## 1mozea2026001-source-pdf ## Source details **Canonical URL:** [1mozea2026001-source-pdf](https://www.imf.org/-/media/files/publications/cr/2026/english/1mozea2026001-source-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2026/english/1mozea2026001-source-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2026/english/1mozea2026001-source-pdf.pdf.json) --- ### Context - Mozambique has experienced a prolonged period of sluggish growth since the 2016 hidden debt scandal, with weakened growth performance, rising poverty rates, and declined external financing. - The country is a low-income, fragile state facing an ongoing insurrection in the north, limited institutional capacity, and frequent natural disasters. - The natural resource sector offers substantial revenue potential; bridging the gap until higher government revenues materialize requires current spending to remain aligned with available financing. - Domestic banks—the main source of financing for large fiscal deficits—have become increasingly reluctant to increase holdings of government debt amid concerns over debt service delays. - In March 2025, S&P classified Mozambique's local currency debt as "selective default". - The previous Fund-supported program lapsed in April 2025; the government requested a successor Fund-supported program in May 2025. ### Recent economic developments - Real GDP and sectoral performance: - Real GDP contracted by 8 percent q/q in 2024Q4, rebounded in early 2025, but lost momentum in 2025Q3. - Growth for 2025 is estimated at 0.5 percent. - Sectoral contributions (2025): services contracted by 0.8 percent; secondary sector grew 1 percent (mainly extractive industries); primary sector grew 1.4 percent. - Investment and LNG projects: - ENI’s “Coral North” received approval in April 2025. - TotalEnergies lifted force majeure in October 2025 on its project halted since March 2021. - Inflation and monetary policy: - Inflation eased to 3.2 percent y/y by December 2025 and stayed below the central bank’s implicit target of 5 percent since December 2023. - The Bank of Mozambique cut the policy rate by 775 basis points since January 2024. - Reserve requirements were cut by 1,000 basis points in January 2025; reserve requirements are 29 percent. - Real policy rate is 6 percent; commercial real lending rates hover around 11.5 percent. - Banking sector: - Capital adequacy stands at 28 percent; NPLs are about 8 percent as of October 2025. - Private sector credit has stagnated since September 2024; deposits grew 12 percent between September 2024 and September 2025. - Banking sector concentration: a few banks hold over 75 percent of total assets; for the top five banks, government securities account for roughly 35 percent of RWA, with public sector loans adding another 6 percent. - External sector and FX: - Non-megaproject current account deficit narrowed to 11.8 percent of GDP in 2025, still 5.4 percentage points higher than the staff-estimated norm. - Staff assess the metical to be overvalued in real terms (reflecting an appreciation of over 20 percent in real effective terms since mid-2021). - Gross international reserves were about 6.5 months of non-megaproject imports at end-2025, up from 6.1 months a year earlier. - Parallel market premium for the US dollar reached about 14 percent in late 2025, compared to under 10 percent a year earlier. - Central bank CFMs and measures in 2025: raised surrender requirements for exporters from 30 to 50 percent (April); tightened banks’ FX long position limits from 20 to 2 percent (July); capped overseas credit card use (December). The 30 percent surrender requirement in place since 2020 is considered a CFM. - Fiscal developments (selected 2025 figures): - Fiscal deficit narrowed to 4.5 percent of GDP in 2025 from 6.2 percent in 2024. - Tax revenues fell to 18.7 percent of GDP in 2025, from 20.3 percent in 2024. - Primary expenditure was 24.1 percent of GDP in 2025; interest payments were 4.0 percent of GDP in 2025. - Net external financing was -0.6 percent of GDP in 2025; net domestic financing was 3.2 percent of GDP in 2025. - Arrears financing (flow) rose to 1.9 percent of GDP in 2025 (from 0.3 percent in 2024). - As of end-December 2025, total debt service arrears equal 1.3 percent of GDP (external arrears 0.9 percent of GDP; domestic arrears 0.4 percent of GDP). - Short-term securities represented 35 percent of total government securities by end-2025 (compared to 32 percent a year earlier). - Liability Management Operations (LMOs) in 2025: - Several voluntary, market-based LMOs exchanged maturing bonds for new 5-year bonds; by end-September these rolled over roughly two-thirds of scheduled bond amortizations. - A final LMO in December 2025, combined with issuance of additional bonds, allowed full rollover of 2025 government bond amortizations and clearance of most domestic debt‑service arrears accumulated through Q3 2025. ### Macroeconomic outlook and risks - Baseline and policy assumptions: - Staff’s baseline projections assume macroeconomic policies remain broadly unchanged. - Primary fiscal deficit projected at 2 percent of GDP in 2026–29 (broadly in line with 2021–24). - Overall fiscal deficit expected to widen steadily due to rising interest payments. - Growth and inflation projections: - Over 2026–28, non-mining growth would remain subdued at around 2 percent, weighed down by fiscal uncertainty, lack of credit, and FX shortages. - Inflation would exceed the 5 percent target over the medium term, reflecting continued reliance on monetary financing. - LNG timeline and external balances: - TotalEnergies (onshore) and ENI (offshore) expected to begin production in 2030; Exxon’s second onshore LNG project expected in 2031. - In 2026, LNG-related imports are expected to drive up the current account deficit to 33 percent of GDP (though these imports are expected to be self-financed). - As LNG production ramps up from 2030 onward, the megaproject current account balance is expected to shift to surplus. - International reserves are projected to decline steadily over the medium term as net export proceeds will not offset rising external debt service obligations. - Key downside risks: - Delays in LNG projects; intensification of FX shortages; mounting SOE losses; potential sovereign debt default; banking sector crisis if losses on government securities compromise capital adequacy; excessive monetary financing risking a depreciation–inflation spiral; potential shutdown of a major aluminum producer (output ≈ 2 percent of GDP and one-fifth of exports). - External risks: pandemics, natural disasters, reduced foreign aid, and commodity price volatility—particularly higher global fuel prices. - Upside risks: limited, mainly from stronger-than-expected spillovers from LNG projects. - Reform scenario vs. baseline (select projections from Text Table 2): - Real GDP, excl. extractive industries (percent): - Baseline (2025–2029): 0.5, 1.9, 2.7, 2.2, 3.1 - Reform scenario (2026–2029): 1.5, 2.9, 2.8, 3.2 - Primary fiscal balance (percent of GDP): - Baseline (2025–2029 est./proj.): -0.6, -2.0, -2.0, -2.0, -2.0 - Reform scenario (2026–2029 proj.): 0.3, 2.0, 2.5, 2.5 - Total public sector debt (percent of GDP): - Baseline (2025–2029 est./proj.): 91, 95, 102, 108, 112 - Reform scenario (2026–2029 proj.): 104, 106, 106, 104 - Current account balance excl. mega projects and indirect MP imports (percent of GDP): - Baseline (2025–2029 est./proj.): -11.8, -11.9, -12.0, -11.4, -11.1 - Reform scenario (2026–2029 proj.): -8.9, -8.8, -7.6, -7.0 ### Fiscal assessment, 2026 budget, and consolidation recommendations - Costs of persistent deficits: - Rising debt service and the growing public wage bill have reduced resources for health and education. - Government borrowing from domestic banks has crowded out private sector lending. - Public debt service arrears exceeded 1 percent of GDP at end-2025; overall public debt is classified as in distress. - IMF staff assessment of the 2026 budget: - The 2026 budget targets an overall deficit of 0.3 percent of GDP—a consolidation of 4.2 percentage points from the estimated deficit for 2025. - IMF staff project the fiscal deficit to widen to 6.3 percent of GDP in 2026. - Staff’s expenditure projections are 2.8 percentage points higher than the budget. - Staff projects wage-bill spending to rise by 7 percent in nominal terms in 2026. - Central government operations (percent of GDP, selected): - Total revenues and grants: 23.5 (2025 est); MoF Budget 27.1 (2026); IMF Proj. 23.9 (2026). - Total expenditure and net lending: 28.1 (2025 est); MoF Budget 27.4 (2026); IMF Proj. 30.2 (2026). - Wage bill: 13.9 (2025 est); MoF Budget 12.6 (2026); IMF Proj. 13.7 (2026). - Interest payments: 4.0 (2025 est); MoF Budget 4.0 (2026); IMF Proj. 4.2 (2026). - Primary balance: -0.6 (2025 est); MoF Budget 3.6 (2026); IMF Proj. -2.0 (2026). - Overall balance: -4.5 (2025 est); MoF Budget -0.3 (2026); IMF Proj. -6.3 (2026). - Public debt trajectory (percent of GDP, selected): - Public sector debt total: 91 (2025 est); 95 (2026); 102 (2027); 108 (2028); 112 (2029). - External debt share: 61 (2025); 60 (2026); 59 (2027); 56 (2028); 53 (2029). - Domestic debt share: 30 (2025); 35 (2026); 43 (2027); 51 (2028); 59 (2029). - Recommended fiscal consolidation package: - Front-loaded fiscal adjustment, rigorously costed. - Fiscal consolidation of about 3 percent of GDP over three years (2026–28) would reduce financing needs to 2.1 percent of GDP in 2027. - Voluntary, market-based liability management could help address near-term financing pressures. - Fiscal rule enshrined in a Fiscal Responsibility Law recommended once LNG revenues materialize (around 2030). - Revenue and expenditure measures (estimates and measures): - Potential additional revenues: total 0.80 percent of GDP from VAT base broadening, elimination of zero VAT rates, and excises. - VAT base broadening on imported goods: 0.18 percent of GDP (Mineral products: 0.02; Plastic and rubber: 0.01; Transport material: 0.15). - Elimination of zero VAT rate on Machinery and equipment: 0.24 percent of GDP; Capital goods: 0.08 percent of GDP. - Excises: total 0.30 percent of GDP (Domestic goods: 0.10; Imported goods: 0.20). - Authorities expect to mobilize around 1 percent of GDP in 2026 from digitalizing tax processes and taxing digital transactions. - Expenditure savings target: 2.2 percent of GDP, primarily from wage bill containment (reduction by 3 percentage points of GDP). - Mozambique’s wage bill was 14.4 percent of GDP in 2024; target to reduce to 11 percent of GDP by 2028. - Recommended measures: eliminate the 13th-month salary in 2026, then partially reinstate it (25 percent in 2027 and 50 percent in 2028); freeze base salaries in nominal terms during 2026–28; freeze promotions and career progressions over 2026–30; impose a strict ceiling limiting overtime; restrict new hires over 2026–30 to priority sectors (health, education and justice). - Communication and social protection: - A clear, well-targeted communication strategy is needed to build public trust and secure stakeholder buy-in. - Safeguards for the most vulnerable and strengthened safety nets recommended. ### Debt, financing, arrears, and liability management - Fiscal financing and arrears: - Net external financing negative since 2022; domestic debt primary source of funding. - Domestic financing declined from 6.7 percent of GDP in 2024 to 3.2 percent in 2025 with heavy reliance on short-term debt. - Arrears financing rose from 0.3 percent of GDP in 2024 to 1.9 percent in 2025. - Accumulated total debt service arrears estimated at 1.3 percent of GDP at end-December 2025 (USD 230 million in additional external arrears in 2025, equivalent to 0.9 percent of GDP). - S&P downgraded domestic debt to selective default in March 2025, reaffirmed in October 2025. - ENH and LNG-related public liabilities (selected): - ENH external debt: USD 4.6 billion (19.6% of GDP) in 2024; projected rise to USD 20 billion (22.3% of GDP) by 2045. - Golfinho Atum sovereign guarantee: USD 2.25 billion (15% of GDP) exposure; current exposure USD 43 million (lenders disbursed $287 million). - ENH holds 15 percent in Golfinho Atum and 10 percent in other projects. - Debt repayment rules: Golfinho—80% of net revenues allocated to debt service; Coral and Rovuma—90% of net revenues allocated to debt service. - Liability management operations (LMOs) and domestic issuance (selected 2025 bond auctions and terms, MT million unless otherwise noted): - Mar 11: Amount issued 3,744; Interest rate 14.3 percent; Maturity 5 years. - May 15: 4,776; 15.0 percent; 5 years. - Sep 9: 1,004; 14.1 percent; 5 years. - Sep 16: 1,000; 14.0 percent; 5 years. - Sep 22: 740; 14.0 percent; 5 years. - Sep 29: 14,410; 14.0 percent; 6 years. - Dec 26: 2,083; 13.5 percent; 5 years. - Dec 29: 2,946; 15.0 percent; 6 years. - Dec 30: 8,365; 13.5 percent; 3 years. - Recommended debt management improvements: legal frameworks for early and calendar-adherent issuances, increased auction transparency, benchmark bond policy, voluntary auction-based