IMF Concludes Article IV Consultation with Mozambique, Cites Macroeconomic Challenges

Washington, DC – The Executive Board of the International Monetary Fund (IMF) has concluded its 2025 Article IV consultation with the Republic of Mozambique, highlighting a complex macroeconomic environment characterized by subdued growth, fiscal and debt vulnerabilities, and declining foreign aid. Despite some positive developments, significant challenges remain for the Southern African nation.

Economic Overview and Recent Developments

Mozambique’s economic activity is gradually recovering from a contraction experienced in the final quarter of 2024, following social unrest related to the October 2024 elections. Inflation has remained contained since December 2023. However, the country continues to grapple with a substantial current account deficit, although it narrowed in 2025, it remains larger than levels considered sustainable based on economic fundamentals. At the end of 2025, gross international reserves covered approximately 6.5 months of imports.

In response to foreign exchange (FX) shortages, the Bank of Mozambique has tightened FX regulations and implemented capital outflow controls. The exchange rate against the US dollar has remained stable since 2021. The government is facing increasingly difficult financing conditions, with delays in debt service and a plateauing of holdings of government debt by domestic banks – the primary source of financing for persistent fiscal deficits. Net external financing has been negative.

Fiscal Situation and Debt Sustainability

The fiscal deficit is estimated to have narrowed significantly in 2025, falling to 4.5 percent of GDP from 6.2 percent in 2024. This reduction is largely attributed to decreased spending on goods, services, and capital projects. However, current macroeconomic policies, including large fiscal deficits and limited exchange rate flexibility, are expected to exacerbate macroeconomic and debt vulnerabilities.

Primary fiscal deficits are projected to average around 2 percent of GDP through 2029, but overall deficits are likely to widen due to rising interest payments. Economic growth outside the mining sector is expected to remain modest, at around 2 percent, constrained by weak credit growth. Inflation is projected to exceed the central bank’s implicit target over the medium term, driven by monetary financing of large fiscal deficits.

Positive Developments and Future Prospects

Despite the challenges, several positive developments offer potential for improvement. These include low inflation, adequate foreign reserves, the planned resumption of a major Liquefied Natural Gas (LNG) project by TotalEnergies, and Mozambique’s removal from the Financial Action Task Force (FATF) grey list. The LNG sector offers substantial medium-term growth potential, with production anticipated to begin around 2030.

However, until LNG production commences, the current account deficit is projected to remain large, reflecting LNG-related imports and external debt service obligations.

IMF Executive Board Assessment

The IMF Executive Board emphasized the urgency of formulating a comprehensive policy reform package to restore macroeconomic stability and lay the foundation for stronger, more durable growth. A clear communication of reform objectives is considered critical to securing stakeholder buy-in and building public trust.

Key recommendations from the Executive Board include:

• Fiscal Consolidation: Ambitious and credible fiscal consolidation is needed to reduce financing needs and restore debt sustainability, creating fiscal space for vital social and development needs. This includes containing the wage bill, broadening the tax base, enhancing public financial management, addressing fiscal risks from state-owned enterprises and the pension system, and strengthening debt management and transparency, while protecting vulnerable groups.
• Monetary Policy: Maintaining prudent monetary policy and well-anchored inflation expectations. While acknowledging limited room for easing monetary conditions due to exchange rate rigidities and FX shortages, the Board recommended increased exchange rate flexibility to allow the economy to adjust to external conditions.
• Financial Sector Oversight: Close monitoring of financial sector risks, particularly those arising from banks’ sovereign exposures, alongside continued improvements in supervision, stress testing, and resolution frameworks. Measures to promote financial inclusion were also encouraged.
• Structural Reforms: Strengthening the implementation of structural reforms focused on governance, transparency, and accountability, fostering a more conducive environment for private sector development. The completion of the legal framework for the Sovereign Wealth Fund was welcomed.
• Capacity Development: Continued well-targeted capacity development remains paramount to achieving the country’s development objectives.

Key Economic Indicators

The next Article IV consultation with the Republic of Mozambique is expected to be held on the standard 12-month cycle.