Mozambique’s debt vulnerability affects financing conditions – IMF | AIM report

The International Monetary Fund (IMF) has announced that the Mozambican government faces increasingly difficult financing conditions due to the vulnerability of the country’s debt, both domestically and internationally. According to the IMF team, in their recent visit to Mozambique, the government faces increasingly difficult financing conditions with delays in debt servicing, and “with delays in debt servicing, the holding of government bonds by national banks – the main source of financing for the large and persistent fiscal deficits – has stagnated. Net external financing has been negative.” Given these restrictive financing conditions, the IMF estimates that the fiscal deficit will have decreased significantly in 2025, falling to 4.5 per cent of Gross Domestic Product (GDP), compared to 6.2 percent in 2024, largely due to reduced expenditure on goods, services and capital projects.

“Primary fiscal deficits are expected to remain around 2 percent of GDP until 2029, but are likely to increase due to growing interest payments. The economic growth, driven by the mining sector, may remain modest, at around 2 percent, reflecting weak credit growth”, IMF says. The financial institution also found that inflation will likely exceed the Bank of Mozambique’s single-digit target in the medium term, stimulated by monetary financing of large fiscal deficits.

READ:IMF Executive Board concludes 2025 Article IV consultation with the Republic of Mozambique – Unabridged Mozambique needs fiscal consolidation as financing problems mount, IMF says However, the IMF believes that the country has been recording some positive developments “such as low inflation, adequate foreign exchange reserves, and the resumption of the Liquefied Natural Gas (LNG) project by TotalEnergies and partners, and the removal of Mozambique from the Financial Action Task Force’s (FATF) grey list.” According to IMF, the LNG sector offers substantial potential in the medium term, with production expected to begin in 2030. Until then, the current account deficit is expected to remain high, reflecting LNG-related imports and obligations related to external debt servicing. The institution calls for fiscal consolidation to reduce financing needs and restore debt sustainability, as well as to create fiscal space to finance vital social and development needs. “Fiscal consolidation demands control over payroll expenditure, broadening of tax base, improvement public finance management, addressing the fiscal risks of state-owned companies and the pension system, and strengthening debt management and transparency, while protecting vulnerable groups”, the group says.