LMOs. ### Monetary and exchange rate policy implications - Monetary policy stance: - Monetary policy remains tight, anchoring inflation expectations but constraining credit expansion and growth. - Bank of Mozambique committed to keeping monetary financing within legal limits; reserve requirements near 30 percent increase intermediation costs and discourage credit growth. - Staff finds two exchange restrictions and one multiple currency practice (MCP) in Mozambique’s FX system: - Delays in accessing FX for current international transactions and external payment arrears due to prioritization and informal guidance. - Requirement of a tax clearance certificate for making current international payments and transfers. - An MCP arises from an impermissible spread between commercial banks’ rates (subject to informal guidance) and FX bureaus’ freely determined rates. - Recommendations: - Greater exchange rate flexibility to restore FX market balance and resource allocation; a market-clearing exchange rate would narrow the gap between official and parallel rates and allow phased removal of controls. - Policy sequencing: conditional on fiscal adjustment, launch FX auctions following best practices, with occasional interventions adhering to “discretion under constraint”; clear communication anchored in an inflation-targeting regime; if the currency weakens, monetary tightening may be necessary. - CFMs should not substitute for warranted macroeconomic adjustments; plan to phase out CFMs in tandem with declining external imbalances. ### Financial sector, SOEs, pensions, and governance - Financial sector risks: - Government securities account for 23 percent of banks’ assets; heavy sovereign exposure threatens financial stability. - Staff recommends enhanced stress testing, contingency planning, and coordination with fiscal authorities. - State-owned enterprises (SOEs): - Contingent liabilities from SOEs were 3.5 percent of GDP in 2024. - SOEs of concern: LAM, TmCel, ADM—poor liquidity, high indebtedness, negative profitability. - Policy recommendations: transactions between government and SOEs should flow through the budget; restructure underperforming SOEs; extend state guarantees only with stricter criteria and oversight. - Public pensions (INPS): - INPS may result in fiscal costs of 1 percent of GDP per year by 2035. - System features: retirement age 60; ratio of contributors to pensioners fell from 5.5 in 2020 to 3.8 in 2025; replacement rate 100 percent of final salary; required State employer contribution 7 percent but actual contributions averaged 2 percent (1.7 percent in 2024). - Recommended reforms: raise the retirement age, enforce pension contributions, reduce the replacement rate. - Governance and transparency: - Mozambique lags regional peers on corruption and governance indicators. - Recommendation: establish an independent and well-resourced Court of Accounts; improve procurement transparency; strengthen the Treasury Single Account (CUT) and arrears clearance processes. - Sovereign Wealth Fund: - SWF management agreement signed in November 2025; strengthen governance reforms and safeguards. ### Social protection, gender, and inclusion - INAS social transfers: - INAS administers non-contributory programs including cash transfers to around 600,000 individuals. - Spending on these transfers fell from 0.8 percent of GDP in 2020 to 0.1 percent of GDP in 2024. - Recommendations: accelerate digital payment expansion, upgrade INAS registry, remove operational bottlenecks. - Gender equality and economic outcomes (Annex XII highlights): - Mozambique ranks 121st out of 173 countries for gender equality (UNDP). - Real per capita GDP growth could rise by 0.5–0.8 percentage points annually if Mozambique’s GII matched UMIC levels. - Model estimates indicate GDP could increase by 15 percent if workforce disparities were eliminated; other estimates up to 7 percent per capita gains from closing labor market gaps. - Policy implication: holistic cross-cutting policies and sustained political commitment required. ### External aid and concessional financing - Official Development Assistance fell from about 10 percent of GDP in 2016 to 6 percent in 2023. - U.S. assistance: - USD 267 million awarded to projects in 2024; half of U.S. support in 2024 allocated to PEPFAR. - In July 2025, USAID programs transitioned to the Department of State (DoS). - DoS secured USD 160 million in bridge funding for October 2025–March 2026 (a 21 percent reduction compared to 2025). - In December 2025, the US signed an agreement committing up to USD 1.8 billion to strengthen health systems over the medium-term; Mozambique pledged to increase health spending by roughly 30 percent over the next 5 years. - MCC Compact: - USD 500 million grant signed in September 2023; objectives include infrastructure, agricultural productivity, and climate resilience. ### Data, capacity development, and risk assessment - Data and capacity: - Mozambique participates in the e-GDDS and publishes data on its National Summary Data Page since July 2019. - Authorities requested TA on Government finance statistics planned for FY26. - IMF TA and CD priorities: PFM, tax administration, debt management, central bank modernization, governance, and statistics. - Risk Assessment Matrix (selected entries): - Global risks with Likelihood: High for "Escalating Trade Measures", "Financial Market Volatility", "Fiscal Vulnerabilities and Higher Long-Term Interest Rates", "Geopolitical Tensions", "Commodity Price Volatility", and "Decline in International Aid". Policy responses emphasize fiscal sustainability, exchange rate flexibility, and social safety nets. - Domestic risks with Likelihood: High for "Intensification and spread of conflict in the north", "Heightening of social tensions", "Materialization of fiscal risks", and "Financial instability". Policy responses emphasize fiscal consolidation, improved governance, and strengthened financial frameworks. - FX shortages: Likelihood High; Policy Response: increase exchange rate flexibility and reforms to improve competitiveness. ### Staff appraisal and key policy recommendations (summary) - Major staff findings: - Mozambique faces large internal and external imbalances with serious near-term risks to macroeconomic and debt sustainability. - Loose fiscal policy is the principal threat to macroeconomic stability; large and persistent fiscal deficits financed increasingly through short-term domestic debt and central bank borrowing place debt on an unsustainable path. - Debt service arrears stood at about 1.3 percent of GDP at end-2025; Standard and Poor’s assigned a “selective default” rating on domestic debt. - Core staff recommendations: - Front-loaded multi-year fiscal consolidation focused on wage bill containment and broadening the tax base. - Achieve a primary balance of 2 percent of GDP by 2027. - Monetary policy should remain tight; central bank should monitor price developments and be prepared to tighten if necessary. - Greater exchange rate flexibility to support external adjustment; CFMs should not substitute for warranted macroeconomic adjustments. - Safeguard financial stability via enhanced stress testing, contingency plans, and coordination with fiscal authorities. - Implement fiscal structural reforms to protect the most vulnerable, strengthen governance and transparency (including establishing a Supreme Audit Institution), reconcile above-the-line and below-the-line in annual fiscal accounts, address SOE and pension risks, improve social transfer delivery, and enhance procurement processes. - Conclusion: Immediate, coordinated action is needed to restore stability, protect vulnerable groups, and lay the foundation for sustainable, inclusive growth. *Source: IMF staff report—1. Growth and Inflation (Mozambique) and related chapters and annexes from the supplied PDF excerpt.* ### 1. Growth and Inflation __________________________________________________________________________ 22 ### 1. Growth and Inflation ### Context - Mozambique has experienced a prolonged period of sluggish growth since the 2016 hidden debt scandal, with weakened growth performance, rising poverty rates, and declined external financing. - The country is a low-income, fragile state facing an ongoing insurrection in the north, limited institutional capacity, and frequent natural disasters. - The natural resource sector offers substantial revenue potential; however, bridging the gap until higher government revenues materialize requires current spending to remain aligned with available financing. - With rising deficits and reduced external financing, domestic banks—main source of financing for large fiscal deficits—have become increasingly reluctant to increase holdings of government debt amid concerns over debt service delays. - In March 2025, S&P classified Mozambique's local currency debt as "selective default". Debt service arrears continued throughout 2025 and, since October, extended to short-term securities for the first time. - Macroeconomic policies remained broadly unchanged since the last Article IV; critical policy recommendations in the 2024 Article IV—including fiscal consolidation and greater exchange rate flexibility—have not been implemented. The previous Fund-supported program lapsed in April 2025; the government requested a successor Fund-supported program in May 2025. ### Recent economic developments - Real GDP: - Real GDP contracted by 8 percent q/q in 2024Q4, rebounded in early 2025, but lost momentum in 2025Q3. - Growth for 2025 is estimated at 0.5 percent, with sectoral contributions: services contracted by 0.8 percent, secondary sector grew 1 percent (mainly extractive industries), and primary sector grew 1.4 percent. - Investment and LNG projects: - ENI’s “Coral North” received approval in April 2025. - TotalEnergies lifted force majeure in October 2025 on its project halted since March 2021. - Inflation and monetary policy: - Inflation stayed below the central bank’s implicit target of 5 percent since December 2023. - Inflation eased to 3.2 percent y/y by December 2025. - The Bank of Mozambique cut the policy rate by 775 basis points since January 2024, and reserve requirements by 1,000 basis points in January 2025. - Real policy rate is 6 percent; commercial real lending rates hover around 11.5 percent. - Reserve requirements are 29 percent. - Banking sector: - Capital adequacy stands at 28 percent; NPLs are about 8 percent as of October 2025. - Bank profitability was hit by 2024Q4 unrest and higher provisioning for sovereign exposures. - Private sector credit has stagnated since September 2024, while deposits grew 12 percent between September 2024 and September 2025. - Banking sector concentration: a few banks hold over 75 percent of total assets; for the top five banks, government securities account for roughly 35 percent of RWA, with public sector loans adding another 6 percent. - External sector and FX: - The non-megaproject current account deficit narrowed to 11.8 percent of GDP in 2025, still 5.4 percentage points higher than the staff-estimated norm. - Staff assess the metical to be overvalued in real terms (reflecting an appreciation of over 20 percent in real effective terms since mid-2021). - Gross international reserves were about 6.5 months of non-megaproject imports at end-2025, up from 6.1 months a year earlier. - Parallel market premium for the US dollar reached about 14 percent in late 2025, compared to under 10 percent a year earlier. - Central bank measures in 2025: raised surrender requirements for exporters from 30 to 50 percent (April), tightened banks’ FX long position limits from 20 to 2 percent (July), and capped overseas credit card use (December). The 30 percent surrender requirement in place since 2020 is considered a CFM. - Fiscal developments: - Fiscal deficit narrowed to 4.5 percent of GDP in 2025 from 6.2 percent in 2024. - Tax revenues fell to 18.7 percent of GDP in 2025, from 20.3 percent in 2024. - Primary expenditure was 24.1 percent of GDP in 2025; interest payments were 4.0 percent of GDP in 2025. - Net external financing was -0.6 percent of GDP in 2025; net domestic financing was 3.2 percent of GDP in 2025. - Arrears financing (flow) rose to 1.9 percent of GDP in 2025 (from 0.3 percent in 2024). - As of end-December 2025, total debt service arrears equal 1.3 percent of GDP (external arrears 0.9 percent of GDP; domestic arrears 0.4 percent of GDP). - Debt maturities shortened: short-term securities represented 35 percent of total government securities by end-2025 (compared to 32 percent a year earlier). - Liability Management Operations (LMOs): - Several voluntary, market-based LMOs in 2025 exchanged maturing bonds for new 5-year bonds; by end-September these rolled over roughly two-thirds of scheduled bond amortizations. - A final LMO in December 2025, combined with issuance of additional bonds, allowed full rollover of 2025 government bond amortizations and clearance of most domestic debt‑service arrears accumulated through Q3 2025. ### Macroeconomic outlook and risks - Baseline and policy