A team from the International Monetary Fund (IMF) visited Mozambique, with no set deadline to finalize a new agreement with the government; discussions are expected to continue “over the coming months.” Despite some optimism on the horizon, calls for “immediate fiscal consolidation” remain.
An IMF team visited Mozambique in August to explore the path for a new Extended Credit Facility (ECF) program, but some of the issues that led to the early termination of the previous IMF program seem to persist—when four of the six disbursements totaling $456 million, agreed in 2022, had already been made. The team that visited the country emphasized the need for “immediate fiscal consolidation” to ensure macroeconomic stability and stated that discussions on a new financial adjustment program will continue “in the coming months.”
“It is necessary to implement immediate fiscal consolidation to restore fiscal sustainability, reduce financing needs, and place debt on a clear downward trajectory to lower vulnerabilities—while also creating fiscal space to support development and protect the most vulnerable,” reads the IMF press release. Broadly, this confirms what the new IMF resident representative in Mozambique, Olamide Harrison, had said in July in an interview with E&M after arriving in Maputo: “The key message is that Mozambique’s main short-term challenge is to put its fiscal position on a stronger trajectory and reduce debt vulnerabilities.”
IMF Recommends “Decisive Measures”
What did the latest IMF team visiting Mozambique actually say? A statement released after the visit, which took place from August 21 to 29, recommended that, “in the face of external and fiscal imbalances,” authorities “take decisive measures to restore macroeconomic stability, improve economic growth prospects, facilitate job creation, and reduce poverty.” In the statement released in Maputo, the team said it discussed with the government “macroeconomic challenges, balance of payments prospects, and expected financing needs,” adding that “discussions on these issues and possible IMF support options were fruitful and will continue over the coming months.”
Signs of Optimism on the Horizon
The IMF projects Mozambique’s economy to grow 2.5%, mainly supported by a recovery in the services sector in the second half of the year, following a “sharp slowdown between October 2024 and March 2025” due to post-presidential election violence.
The Fund also notes that there are “emerging signs of increased interest from foreign investors across a wide range of sectors” and therefore concludes that it is “essential to address macroeconomic imbalances to unlock the full potential of foreign direct investment [FDI] and maintain investor confidence.”
Expenditure Pressures: What to Do About the Wage Bill?
In July, shortly after arriving in Mozambique, IMF resident representative Olamide Harrison warned about the scale of public spending and the wage bill. “When we compare Mozambique to peer countries, we see that revenues as a percentage of GDP are at a comfortable level, i.e., higher than in other countries. But when we look at expenditures, particularly the wage bill, they are comparatively higher.” The debate is longstanding and represents a political choice, Harrison noted: “We understand that this may reflect a social choice.” In any case, he added, the equation seems unbalanced. “After the reform of the single salary table (TSU) in 2022, there were significant increases in the wage bill compared to revenue levels and the size of the economy. Looking over time and compared to other countries, it’s clear to me that fiscal pressure comes from expenditures,” he said.
At that time, the IMF representative called for a “balanced approach, both on the expenditure and revenue sides,” leaving details such as “the pace of adjustment” for the coming months. “How can we do this while protecting the most vulnerable groups? We propose targeted spending for groups with the greatest social development needs. But fiscal space must be created to meet these challenges, which would also help ensure macroeconomic stability. We believe timely corrective measures are necessary, and we will continue to discuss the details with the authorities.” Discussions, it seems, will continue through several more rounds before reaching a conclusion.
GDP Recovers, but Still in the Red
For now, macroeconomic data remain weak. Mozambique’s economy contracted 0.94% from April to June compared to the same period in 2024. This marked the third consecutive quarter of year-on-year contraction, according to the National Institute of Statistics (INE) of Mozambique. Still, the decline was milder than in the previous two quarters, when the country was affected by post-election unrest. The figures highlight the shock in the second quarter of this year: the hotel and restaurant sector fell 11.34%, manufacturing declined 9.44%, trade and repair services dropped 5.90%, while transport, storage, and auxiliary activities fell 3.44%. Construction lost 2.21%.
The government projects GDP growth of 2.9% in 2025, revised down from the 5% forecast made before the elections. In 2024, preliminary government data indicated economic growth of 1.85%, compared to the pre-election forecast of 5.5%.
Nearly a thousand Mozambican companies were affected by post-election unrest, with an economic impact exceeding 32.2 billion meticais and 17,000 job losses, according to an estimate presented in February by the Confederation of Economic Associations of Mozambique (CTA). According to the survey, 955 companies were directly affected by the post-election demonstrations and social unrest, of which 51% “suffered total vandalism and/or looting of goods.”
Text: Editorial Team • Photo: D.R.
