public discontent, which fueled demonstrations from late 2024 into early 2025. Protests initially focused on electoral integrity but quickly expanded to highlight corruption, poverty, and unemployment.
President Chapo, who assumed office in January 2025 following a contested election, had publicly sought IMF support to unlock foreign investment and aid. However, meeting the IMF’s conditions would require concessions from powerful interests within Frelimo, who are unlikely to relinquish control over profitable economic rents and the patronage system that sustains the party. The government has responded to protests with force and proposed restrictions on social media, while an insurgency in the northern Cabo Delgado province continues, driven by similar grievances over governance and economic exclusion.
The IMF’s refusal to proceed with a programme signals a high-stakes gamble. By withholding financial support, the institution is increasing pressure on the Chapo administration to implement painful reforms but also risks exacerbating social tensions amid a fragile economic outlook. The path forward requires navigating between stringent IMF conditionalities and the political realities of a system where economic power is tightly intertwined with the ruling party’s survival.