assumptions: - Staff’s baseline projections assume macroeconomic policies remain broadly unchanged. - Primary fiscal deficit projected at 2 percent of GDP in 2026–29 (broadly in line with 2021–24). - Overall fiscal deficit expected to widen steadily due to rising interest payments. - Required domestic financing from the domestic financial system and, within legal limits, from the central bank appears unrealistic under current policies. - Growth and inflation: - Over 2026–28, non-mining growth would remain subdued at around 2 percent, weighed down by fiscal uncertainty, lack of credit, and FX shortages. - Inflation would exceed the 5 percent target over the medium term, reflecting continued reliance on monetary financing. - LNG timeline and external balances: - LNG projects led by TotalEnergies (onshore) and ENI (offshore) are expected to begin production in 2030, followed by Exxon’s second onshore LNG project in 2031. - In 2026, LNG-related imports are expected to drive up the current account deficit to 33 percent of GDP (though these imports are expected to be self-financed). - As LNG production ramps up from 2030 onward, the megaproject current account balance is expected to shift to surplus. - International reserves are projected to decline steadily over the medium term, as net export proceeds will not offset rising external debt service obligations. - Key risks (downside): - Domestic: delays in LNG projects and associated debt dynamics; intensification of FX shortages; mounting SOE losses; potential sovereign debt default; banking sector crisis if losses on government securities compromise capital adequacy; excessive monetary financing risking a depreciation–inflation spiral; potential shutdown of a major aluminum producer (output ≈ 2 percent of GDP and one-fifth of exports). - External: pandemics, natural disasters, reduced foreign aid, and commodity price volatility—particularly higher global fuel prices that could worsen the balance of payments. - Upside risks are limited, mainly from stronger-than-expected spillovers from LNG projects. - Reform scenario vs. unchanged policies (select projections from Text Table 2): - Real GDP, excl. extractive industries (percent): - Baseline (2025–2029): 0.5, 1.9, 2.7, 2.2, 3.1 - Reform scenario (2026–2029): 1.5, 2.9, 2.8, 3.2 - Primary fiscal balance (percent of GDP): - Baseline (2025–2029 est./proj.): -0.6, -2.0, -2.0, -2.0, -2.0 - Reform scenario (2026–2029 proj.): 0.3, 2.0, 2.5, 2.5 - Total public sector debt (percent of GDP): - Baseline (2025–2029 est./proj.): 91, 95, 102, 108, 112 - Reform scenario (2026–2029 proj.): 104, 106, 106, 104 - Current account balance excl. mega projects and indirect MP imports (percent of GDP): - Baseline (2025–2029 est./proj.): -11.8, -11.9, -12.0, -11.4, -11.1 - Reform scenario (2026–2029 proj.): -8.9, -8.8, -7.6, -7.0 ### Authorities’ views - Authorities broadly concurred with staff’s assessment of the outlook and risks but were more optimistic about near-term growth and projected stronger economic activity. - They agreed inflation is likely to remain below double digits throughout the forecast horizon. - Authorities view the financial system as stable and well capitalized but acknowledge high risk from sovereign exposure. - They emphasized vulnerability to external shocks (fuel price volatility, reductions in external aid) and Mozambique’s status as a net importer of nearly all goods. ### Policies to help restore macroeconomic stability and support growth A. Restoring fiscal and debt sustainability - Assessment: - Mozambique faces severe fiscal risks; under current policies public debt is assessed as unsustainable. - Priority actions: - Implement a front-loaded fiscal adjustment through wage bill containment and revenue measures to restore stability. - Consider voluntary, market-based liability management to address severe near-term financing pressures. - Ensure clear, transparent communication to build public trust and secure support for adjustment measures. - Sequencing: - Fiscal consolidation should come first to build credibility in reform commitments and sustain confidence in the metical. - Complementary reforms (overview): - A comprehensive, coordinated strategy across fiscal, monetary, and exchange rate policies—complemented by strengthened safety nets and governance reforms—could deliver a narrow path to stabilization with goals to: - (i) restore fiscal and debt sustainability; - (ii) maintain price and financial stability while addressing FX shortages; - (iii) protect the most vulnerable from adjustment costs; - (iv) foster a dynamic private sector through improved governance and transparency. - While near-term growth would be tempered by fiscal consolidation and external rebalancing, these measures would lay the foundation for stronger, more sustainable medium-term growth. *Source: IMF staff report—1. Growth and Inflation (Mozambique).* ### 19. Persistent fiscal deficits have imposed significant costs on the Mozambican economy. ### Persistent fiscal deficits have imposed significant costs on the Mozambican economy ### Economic costs of persistent deficits - Rising debt service and the growing public wage bill have reduced resources for health and education (Annex III). - Sizeable government borrowing from domestic banks has crowded out lending to the private sector, slowing economic growth. - Large deficits have weakened investor confidence, causing capital outflows, and over time have reduced fiscal space to respond to shocks. - Public debt service arrears exceeded 1 percent of GDP at end-2025; overall public debt is classified as in distress. ### Assessment of the 2026 budget and near-term fiscal outlook - The 2026 budget targets an overall deficit of 0.3 percent of GDP—a consolidation of 4.2 percentage points from the estimated deficit for 2025. - IMF staff project the fiscal deficit to widen to 6.3 percent of GDP in 2026. - Staff’s expenditure projections are 2.8 percentage points higher than the budget, reflecting a recovery in spending on goods, services, and capital expenditure. - Wage bill spending is projected to be 1.1 percentage point higher than budgeted, reflecting reinstatement of career progressions and promotions, the 13th month salary, and overtime. - Staff projects wage-bill spending to rise by 7 percent in nominal terms in 2026. Key figures from central government operations (percent of GDP, selected) - Total revenues and grants: 23.5 (2025 est); MoF Budget 27.1 (2026); IMF Proj. 23.9 (2026). - Total expenditure and net lending: 28.1 (2025 est); MoF Budget 27.4 (2026); IMF Proj. 30.2 (2026). - Wage bill: 13.9 (2025 est); MoF Budget 12.6 (2026); IMF Proj. 13.7 (2026). - Interest payments: 4.0 (2025 est); MoF Budget 4.0 (2026); IMF Proj. 4.2 (2026). - Primary balance: -0.6 (2025 est); MoF Budget 3.6 (2026); IMF Proj. -2.0 (2026). - Overall balance: -4.5 (2025 est); MoF Budget -0.3 (2026); IMF Proj. -6.3 (2026). Public debt trajectory (percent of GDP, selected) - Public sector debt total: 91 (2025 est); 95 (2026); 102 (2027); 108 (2028); 112 (2029). - External debt share: 61 (2025); 60 (2026); 59 (2027); 56 (2028); 53 (2029). - Domestic debt share: 30 (2025); 35 (2026); 43 (2027); 51 (2028); 59 (2029). ### Medium-term projections and debt sustainability - Under staff’s baseline, the present value (PV) of public debt-to-GDP rises sharply and stays well above its indicative benchmark. - Without a comprehensive and committed policy package, public debt is unsustainable (see DSA). - Staff projects financing in practice will come mainly from short-term debt and central bank borrowing within legal limits, rather than the budget’s anticipated medium-term debt of about 2 percent of GDP. ### Recommended fiscal consolidation package - A front-loaded fiscal adjustment, rigorously costed, is essential to reduce financing needs and restore debt sustainability. - Fiscal consolidation of about 3 percent of GDP over three years (2026–28) would: - Help restore fiscal sustainability. - Reduce financing needs to 2.1 percent of GDP in 2027—a level considered feasible through domestic markets and multilateral partners. - Voluntary, market-based liability management could help address near-term financing pressures. - A fiscal rule enshrined in a Fiscal Responsibility Law is recommended once LNG revenues materialize (around 2030). ### Revenue and expenditure measures (estimates and measures) - Overall consolidation should be primarily expenditure based, with some revenue measures contributing (Text Table 5, Annex IX). - Potential additional revenues: total 0.80 percent of GDP. - VAT base broadening measures on imported goods: 0.18 percent of GDP - Mineral products: 0.02 percent of GDP - Plastic and rubber: 0.01 percent of GDP - Transport material: 0.15 percent of GDP - Elimination of zero VAT rate on: - Machinery and equipment: 0.24 percent of GDP - Capital goods: 0.08 percent of GDP - Excises: total 0.30 percent of GDP - Domestic goods: 0.10 percent of GDP - Imported goods: 0.20 percent of GDP - Authorities expect to mobilize around 1 percent of GDP in 2026 from digitalizing tax processes and taxing digital transactions. - Expenditure savings target: 2.2 percent of GDP, primarily from wage bill containment (reduction by 3 percentage points of GDP). - Mozambique’s wage bill was 14.4 percent of GDP in 2024; target to reduce to 11 percent of GDP by 2028. - Recommended measures: - Eliminate the 13th-month salary in 2026, then partially reinstate it (25 percent in 2027 and 50 percent in 2028). - Freeze base salaries in nominal terms during 2026–28. - Freeze promotions and career progressions over 2026–30. - Impose a strict ceiling limiting overtime. - Restrict new hires over 2026–30 to priority sectors (health, education and justice). ### Communication, social protection, and implementation - A clear and well-targeted communication strategy is needed to build public trust and secure stakeholder buy-in. - Explain why consolidation is necessary, how it benefits the population, and safeguards for the most vulnerable. - Share data, timelines, and trade-offs in simple, consistent language emphasizing fairness and social protection. - Use multiple channels including traditional media and digital platforms to ensure broad outreach and engagement. ### Authorities’ views (summary) - Authorities concurred with staff on the fiscal outlook and need for policy action to restore fiscal and debt sustainability. - Parliament approved a Domestic Revenue Mobilization Strategy to guide tax policy reforms. - Proposed measures include applying the standard VAT rate to digital transactions (e-commerce), revising the excise tax code, a simplified tax regime for small businesses, and updating personal and corporate income tax provisions to include capital gains. - Authorities acknowledged implementation challenges in wage bill reform but reiterated commitment to rationalization under the 2026 budget: nominal freeze on base salaries, restrictions on new hires, and caps on overtime. - In January 2026, the government announced paying 40 percent of the 13th month base salary for public employees and pensions. - Authorities indicated staff’s proposed reform package is not politically feasible. ### Monetary and exchange rate policy implications - Monetary policy remains tight, anchoring inflation expectations but constraining credit expansion and growth. - Scope for monetary easing is limited due to exchange rate rigidities and FX shortages; easing risks worsening FX shortages and could be inflationary. - Liquidity management is challenging amid fiscal stress; reserve requirements near 30 percent increase intermediation costs and discourage credit growth—over time these should be reduced or remunerated if maintained. - Government securities account for 23 percent of banks’ assets; heavy sovereign exposure threatens financial stability and calls for enhanced stress testing and contingency planning. - Staff finds two exchange restrictions and one multiple currency practice (MCP) in Mozambique’s FX system: - Delays in accessing FX for current international transactions and external payment arrears due to prioritization of FX for certain transactions and informal guidance by the Bank of Mozambique to commercial banks. - Requirement of a tax clearance certificate for making current international payments and transfers. - An MCP arises from an impermissible spread between commercial banks’ rates (subject to informal guidance) and FX bureaus’ freely determined rates. - Greater exchange rate flexibility would help restore FX market balance and resource allocation; a market-clearing exchange rate would narrow the gap between official and parallel rates and allow phased removal of controls. - Policy sequencing recommended: - Conditional on fiscal adjustment, launch FX auctions following best practices, with occasional interventions adhering to “discretion under constraint.” - Clear communication anchored in an inflation-targeting regime. - If the currency weakens, monetary tightening may be necessary to anchor inflation expectations. - Plan to phase out CFMs in tandem with declining external imbalances and improved exchange rate flexibility; avoid using CFMs as substitutes for warranted macroeconomic policies. *Source: IMF staff analysis and projections as presented in the chapter “Persistent fiscal deficits have imposed significant costs on the Mozambican economy.”* ### 34. The Bank of Mozambique is committed to prudent monetary policy. Future policy ### 34. The Bank of Mozambique is committed to prudent monetary policy. Future policy ### Monetary policy stance and exchange rate - The Bank of Mozambique (BM) expects inflation to remain in single digits through the medium term but considers that inflationary risks remain high. - Key inflationary risks identified: climate shocks, slow recovery in productive capacity, and delays in public debt service. - Authorities agreed the real exchange rate is overvalued but disagreed about the magnitude of misalignment and assumptions of the EBA methodology; authorities’ own frameworks assessed an overvaluation of about 6.3 percent in 2025. - Authorities expect FX market conditions to improve as recent shocks dissipate, exports pick up, and energy and extractive industry megaprojects start to be implemented. - Authorities do not see convincing evidence of FX shortages in the official market; they view elevated FX demand as driven by shocks that undermined confidence—primarily social unrest in 2024Q4 and deterioration of fiscal conditions. - The official market is viewed as the primary provider of FX; the parallel market is considered insignificant by the authorities. - The BM views its withdrawal from FX market interventions as a significant achievement: it resisted pressures to intervene during the 2024Q4 crisis and managed to build reserves. - The BM is cautious about FX auctions due to unfavorable past experiences, structural differences with other countries, concerns about compatibility with BM’s FX intervention and inflation-targeting frameworks, and communication challenges. - The BM notes exchange rate volatility has remained moderate and reiterates that the rate is market-determined; low volatility is attributed to prudent monetary policy and strong exchange-rate related fundamentals (e.g., positive real interest rate, low and stable inflation, increase in reserves). - The central bank remains committed to keeping monetary financing within legal limits and regards reserve requirements as a key instrument for managing banking system liquidity; current conditions do not permit reduction or remuneration of reserve requirements. - The BM continues to monitor financial stability risks closely. ### Structural fiscal reforms to support inclusive growth — overview - Protecting vulnerable groups requires restoring social transfers and improving INAS efficiency through digital payments and registry upgrades. - Governance reforms and anti-corruption enforcement are critical. - Recommended measures include: establishing a Supreme Audit Institution, addressing SOE and pension risks, improving fiscal transparency, strengthening the Treasury Single Account (CUT), and clearing arrears. ### Social protection (INAS) - INAS administers non-contributory social programs, including cash transfers to the elderly—currently benefiting around 600,000 individuals. - These transfers are critical for reducing poverty and food insecurity. - Spending on these transfers fell from 0.8 percent of GDP in 2020 to 0.1 percent in 2024, crowded out by wage bill spending. - Recommendations to strengthen delivery and reduce leakages: - Accelerate expansion of digital payment systems and invest in connectivity. - Remove operational bottlenecks. - Upgrade the INAS registry over the medium term to generate efficiency gains and improve targeting. - Addressing gender-based disparities in outcomes is highlighted as crucial for poverty reduction and inclusive growth. ### Governance, transparency, and accountability - Mozambique continues to lag regional peers on corruption and governance indicators (Text Figures referenced). - Mozambique was removed from the FATF grey list in October 2025, reflecting substantial progress on AML/CFT framework compliance since October 2022; deficiencies remain, notably in access to accurate beneficial ownership information. - Recommendation: Establish an independent and well-resourced Court of Accounts with a mandate to carry out financial, compliance, performance and special audits, ensure transparency requirements and autonomy safeguards, and coordinate effectively with other agencies. ### State-owned enterprises (SOEs) and contingent liabilities - Contingent liabilities from SOEs were 3.5 percent of GDP in 2024. - SOEs of particular concern due to poor liquidity, high indebtedness, and negative profitability: LAM (airline), TmCel (telecommunications), and ADM (airports). - Planned investments in LAM by three profitable SOEs pose risks of resource diversion from critical infrastructure. - Policy recommendations: - Transactions between the government and SOEs (e.g., transfers, dividends) should flow through the budget. - Adopt a transparent strategy to improve LAM’s efficiency and ensure investments are subject to rigorous cost-benefit analysis. - Restructure SOEs with persistent negative performance. - State guarantees to SOEs should be extended only with stricter criteria and oversight. ### Public pensions (INPS) - The INPS may result in fiscal costs of 1 percent of GDP per year by 2035. - System features and concerns: - Overly generous system with low retirement age (60). - Ratio of contributors to pensioners fell from 5.5 in 2020 to 3.8 in 2025 and is expected to continue declining. - The system provides a pension equal to 100 percent of the final salary—well above the 40 percent African average. - Although the law requires the State to contribute 7 percent as the employer, actual contributions have averaged 2 percent (1.7 percent in 2024). - Recommended reforms: raise the retirement age, enforce pension contributions, and reduce the replacement rate. ### Fiscal transparency, arrears, procurement, and the Treasury Single Account - Persistent discrepancies between above-the-line and below-the-line deficit measures underscore the need for greater clarity; lack of historical audited fiscal accounts has contributed to opacity. - Publication of audited 2024 accounts is a welcome step; should become standard practice complemented by comprehensive arrears reporting. - The accumulation of arrears to finance fiscal deficits undermines confidence, disrupts service delivery, and incentivizes tax non-compliance. - Government should validate legitimate claims and clear arrears under agreed modalities (e.g., discounts, securitization). - Address underlying causes: poor budget credibility and weak expenditure controls. - Establish sequential expenditure stages (commitment, verification, payment). - Procurement transparency: - Timely publication of procurement data—particularly for large purchasing entities—would strengthen oversight. - Plans for a single procuring entity should be complemented by robust monitoring, enforcement, and stronger disclosure requirements. - A hybrid model (centralized for strategic procurement and decentralized for routine tasks) could align with current capacity. - Treasury Single Account (CUT) challenges: - Fragmentation and limited fungibility of funds due to source-of-funds restrictions create idle balances. - Delays in revenue classification and transfers and large volumes of public funds outside the CUT in “off-CUT” accounts weaken cash unity and oversight. - Limited integration of foreign currency accounts. - Staff recommendations: minimize source-of-funds restrictions, automate revenue classification, incorporate off-CUT accounts into the CUT, and integrate foreign currency accounts. ### Sovereign Wealth Fund and safeguards - Sovereign Wealth Fund (SWF) management agreement was signed in November 2025, completing the fund’s legal framework; incoming revenues will be managed in line with the law. - Strengthening governance reforms (Annex XIV referenced) is critical to safeguard SWF integrity and ensure efficient use of resource revenues. - Last safeguards assessment completed in 2020; key outstanding recommendations relate to legal and governance reforms, including amendments to the Bank of Mozambique’s Organic Law to strengthen mandate, autonomy, and governance arrangements. ### Authorities’ views and commitments - Authorities emphasized the role of social spending and governance reforms in achieving inclusive and sustainable growth and recognized gender equality as macro-critical. - Authorities highlighted INAS links to girls’ empowerment and reaffirmed commitment to transparency and accountability reforms to foster private sector-led job creation. - Key initiatives under discussion: establishing a Court of Accounts and creating a central procurement agency. - Authorities acknowledged the need to safeguard social spending for the most vulnerable and highlighted progress in public financial management, wage bill control, tax administration, cash and debt management, and SOE risk mitigation. - Sovereign Wealth Fund Management Agreement signed in November 2025 operationalizes the fund. ### Data, capacity development, and technical assistance - Data provided to the Fund has some shortcomings but remains broadly adequate for surveillance (Annex XIV referenced). - Capacity development activities are aligned with structural reform priorities, with a focus on improving public financial management and government financial statistics (Annex XV referenced). - Authorities requested TA on Government finance statistics planned for FY26. ### Staff appraisal, risks, and policy recommendations - Mozambique faces large internal and external imbalances with serious near-term risks to macroeconomic and debt sustainability alongside long-term challenges of deep-rooted poverty, institutional fragility, and climate vulnerability. - Despite muted inflation and adequate international reserves, weak growth, deteriorating fiscal position, and growing foreign exchange shortages create urgency for comprehensive reforms. - Loose fiscal policy is identified as the principal threat to macroeconomic stability; large and persistent fiscal deficits financed increasingly through short-term domestic debt and central bank borrowing place debt on an unsustainable path. - Excess public wage bill spending and rising debt service are crowding out development and social protection. - Debt service arrears stood at about 1.3 percent of GDP at end-2025, some exceeding 180 days; Standard and Poor’s assigned a “selective default” rating on domestic debt. - Key staff recommendations: - Front-loaded multi-year fiscal consolidation focused on wage bill containment and broadening the tax base. - Achieve a primary balance of 2 percent of GDP by 2027 to align financing requirements with regional norms. - Monetary policy should remain tight; central bank should monitor price developments and inflationary expectations and be prepared to tighten policy if necessary. - Exchange rate policies should support external adjustment and competitiveness; greater exchange rate flexibility is recommended to help restore balance in the FX market and narrow the gap between official and parallel rates. - CFMs should not substitute for warranted macroeconomic adjustments; staff does not recommend approval of identified exchange restrictions and MCP and urges removal when conditions allow. - Safeguard financial stability by enhancing stress testing, preparing contingency plans, and coordinating with fiscal authorities to address sovereign risk. - Implement fiscal structural reforms to protect the most vulnerable, strengthen governance and transparency (including establishing a Supreme Audit Institution), reconcile above-the-line and below-the-line in annual fiscal accounts, address SOE and pension risks, improve social transfer delivery, and enhance procurement processes. - Conclusion: Delaying reforms will deepen the crisis and increase adjustment costs; immediate, coordinated action is needed urgently to restore stability, protect vulnerable groups, and lay the foundation for sustainable, inclusive growth. The authorities’ commitment to reforms and capacity development is encouraging, but implementation is critical. *Source: IMF staff summary of authorities’ views and staff appraisal in the Mozambique report excerpt.* ### 63. It is expected that the next Article IV Consultation with Mozambique will take place on ### It is expected that the next Article IV Consultation with Mozambique will take place on the standard 12‑month cycle ### Consultation cycle and Fund engagement - As of end-December 2025, Mozambique’s credit outstanding to the Fund reached 226 percent of quota—exceeding 200 percent of quota. - A Post‑Financing Assessment is anticipated by August 2026. ### Growth and inflation (selected recent history and projections) - Real GDP: - 2020: -1.2 - 2021: 2.4 - 2022: 4.4 - 2023: 5.5 - 2024: 2.1 - 2025 (Est.): 0.5 - 2026 (Proj.): 1.9 - 2027 (Proj.): 2.7 - Real GDP, excl. extractive industries: - 2024: 1.2 - 2025 (Est.): 0.0 - 2026 (Proj.): 2.0 - Nominal GDP (billions of meticais): - 2024: 1,454 - 2025 (Est.): 1,565 - 2026 (Proj.): 1,696 - GDP (billions of US dollars): - 2024: 22.7 - 2025 (Est.): 24.4 - 2026 (Proj.): 26.0 - Consumer prices (end of period): - 2024: 4.1 percent - 2025 (Est.): 3.2 percent - 2026 (Proj.): 6.0 percent - 2027 (Proj.): 6.5 percent - 2028 (Proj.): 7.0 percent - 2029 (Proj.): 7.5 percent - 2030 (Proj.): 8.0 percent - Notes from figures: - GDP growth has remained weak and has been hit by various shocks in recent years. - Recent mining developments increased the secondary sector’s growth contribution before the 2024 social unrest shock. - Total factor productivity (TFP) growth is estimated to have been negative since the 2010s, on average. - The Purchasing Managers’ Index (PMI) showed signs of some improvement in early 2025, while momentum was lost later. - Inflation picked up after August due to food, but was helped by reductions in fuel prices and base effects, with no large pressures coming from other items. ### Development indicators and vulnerabilities - Steady growth in GDP per capita during 2000–2015 slowed starting in the mid-2010s. - Education outcomes are weak; life expectancy lags; access to electricity is low. - Poverty increased significantly since the mid-2010s; frequent climate‑related shocks affect livelihoods. - Climate metrics: - Mozambique accounts for 0.02% of global GHG emissions but has relatively high emissions intensity (Emissions/GDP) compared to other SSA countries and EMDEs. - Mozambique’s vulnerability to climate is near the global average, but readiness to address risks is poor. - Mozambique is a net exporter of coal and natural gas; renewable energies make up only a small share of domestic energy. - The country faces food insecurity due to farming infrastructure and water risks, but benefits from strong disaster risk management (DRM). ### Monetary and financial developments - Policy actions and indicators: - The central bank embarked on an easing cycle in January 2024, with good transmission to lending rates, and cut reserve requirements by 10 percentage points after two years at very high levels, increasing liquidity ratios in the banking system. - However, a large and rising share of credit is absorbed by the government, and together with government arrears, credit to the private sector has not recovered. - The MZN/USD exchange rate has been stable since 2021, tightening financial conditions. - Key monetary aggregates and projections: - Reserve money 12‑month percent change: - 2024: 20.7 - 2025 (Est.): -15.0 - 2026 (Proj.): 11.4 - Broad Money (M3) 12‑month percent change: - 2024: 15.9 - 2025 (Est.): 13.6 - 2026 (Proj.): 10.1 - Credit to the economy (percent change): - 2024: 3.7 - 2025 (Est.): 2.3 - 2026 (Proj.): 2.4 - Credit to the economy (percent of GDP): - 2024: 19.7 - 2025 (Est.): 18.7 - 2030 (Proj.): 12.0 - Banking sector indicators (selected): - Regulatory capital to risk‑weighted assets ranged around mid‑20s percent through 2020–Oct‑25 (e.g., 26.1 in Dec‑20, 28.0 in Oct‑25). - Nonperforming loans to gross loans declined from 12.6 (Jun‑20) to 7.6 (Oct‑25). - Return on Equity and Return on Assets showed volatility but positive levels; Return on Equity was 11.8 in Oct‑25. ### External sector and reserves - Current account balance (Percent of GDP): - 2024: -11.0 - 2025 (Est.): -13.2 - 2026 (Proj.): -32.3 - 2027 (Proj.): -33.5 - 2028 (Proj.): -30.8 - 2029 (Proj.): -25.7 - 2030 (Proj.): -12.4 - Non‑megaproject current account (excl. megaprojects): - 2025 (Est.): -16.7 percent of GDP - Merchandise exports (percent of GDP): - 2024: 36.1 - 2025 (Est.): 31.5 - 2026 (Proj.): 32.1 - Net foreign direct investment (millions of US$): - 2024: 3,553 - 2025 (Est.): 5,141 - Gross international reserves (millions of US dollars, end of period): - 2024: 3,861 - 2025 (Est.): 4,238 - 2026 (Proj.): 4,262 - Months of next year's non‑megaproject imports: - 2024: 6.1 - 2025 (Est.): 6.5 - 2026 (Proj.): 6.4 ### Fiscal developments and public debt (central government and public sector) - Total revenue (percent of GDP): - 2024: 24.2 - 2025 (Est.): 22.2 - 2026 (Proj.): 22.4 - LNG revenue contributions (percent of GDP) projected to rise gradually: - 2026 (Proj.): 0.2 - 2027 (Proj.): 0.4 - 2030 (Proj.): 2.5 - Total expenditure and net lending (percent of GDP): - 2024: 33.3 - 2025 (Est.): 28.1 - 2026 (Proj.): 30.2 - Overall fiscal balance (percent of GDP): - 2024: -6.2 - 2025 (Est.): -4.5 - 2026 (Proj.): -6.3 - 2027 (Proj.): -7.1 - 2028 (Proj.): -8.1 - 2029 (Proj.): -8.8 - 2030 (Proj.): -8.9 - Primary fiscal balance (percent of GDP): - 2024: -2.1 - 2025 (Est.): -0.6 - 2026 (Proj.): -2.0 - Composition pressures: - Wage bill spending and interest payments have been crowding out capital expenditure and social spending. - Higher real wages have been the main driver of the increase in wage bill spending. - External financing sources have been declining and replaced with costly domestic debt and, more recently, with central bank financing. - Public sector debt (Percent of GDP, nominal stock of total debt): - 2024: 89.9 - 2025 (Est.): 91.4 - 2026 (Proj.): 94.6 - 2027 (Proj.): 101.7 - 2028 (Proj.): 107.9 - 2029 (Proj.): 112.3 - 2030 (Proj.): 108.0 - External debt share of total debt: - 2024: 60.9 percent - 2025 (Est.): 61.2 percent - 2030 (Proj.): 46.7 percent ### Balance of payments (selected 2024–26 levels, US$ millions) - Current account balance: - 2024: -2,493 - 2025 (Est.): -3,229 - 2026 (Proj.): -8,389 - Trade balance for goods: - 2024: -164 - 2025 (Est.): -390 - 2026 (Proj.): -588 - Exports, f.o.b.: - 2024: 8,211 - 2025 (Est.): 7,703 - 2026 (Proj.): 8,327 - Imports, f.o.b.: - 2024: 8,375 - 2025 (Est.): 8,093 - 2026 (Proj.): 8,915 - Financial account balance: - 2024: 2,687 - 2025 (Est.): 3,249 - 2026 (Proj.): 8,218 ### Composition of public debt and debt service (selected) - Total public debt (2024, US$ millions): 20,178.9 (100.0 percent of total) - External debt (2024, US$ millions): 13,809.2 (68.4 percent of total) - Domestic debt (2024, US$ millions): 6,369.7 (31.6 percent of total) - Debt service (US$ millions): - 2024: 2,058.0 - 2025 (Est.): 2,801.7 - 2026 (Proj.): 3,281.8 - Memo: Nominal GDP (millions US$), end of period: - 2024: 22,744 - 2025 (Est.): 24,349 - 2026 (Proj.): 25,528 *Source: IMF staff and Mozambican authorities (contents as provided in the supplied PDF excerpt).* ### Annex I. Foreign Aid: Recent Developments ### Annex I. Foreign Aid: Recent Developments ### Trends in foreign aid and macroeconomic implications - Official Development Assistance went from about 10 percent of GDP in 2016 to 6 percent in 2023. - Since the mid-2010s, Mozambique has experienced a steady decline in foreign aid; given lack of access to commercial external financing, this decline has had a significant macroeconomic impact. - Donor support has been critical for development spending, particularly in health and education. - The United States remains the largest bilateral donor, followed by the European Union and Japan. ### U.S. assistance: objectives, channels, and allocations - U.S. assistance focuses on strengthening democratic institutions, promoting transparency and inclusive governance, and improving healthcare, education, poverty reduction, job creation, and food security. - U.S. agencies contributing include: the United States Agency for International Development (USAID), the Centers for Disease Control and Prevention, and the Millennium Challenge Corporation (MCC), which invests in transport and infrastructure development. - In 2024, half of U.S. support was allocated to the PEPFAR program, which finances two-thirds of HIV-related interventions. - In July 2025, all active USAID programs transitioned to the Department of State (DoS). - A total of USD 267 million was awarded to projects in Mozambique aimed at epidemic control, improving HIV outcomes, ensuring uninterrupted health commodity supplies, and strengthening supply chains and transport systems. ### Short-term continuity measures and medium-term commitments - PEPFAR-funded programs aligned with the February 2025 life-saving waiver remain operational. - To avoid service disruptions, the DoS secured USD 160 million in bridge funding for October 2025–March 2026, a 21 percent reduction compared to 2025. - In December 2025, the US signed an agreement committing up to USD 1.8 billion to strengthen health systems and expand healthcare access over the medium-term. - In return, Mozambique pledged to increase its health spending by roughly 30 percent over the next 5 years. ### Millennium Challenge Corporation (MCC) Compact - The MCC Compact in Mozambique remains in place. - This USD 500 million grant was signed in September 2023. - Compact objectives: strengthen infrastructure, improve agricultural productivity, and enhance climate resilience. - Key priorities: reinforcing flood-prone infrastructure, reducing rural access deficits, advancing fiscal reforms, catalyzing commercial agriculture, and boosting fisheries productivity while mitigating climate vulnerabilities and promoting inclusive growth. *Source: Annex I. Foreign Aid: Recent Developments.* ### Annex VI. Risk Assessment Matrix ### Annex VI. Risk Assessment Matrix ### Global Risks - Escalating Trade Measures and Prolonged Uncertainty. - Likelihood: High - Horizon: ST, MT - Impact: Medium - Policy Response: - Formulate credible medium-term fiscal path to support investor confidence - Implement reforms to improve competitiveness and remove bottlenecks to the private sector development - Financial Market Volatility and Correction. - Likelihood: High - Horizon: ST, MT - Impact: Medium - Policy Response: - Implement upfront actions to ensure fiscal and debt sustainability - Strengthen the resolution and crisis management frameworks - Increase exchange rate flexibility to serve as a shock absorber - Fiscal Vulnerabilities and Higher Long-Term Interest Rates. - Likelihood: High - Horizon: ST, MT - Impact: High - Policy Response: - Implement upfront actions to ensure fiscal and debt sustainability - Strengthen debt management to ensure a financing mix which relies on concessional financing, and longer maturity domestic debt - Geopolitical Tensions. - Likelihood: High - Horizon: ST, MT - Impact: Medium - Policy Response: - Diversify export products and partners - Adjust monetary policy as needed to inflation pressures - Improve social safety nets - Commodity Price Volatility. - Likelihood: High - Horizon: ST, MT - Impact: High - Policy Response: - Prioritize transfers to the vulnerable - Allow the exchange rate to act as shock absorber - Adjust monetary policy as needed to inflation pressures - Decline in International Aid. - Likelihood: High - Horizon: ST, MT - Impact: Medium - Policy Response: - Implement upfront actions to ensure fiscal and debt sustainability - Allow the exchange rate to act as shock absorber - Adjust monetary policy as needed to inflation pressures - Climate change. - Likelihood: Medium - Horizon: ST, MT - Impact: High - Policy Response: - Address infrastructure gaps - Strengthen safety nets - Invest in climate resilient infrastructure and agriculture. - Strengthen institutions to manage related risks - Note on RAM probabilities: - The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly. The conjunctural shocks and scenarios highlight risks that may materialize over a shorter horizon (between 12 to 18 months) given the current baseline. Structural risks are those that are likely to remain salient over a longer horizon. ### Domestic Risks - Intensification and spread of conflict in the north. - Likelihood: High - Horizon: ST, MT - Impact: High - Policy Response: - Implement socioeconomic policies to improve social cohesion. - Heightening of social tensions. - Likelihood: High - Horizon: ST, MT - Impact: High - Policy Response: - Improve participatory decision-making processes and transparent use and distribution of resources. - Materialization of fiscal risks (contingent liabilities from SOEs, revenue shortfalls, expenditure overruns). - Likelihood: High - Horizon: ST, MT - Impact: High - Policy Response: - Strengthen cash and debt management and commitment controls, restructure SOEs in distress, and improve budget credibility. - Sovereign debt distress. - Likelihood: ST, MT (likelihood field in source omitted a direct "High" qualifier) - Policy Response: - Implement upfront actions to ensure fiscal and debt sustainability - Improve budget credibility, fiscal transparency and accountability - Strengthen debt management to ensure a financing mix relying on concessional financing and long maturity domestic debt - Financial instability. - Likelihood: High - Horizon: ST, MT - Impact: High - Policy Response: - Strengthen the resolution and crisis management frameworks. - Enhance regulation/supervision. - Delays in LNG projects. - Likelihood: Medium - Horizon: ST, MT - Impact: High - Policy Response: - Implement reforms to improve social cohesion, ease tensions, and support economic diversification, private sector and inclusive growth. - FX shortages. - Likelihood: High - Horizon: ST, MT - Impact: High - Policy Response: - Increase exchange rate flexibility. - Implement reforms to improve competitiveness, diversify the economy and remove bottlenecks to the private sector development *Source: Annex VI. Risk Assessment Matrix, IMF staff assessment as presented in the source PDF.* ### 5. Strengthening the integrity and coverage of Mozambique’s trade data is essential. ### 5. Strengthening the integrity and coverage of Mozambique’s trade data is essential. ### Trade data integrity and gaps - Large negative imports asymmetries likely reflect underreporting at borders, weaknesses in customs administration, and widespread informal trade. - Required actions to address gaps: - Digitalizing customs systems. - Improving data-sharing with trade partners. - Conducting targeted studies on informal flows. ### Annex XI — Trade asymmetries (summary of figures) - Figures cover: - Exports asymmetries with the World, China, SSA (LHS - MM USD, RHS - percent of reported exports). - Imports asymmetries with the World, China, SSA (LHS - MM USD, RHS - percent of reported imports). - Mozambique's exports and imports asymmetries with trade partners (share of reported exports/imports, percent). - Mozambique's exports and imports asymmetries vs. other SSA (share of reported exports/imports, percent). - Source dataset: IMTS (International trade in goods by partner country dataset, formerly DOTS). - Note: IMTS provides merchandise trade statistics (goods only, not services) broken down by reporting country and partner country. Extreme values are discarded. ### Gender equality and economic outcomes (Annex XII) - Key findings: - Gender equality is critical for Mozambique’s inclusive growth and is associated with higher per capita GDP and lower poverty, inequality, and informality. - Mozambique ranks 121st out of 173 countries globally for gender equality (UNDP). - Despite legal frameworks comparable to UMICs, outcome indicators lag, driven by high adolescent fertility and limited skills for formal jobs. - Quantified impacts: - Real per capita GDP growth could rise by 0.5–0.8 percentage points annually if Mozambique’s GII matched UMIC levels. - Model-based estimates indicate GDP could increase by 15 percent if workforce disparities were eliminated (Cuberes and Teignier, 2016). - Pennings (2022) estimates up to 7 percent per capita GDP gains from closing labor market gaps. - Policy implication: - Achieving these gains requires holistic, cross-cutting policies and sustained political commitment; gender equality is a priority in ENDE 2025–2044. ### Data standards, reporting, and quality issues (Annex XIII) - Mozambique participates in the Enhanced General Data Dissemination System (e-GDDS) and publishes data on its National Summary Data Page since July 2019. - Table of Common Indicators Required for Surveillance (As of December 2025) shows varied frequencies and timeliness for macroeconomic indicators (examples of entries and codes preserved in the source). - Summary of Data Quality Factsheets is provided (Annex XIII). ### Capacity development strategy (Annex XIV) - IMF technical assistance (TA) and capacity development (CD) priorities: - Public Financial Management (PFM): improve budget planning, cash forecasting, wage-bill consolidation, spending control, fiscal risk management, fiscal governance and transparency, fiscal reporting, natural resource wealth management, and climate resilience. - Tax policy and revenue administration: enhance core tax administration and customs functions, broaden the revenue base, improve tax revenue compliance, focus on large taxpayers, risk assessments, and digital-by-design processes. - Debt management: enhance operations to ensure timely debt service, reduce borrowing costs, and mitigate risks. - Monetary and macroprudential policy; central bank operations: strengthen central bank governance and modernization across responsibilities. - Governance: strengthen anti-corruption framework, modernize legal framework for the supreme audit function, and enhance Financial Integrity Unit (GiFIM) capacity for AML/CFT supervision. - Statistics: improve compilation and dissemination of fiscal and real sector statistics. - Implementation challenges: - Absorption constrained by limited capacity, resource shortages, staff turnover, and weak prioritization. - Mitigation: sequenced approach, strong leadership buy-in, and complementary donor support. - Authorities’ endorsement: - Senior officials from Ministry of Finance, Bank of Mozambique, Revenue Authority, and INE value IMF practical support and endorsed CD priorities, including fiscal digitalization and central bank modernization. ### Public debt coverage and debt sustainability (DSA) — key points - Overall public debt is projected to be on an unsustainable path. - External public debt is at high risk of debt distress; PV of external debt-to-GDP is above the sustainability threshold for multiple years. - Overall public debt is assessed as in distress; total debt-service arrears amounted to 1.3 percent of GDP at end-2025 — a downgrade relative to the July 2024 DSA. - PV of total public debt-to-GDP is projected to remain significantly above its benchmark throughout the projection horizon. - PV of external debt-to-GDP is expected to stay above its sustainability threshold for several years but fall below the threshold by 2032 as LNG revenues pick up (compared to 2030 in the previous DSA). - Policy measures identified as important for restoring sustainability: - A credible fiscal adjustment. - Greater exchange rate flexibility. - A prudent debt management strategy. - Debt carrying capacity assessment: - Mozambique’s debt carrying capacity is assessed as “weak” based on a compositor indicator value of 2.49. - Public debt coverage specifics: - Coverage unchanged from 2024 DSA: includes external and domestic obligations of the central government, SOE debt, and government guarantees for SOE contracted debt. - ENH’s external debt accounts for 19.2 percent of GDP; the rest of SOEs’ external debt accounts for 1.2 percent of GDP (as of end-2024). - Contingent liabilities stress test assumes realization of contingencies related to municipal debt, an ongoing arbitration claim by Export Trading Group (ETG), and non-ENH SOEs external debt—each estimated at 2 percent of GDP and 1.5 percent of GDP, respectively. - ETG arbitration claim: USD 120 million compensation claim; arbitration process initiated in London. *Source: 1mozea2026001-source-pdf - 5. Strengthening the integrity and coverage of Mozambique’s trade data is essential.* ### 20.3 percent in 2024. The revenue shortfall, compounded by limited access to financing, forced the ### Mozambique: Debt, Financing, and Macro Outlook ### Fiscal position, financing constraints, and arrears - Revenue shortfall and limited access to financing forced the government in 2025 to implement severe expenditure cuts, particularly in goods and services as well as capital investment. - Net external financing has been negative since 2022, leaving domestic debt as the primary source of funding for fiscal deficits. - Domestic financing declined from 6.7 percent of GDP in 2024 to 3.2 percent in 2025 with heavy reliance on short-term debt. - Arrears financing (suppliers and debt service arrears) are estimated to have risen from 0.3 percent of GDP in 2024 to 1.9 percent in 2025. - Accumulation of debt service arrears estimated at 1.3 percent of GDP at end-December 2025. - In 2024, Mozambique accumulated USD 54 million in new external debt service arrears to official creditors; these were settled in February 2025. - At end-2024, outstanding arrears stood at USD 601 million. - As of end-2025, additional external debt service arrears of USD 230 million or 0.9 percent of GDP have been incurred, delayed by 79 days on average, some delayed by 8 months. - Domestic debt service arrears continued throughout 2025 and by end-December 2025 domestic debt arrears reached 0.4 percent of GDP. - S&P downgraded domestic debt to selective default in March 2025, reaffirming this rating in October 2025. - External arrears have been accumulated with multilateral institutions (BADEA, EIB, IsDB, IFAD, IDA, NDF, OPEC Fund) and bilateral creditors (Saudi Arabia, SFD, Austria, Belgium, Brazil, China, France, India, Japan, Kuwait, Libya, Portugal, Romania, Russia, South Korea, Spain). - Negotiations and settlements: - Agreement to settle arrears with Brazil reached in 2022 (pending parliamentary approval). - Negotiating pre-HIPC arrears with Angola, Bulgaria, Poland; agreements reached with Iraq and Libya. - Out‑of‑court settlements in October 2023 and June 2024 resolved Proindicus and MAM disputed debt. ### Public sector debt levels and composition (selected figures) - Public debt was about 91 percent of GDP at end-2024, about the same as a year earlier. - Public sector debt (percent of GDP) historical series (selected years): - 2016: 124.8 - 2017: 103.8 - 2018: 105.5 - 2019: 98.3 - 2020: 120.0 - 2021: 104.3 - 2022: 100.4 - 2023: 90.8 - 2024: 91.5 - Public sector external debt (incl. guarantees) (percent of GDP), selected years: - 2016: 102.5 - 2020: 97.3 - 2023: 66.3 - 2024: 62.5 - Public sector domestic debt (incl. guarantees) (percent of GDP): - 2016: 22.3 - 2023: 24.6 - 2024: 29.0 - ENH (LNG project) debt contribution to public sector external debt: 20.1 percent of GDP in 2024 (Text Table 2 entry for 2024). - Memo item: disputed external arrears (not included in debt stock) were 5.9 (percent of GDP) in 2024. ### ENH (Empresa Nacional de Hidrocarbonetos) debt dynamics (Box 1) - ENH holds equity positions of 10–15% in four LNG projects; these are financed through project partner loans and contribute significantly to public debt. - ENH debt projections: - USD 4.6 billion (19.6% of GDP) in 2024. - Projected to rise to USD 20 billion (22.3% of GDP) by 2045. - Downside scenario: suspension of Area 1 development would reduce ENH debt by 17.4 percentage points with minimal revenue loss (2.7 percent of GDP). - LNG projects and ENH equity shares: - Coral South (ENI): approval 2017, production start 2022, capacity 3.4 MTPA, ENH share 10, sovereign guarantee: No. - Coral North (ENI): approval 2025, production expected 2030, capacity 3.4 MTPA, ENH share 10, sovereign guarantee: No. - Rovuma LNG (ExxonMobil): approval [2026], production expected 2031, capacity 18 MTPA, ENH share 10, sovereign guarantee: No. - Golfinho Atum (TotalEnergies): approval 2018, production expected 2030, capacity 13 MTPA, ENH share 15, sovereign guarantee: $2.25 bn. - ENH role and financing: - ENH holds 15 percent in Golfinho Atum and 10 percent in other projects; shares financed through project loans carried by partner companies. - ENH debt profile and costs (end-2024): - Coral South debt: USD 1.6 billion (7% of GDP); interest rate 8.7% compounded annually. - Golfinho Atum debt: USD 3 billion (12.8% of GDP); interest 9% during development, rising to 13% post-completion. - No debt yet for Coral North and Rovuma projects. - Debt repayment mechanisms: - Golfinho: 80% of net revenues allocated to debt service. - Coral and Rovuma: 90% of net revenues allocated to debt service. - After 15 years—or upon reaching a trigger point—100% of revenues will be used to clear remaining debt. - Sovereign guarantee exposure: - A USD 2.25 billion (15% of GDP) sovereign guarantee covers ENH’s share in Golfinho Atum financing; lapses about one year after LNG production starts (2030). - Current exposure is USD 43 million (lenders disbursed $287 million). - No other guarantees exist. - Area 1 (TotalEnergies) accounts for 93% of ENH debt. ### Liability management operations and domestic market actions (Box 2) - Government undertook several voluntary market-based LMOs during 2025, exchanging new 5-year securities for ones maturing on the day of (or shortly before) the operation. - By end‑September 2025 these operations enabled rollover of roughly two‑thirds of scheduled bond amortizations. - A final LMO in December 2025—combined with issuance of additional bonds—allowed full rollover of all 2025 government bond amortizations and clearing of most domestic debt‑service arrears accumulated through Q3 2025. - Recommended improvements from a 2025 joint IMF‑World Bank technical assistance mission included: legal frameworks for early and calendar-adherent issuances, increased auction transparency, implementation of a benchmark bond policy, and ensuring LMOs are voluntary, auction-based, well-planned, and transparent. - A government decree in early December 2025 expanded Treasury instruments to include inflation-indexed bonds, bonds for retail investors, and green bonds. - Selected 2025 issuance dates and terms (Bolsa De Valores de Moçambique): - Mar 11: Amount issued 3,744 (MT million); Interest rate 14.3 percent; Maturity 5 years. - May 15: 4,776; 15.0 percent; 5 years. - Sep 9: 1,004; 14.1 percent; 5 years. - Sep 16: 1,000; 14.0 percent; 5 years. - Sep 22: 740; 14.0 percent; 5 years. - Sep 29: 14,410; 14.0 percent; 6 years. - Dec 26: 2,083; 13.5 percent; 5 years. - Dec 29: 2,946; 15.0 percent; 6 years. - Dec 29: 2,946; 15.0 percent; 6 years. - Dec 30: 8,365; 13.5 percent; 3 years. ### Macroeconomic forecasts, risks, and projections - Under unchanged policies, macroeconomic imbalances are expected to deteriorate. - Growth and inflation projections: - Economic growth in 2025 estimated at 0.5 percent. - Growth recovers to 2 percent in 2026. - Average growth 2.3 percent in 2027–29. - Inflation projected to increase and remain above the implicit 5 percent inflation target due to government reliance on monetary financing. - Selected projections from Text Table 3 (Current DSA–Baseline): - Primary Deficit (Percent of GDP) 2025: -0.8; 2026: 0.6; 2030: 0.6; Long-term: -2.2. - Inflation rate (GDP Deflator, In Percent) 2025: 7.1; 2026: 6.3; 2030: 7.8; Long-term: 5.7. - Nominal GDP (Meticals billion) 2025: 1,565; 2026: 1,696; 2030: 2,702; Long-term: 7,007. - Real GDP Growth (Percent) 2025: 0.5; 2026: 1.9; 2029: 3.1; 2030: 11.9; Long-term: 4.5. - Exports of Goods and Services (Growth) 2025: -6.0; 2026: 7.2; 2027: 5.9; 2030: 41.2; Long-term: 7.4. - Current Account Balance (Percent of GDP) 2025: -13.2; 2026: -32.3; 2027: -33.5; 2030: -12.4; Long-term: 8.2. - Medium-term growth outlook: - Under both scenarios, real GDP growth is projected to reach about 12 percent in 2030 with the start of two LNG projects (TotalEnergies and Coral North), followed by Exxon’s project boosting growth in 2031. - As LNG projects reach full capacity, their impact on growth will diminish; assumptions are conservative and exclude potential spillovers from LNG to the broader economy. - External position and reserves: - Non-megaproject current account deficit narrowed to 13.4 percent in 2024 and estimated at 11.8 percent of GDP in 2025. - Current account deficit norm is 7.2 percent of GDP; 2025 position assessed as substantially weaker than implied by fundamentals and desirable policies. - At end-2025, gross international reserves covered 6.5 months of non-megaproject imports and 4.5 months of total imports. - Under the baseline, reserves projected to decline to 2.3 months of total imports coverage by 2030, as net export proceeds insufficient to offset rising external debt service obligations. ### Debt trajectory, domestic debt risks, and MTDS - Domestic debt is expected to remain the primary source of funding and rise sharply under the baseline: - Domestic debt projected to reach about 63 percent of GDP in 2030. - Domestic debt projected to average about 100 percent of GDP over the long term. - Interest payments at about 5 percent of GDP on average over 2025–30. - Average real interest rate of 9.3 percent over 10‑year projections (2026–36). - Medium-Term Debt Strategy (MTDS) objectives and measures: - Increase concessional external debt and extend domestic debt maturity. - Rely less on external financing as LNG revenues materialize. - Continue to benefit from project grants (e.g., US Millennium Challenge Corporation in 2026). - Limit short-term debt to less than 10 percent of new domestic debt by 2029 to reduce rollover risks. - Strengthen debt management capacity and consider innovative sustainable financing instruments: green bonds, sukuk, catastrophe bonds. ### Monetary policy and constraints - Bank of Mozambique policy rate cuts and limits: - Since January 2024, policy rate cut by 775 bps to 9.5 percent in November 2025. - Inflation recorded 4.8 percent yoy in October (below 5 percent target since December 2023). - Real policy rate remains elevated at around 5 percent. - Limited space to reduce the policy rate amid baseline risks; monetary financing may lead to higher inflation and perceived debt sustainability risks could detach policy rate from yields, shortening maturities. _Italic: Source: Mozambican authorities and IMF staff calculations (excerpt from the IMF PDF chapter)._ ### 15. Risks to the outlook are heavily to the downside. External risks include pandemics, ### 15. Risks to the outlook are heavily to the downside. External risks include pandemics, ### Risks to the outlook - External risks include pandemics, natural disasters, regional conflicts, aid reductions, and commodity price volatility. - Domestic risks include heightened insecurity—potentially delaying LNG projects— foreign exchange shortages, and weak non-mining sector performance. - Fiscal vulnerabilities could intensify due to expenditure pressures and SOE losses, complicating domestic debt rollover. - Ongoing negotiations over electricity tariffs with MOZAL present further risks. - Upside risks include earlier-than-expected LNG production from ENI’s Coral North. ### Debt sustainability framework realism tools (policy implications) - Existing policies deepen fiscal stress and macroeconomic imbalances. - The baseline assumes a deterioration of the fiscal deficit by about 4 percentage points of GDP in 2026–28. - As the current fiscal stance continues and in the absence of commitment to policy adjustment, fiscal pressures will increase, crowding out capital and social spending, increasing financing needs and monetary financing. ### Public Debt Related to LNG - The DSA accounts for both the sovereign guarantee and the equity tranche of disbursed ENH debt. - The guarantee’s value will rise with project disbursements, up to a USD 2.25 billion ceiling, and be cancelled upon LNG production start. ### Country classification and Composite Indicator (CI) score - Country: Mozambique - Country Code: 688 - Debt Carrying Capacity: Weak - Final Classification based on current vintage: Weak - Classification based on the previous vintage: Weak - Classification based on the two previous vintage: Weak - CI Score: 2.494 - CI rating: Weak - Note: Until the April 2019 WEO vintage is released, the two previous vintages ago classification and corresponding score are based solely on the CPIA per the previous framework. - Calculation of the CI Index (components, coefficients, 10-year averages, and contribution of components): - CPIA: coefficient 0.385, 10-year average 3.082, CI Score component 1.1948 (48%) - Real growth rate (in percent): coefficient 2.719, 10-year average 3.658, CI Score component 0.104% (0.104%) - Import coverage of reserves (in percent): coefficient 4.052, 10-year average 25.56, CI Score component 1.0442 (42%) - Import coverage of reserves^2 (in percent): coefficient -3.990, 10-year average 6.533, CI Score component -0.26 (-10%) - Remittances (in percent): coefficient 2.022, 10-year average 1.105, CI Score component 0.021% (0.021%) - World economic growth (in percent): coefficient 13.520, 10-year average 3.035, CI Score component 0.4116 (0.4116%) - CI Score total: 2.494 (100%) ### Debt carrying capacity assessment - Debt carrying capacity continues to be assessed as weak; composite index stands at 2.49 for Mozambique. - If megaprojects were excluded, capacity would be medium, positively affecting import coverage of reserves, and would result in higher debt distress thresholds. - Megaproject imports are fully financed through special investment vehicles, not affecting international reserves. ### A. External Debt Sustainability Analysis — key projections and breaches - Under current policies, external debt-to-GDP breaches thresholds under the baseline, and debt service to exports and debt service to revenue ratios have deteriorated compared to the 2024 DSA, signaling high risk. - These breaches due to projected future borrowing related to large LNG projects will be repaid directly from future LNG revenues, which are expected to be significant. - Key projections: - The PV of external public debt-to-GDP is projected at 45.3 percent at end-2025, staying above threshold of 30 percent until 2032, compared to 2030 in the 2024 DSA. - The PV of external public debt-to-exports peaks at 126 percent in 2025, compared to 128 percent in the 2024 DSA, remaining below the threshold of 140 percent over the projection period. - External public debt service-to-exports remains below the threshold until 2028 when it reaches 10 percent in 2028, and remains below the threshold of 10 percent over the projection period (2029-45). - External public debt service-to-revenues ratio remains below the threshold until 2028 when it temporarily breaches the threshold at 16 and 15 percent in 2028 and 2029, respectively, then remains below the 14 percent threshold over the projection period (2030-45). ### Standard stress test results (external) - All shocks—particularly those affecting exports and other flows—result in threshold breaches across all debt indicators. - Key findings: - Export shocks raise the PV of external public debt-to-GDP by an average of 25 percentage points above the threshold over 2025–35. - Exports shocks increase the PV of external public debt-to-exports above the threshold, peaking at 310 percent in 2027, and returning below the threshold by 2033. - Export shocks push the debt service-to-export and debt service-to-revenue ratios above the thresholds by about 3 and 2 percentage points on average during 2027–35. - Combined shocks to current transfers-to-GDP and FDI-to-GDP keep the PV of debt-to-GDP above the threshold through the projection period, while the same shock pushes the PV of debt to exports above the threshold over the medium term. - A 30 percent nominal depreciation in 2025 would lead to an average of 13 percentage points increase in the PV of debt-to-GDP ratio above the threshold in 2025–31. - Footnote clarifications: - Debt carrying capacity is assessed to be weak with an index strictly below 2.69 for two years in a row, medium with an index between 2.69 and 3.05, and strong with an index strictly above 3.05. - The export-shock stress test referenced does not reflect a plausible scenario as it implies that there would be no export revenue from LNG, despite still including all the debt created by the projects. ### Impact of contingent liabilities and disaster shocks (external) - If contingent liabilities materialize, the PV of external public debt-to-GDP would surpass the threshold by an average of 13 percentage points throughout the projection period. - A major disaster shock—equivalent to 10 percent of GDP—would significantly weaken debt sustainability, breaching the threshold throughout the projection period. - A disaster shock would result in the PV of external public debt-to-GDP breaching the threshold by about 13 percentage points on average through 2025-35. ### B. Public Sector Debt Sustainability Analysis — baseline and sensitivity - Under the baseline, the PV of public debt to GDP ratio breaches of the benchmark are significant and sustained throughout the projection period, compared to falling below the benchmark in 2032 under the previous DSA. - Under existing policies, chronic fiscal deficits and reliance on costly domestic debt, combined with weaker economic growth, result in an unsustainable debt path. - Public debt sustainability indicators are highly sensitive to shocks to growth, other flows, and exports: - A shock to growth results in PV of debt-to-GDP reaching as high as 112 percent in 2029. - Disruptions in current transfers-to-GDP and FDI-to-GDP ratios push the PV of debt-to-GDP to a peak of 138 percent in 2029. - An export shock results in PV of debt-to-GDP reaching as high as 121 percent in 2029. *Source: https://www.imf.org/-/media/files/publications/cr/2026/english/1mozea2026001-source-pdf.pdf* ### 24. Overall public debt is in debt distress, due to persistent debt service arrears, while ### 24. Overall public debt is in debt distress, due to persistent debt service arrears, while ### Risk rating and current vulnerabilities - Overall public debt is assessed as in distress; external debt is assessed at high risk of debt distress. - The revised rating reflects total accumulation of debt service arrears of 1.3 percent of GDP, exceeding the de minimis threshold of 1 percent of GDP. - Based on preliminary data as of December 2025, external and domestic debt service arrears are estimated at 0.9 and 0.4 percent of GDP, respectively (¶4). - Under unchanged policies: - Domestic debt vulnerabilities will worsen due to reliance on costly short-term domestic debt; on average 35 percent of total domestic debt. - Servicing external debt will become more challenging due to the declining path of grants and concessional financing, with deterioration in the debt service-to-exports and debt service-to-revenue ratios compared to the 2024 DSA. ### Drivers of unsustainability and downside risks - Debt is currently assessed as unsustainable primarily because of the political infeasibility of a comprehensive policy adjustment that could safeguard debt sustainability. - Additional risks to the debt path include: - Contracting non-concessional debt at unfavorable terms. - Further delays in resumption of LNG projects. - Terms of trade shocks. - Disaster shocks. ### Policy recommendations and strategy to restore sustainability - A comprehensive and coordinated strategy could reduce macroeconomic imbalances and help restore debt sustainability. Key elements include: - Fiscal consolidation through wage bill containment and revenue measures to restore stability and create fiscal space for development and safety nets. - Voluntary, market-based liability management may be needed to address severe near-term financing pressures. - Greater exchange rate flexibility to complement fiscal consolidation, allow the economy to adjust to changing external conditions, and support growth. ### Debt management and data improvements - Authorities have improved debt management but need better debt data collection and further oversight: - Adopted MTDS in August 2023. - Transitioned to the Meridian system (CS-Meridian) and incorporated external debt; plan to include domestic debt. - Strengthened cash management; annual and quarterly debt reports are published. - Further technical assistance is recommended to strengthen processes, ensure timely payments, reduce borrowing costs, and mitigate financial risks. ### IDA SDFP commitments and borrowing constraints - In line with IDA’s Sustainable Development Financing Policy (SDFP), Mozambique, as a high-risk IDA country, is subject to SDFP including Policy and Performance Actions (PPAs). - Mozambique implemented FY25 PPAs. Under the policy, the authorities committed in FY26 to: - (i) refrain from entering contractual obligations for new PPG non-concessional debt; and - (ii) migrate and reconcile all the external and domestic central government debt to the CS-Meridian system and to publish the information on external and domestic debt payments that are overdue by more than 30 days annually in the annual debt report and at least once quarterly. - The Government has requested a waiver to the non-concessional borrowing limit for the equity participation of ENH in the Coral North project. ### Authorities’ views and actions - The authorities agreed with the DSA assessment and consider restoring debt sustainability a priority as presented in their 2025 MTDS. - They are considering innovative financing solutions such as carbon credits and debt for development swaps. - The government is committed to enhancing public sector debt transparency and publishing quarterly and annual debt reports covering stocks, on-lending, and state guarantees, including for most SOEs. - The Ministry of Finance completed migration of external debt to the CS-Meridian system with World Bank support and is making progress incorporating domestic debt data. - The authorities confirmed that an agreement had been reached with the Brazilian authorities on a reconciled amount for a new loan covering arrears linked to ADM; the repayment plan is under discussion and pending ratification by the Brazilian parliament. ### Key debt composition and creditor data (selected figures) - Total public debt (debt stock, end of period, 2024): Total = 20,613.6 (Million US$); Percent total debt = 100.0; Percent GDP = 90.6. - External debt (2024): 14,243.9 (Million US$); 69.1 percent of total debt; 62.6 percent of GDP. - Domestic debt (2024): 6,369.7 (Million US$); 30.9 percent of total debt; 28.0 percent of GDP. - Debt service (selected totals, 2024–2026): 2024 = 2,058.0 (Million US$); 2025 = 2,801.7 (Million US$); 2026 = 3,281.8 (Million US$). - Memo: Nominal GDP (millions US$), eop: 22,744 (2024); Exchange Rate and subsequent years reported in table. ### Actions underway and technical assistance - Authorities have received/are receiving technical assistance across areas including cash management, MTDS, debt management system migration (CS-Meridian), stress testing, monetary policy implementation, fiscal/pension/IFRS training, PIMA and Climate PIMA, revenue modeling, SOE fiscal risk tools, and PFM digital transformation (June 2022–December 2025 missions and support). *Source: IMF staff report — Mozambique: Staff Report for the 2025 Article IV Consultation — Informational Annex (January 28, 2026).* ### Introduction ### Introduction ### Overview and policy context - Authorities thanked IMF staff for the 2025 Article IV consultation mission and "broadly share the thrust of staff’s appraisal and policy recommendations." - Mozambique’s macroeconomic environment remains fragile due to a prolonged sequence of overlapping shocks: COVID-19 pandemic aftermath, persistent security challenges, sharp increases in global food and fuel prices, and increasingly severe climate-related disasters. - These pressures have: - strained the balance of payments, - narrowed fiscal space, - weakened credit conditions, - heightened social vulnerabilities, - and left poverty widespread. - Social unrest following the October 2024 elections delayed policy execution and reform implementation, highlighting the need to restore confidence, social cohesion, and institutional stability. - Authorities view Liquefied natural gas (LNG) megaprojects as potentially transformational and commit to transparent and prudent management of future resource revenues within existing fiscal frameworks. - National Development Strategy (ENDE 2025–2044) provides a long-term framework for structural transformation. - An Inclusive National Dialogue (DNI) was launched to rebuild social trust and build consensus on constitutional and governance reforms. - Authorities are implementing a gradual and growth-friendly fiscal consolidation, emphasizing timely concessional financing, targeted budget support, and instruments to catalyze private sector investment. ### Recent Economic Developments and Outlook - Real GDP growth: - Fell from 5.5 percent in 2023 to 2.2 percent in 2024. - Experienced a sharp contraction in Q4-2024 and Q1-2025 due to weak demand, post-election instability, and spending delays. - Began to stabilize in the second half of 2025, supported by a partial rebound in mining, fisheries, and agriculture. - Projected to recover gradually to about 3.2 percent in 2026, driven by improvements in the extractive sector and ongoing business-environment reforms. - Authorities approved the Economic Recovery and Growth Plan (PRECE) in October 2025 to mitigate natural-disaster, political and social shock and support a durable medium-term recovery. - Inflation: - Headline inflation declined to 3.2 percent in December 2025, down from 4.4 percent in November. - Inflation expectations remain well anchored in single digits over the medium term. - Fiscal deficit: - Declined to 4.5 percent of GDP in 2025 from 6.2 percent in 2024. - Improvement reflected stronger expenditure prioritization and a more cautious pace of capital project execution amid financing constraints, while safeguarding priority social spending. - Current account: - Deficit widened to 13.2 percent of GDP in 2025, from 11.0 percent in 2024, reflecting faster import growth relative to exports. - International reserves: - Increased to about 6.4 months of imports in 2025, up from 6.1 months in 2024 (excluding mega‑projects). - Projected to remain around six months of imports over the medium term. ### Fiscal Policy and Debt Management - Fiscal consolidation is a core priority to safeguard medium-term debt sustainability; adjustment to be anchored primarily on the expenditure side. - Fiscal framework: - Medium-Term Fiscal Framework, 2026-2028 guides a gradual and credible consolidation path balancing macro stability with growth. - Key fiscal priorities: - Enhance domestic revenue mobilization, - Contain current expenditure, particularly the wage bill, - Improve spending efficiency, - Strengthen public debt management. - Revenue-side reforms: - Cabinet-approved Strategy to Improve Efficiency and Modernize the Tax System focuses on modernizing tax administration, rationalizing tax incentives, and expanding the tax base. - Parliament approved in December 2025 revisions to the VAT, corporate income tax, and personal income tax codes, to be implemented in 2026, including measures to strengthen capital gains taxation and extend the tax net to activities and transactions within the digital economy. - Accelerating digitalization of revenue administration via a national e-Tax system under a Public-Private Partnership. - Expenditure-side measures: - Contain growth of the public sector wage bill via strengthened payroll management and controls, limits on new hiring, accelerated retirements, and tighter oversight of overtime practices, particularly in education and health. - Safeguard priority social spending and progressively reallocate resources toward well-prioritized, high-impact capital investment. - Public debt management: - Cabinet approved the MTDS (2025–29) to meet financing needs while balancing cost and risk. - Over 2026–27, priorities include maturity extensions of domestic debt, liability-management operations, broader investor base, and targeted debt-for-investment and climate-related swap operations with bilateral creditors. - Legal framework for Treasury bonds revised to broaden market participation; debt advisors engaged to support a debt management plan aligned with fiscal consolidation objectives. - Public financial management reforms: - Tighten expenditure controls, strengthen budget formulation, improve cash management, prevent arrears accumulation. - Procurement reforms include establishment of a centralized Procurement Center. - Sovereign Wealth Fund (SWF): - Legal and operational arrangements completed in November 2025; SWF now fully operational and designed in line with international best practices for management of natural gas revenues. ### Monetary, Exchange Rate, and Financial Sector Policies - Monetary policy: - Bank of Mozambique (BM) pursues a proactive, forward-looking stance to safeguard price stability and support macro resilience. - With inflation at 3.2 percent in December 2025, BM has gradually lowered the policy rate, MIMO, to 9.25 percent. - Authorities advancing toward a full inflation-targeting regime anchored on the MIMO rate. - Foreign exchange market: - Authorities acknowledge pressures but see no evidence of shortages in the official market. - Recent FX demand viewed as temporary; wider spread with the parallel rate reflects structural balance-of-payments features. - Exchange-rate volatility has remained contained; the metical continues to be market-determined. - FX conditions expected to improve as shocks dissipate and megaproject activity resumes. - BM advancing reforms to modernize the FX market and welcomes IMF technical assistance to strengthen FX operations and transparency. - Liquidity and monetary financing: - Liquidity managed through reserve requirements and market-based instruments; monetary financing remains within statutory limits. - Official FX market remains the primary channel; parallel market characterized as small and volatile. - Monetary policy transmission to interest rates remains broadly effective despite constraints. - Financial sector soundness: - Banking system remains stable, supported by strong capital and liquidity buffers. - Risks: subdued credit and elevated sovereign exposure. - BM tightening prudential oversight, strengthening supervision of credit risks including SOEs, and enhancing stress-testing. - Mozambique’s exit from the FATF grey list noted as a key milestone improving financial integrity and confidence. ### Structural Reforms - ENDE 2025–2044 sets a framework for structural transformation and inclusive growth with priorities: - Stronger governance, - Greater transparency, - Enhanced human-capital investment, - Climate-resilient infrastructure, - Skills development (particularly for women and youth), - Job creation, - Promotion of private investment across productive sectors. - Financial inclusion and private-sector support: - Newly approved Mutual Guarantee Fund (FGM) and Local Economic Development Fund (FDEL) to ease financing constraints, support SMEs, and deepen local value chains. - Measures to reduce labor-market rigidity and improve the business environment. - Anti-corruption and governance: - Strengthening anti-corruption frameworks and digitalization of public services to reduce discretion and improve service delivery. - Developing a national anti-corruption strategy aligned with international standards. - Capacity building at the GCCC (Central Anti-Corruption Office) and related bodies underway. - Climate resilience: - Mozambique remains highly vulnerable to climate shocks. - Policies to integrate climate risks into national planning and budgeting, improve early-warning and response systems, and scale up targeted protection for communities exposed to floods, cyclones, and droughts. - Policy framework anchored on the Master Plan for Risk and Disaster Reduction 2017–2030 and incorporation of IMF-supported Climate PIMA recommendations. ### Conclusion - Authorities remain firmly committed to: - Advancing the reform agenda to safeguard macroeconomic stability, - Foster durable and inclusive growth, - Improve distributional outcomes, - Strengthen institutional capacity. - Authorities value the Fund’s continued engagement and policy advice as instrumental in supporting reform implementation and anchoring macroeconomic stability. *Source: IMF staff and Mozambican authorities—Introduction (1mozea2026001-source-pdf).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2026/english/1mozea2026001-source-pdf.pdf_