+ All tax goes to wages and debt
+ IMF lifeboat?
+ Can Frelimo keep control for a decade?
+ Public debt details
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Wages and debt service will take 96%
of government revenue next year
The fiscal crisis in Mozambique was underlined by a report published on 18 September by the Ministry of Finance. In 2027, after paying wages and debt service, only 4% of taxes and fees ($200mn) will be left for all other costs, such as running health and education, and building roads.
In the base case scenario, total government fiscal revenue (taxes and fees) will be $5.2bn. Salaries will take 65% of this ($3.4bn) and debt service will take 31% of this ($1.6bn). The Fiscal Risks Report 2027 highlights several risks – climate, Cabo Delgado, state company deficits, and devaluation – which seem likely to make the picture worse next year.
In a report today (28 Sept) the Ministry said that total public debt is $17.4bn, half foreign and half domestic. More detailed tables are at the end of this newsletter.
Climate: El Niño is already the most serious in recorded history. The report says there will probably be severe drought as bad as in 2015/16 in the centre and south of Mozambique, and exceptionally heavy rain in Niassa, Cabo Delgado, and north-east Nampula. This will cause major economic damage. The Ministry of Finance warns that the cost of El Niño will be more than the tiny $200mn left over after debt service and salaries.
(Not included in the Ministry of Finance Report is the unusually rapid rise in sea temperatures already taking place off the coast of Nampula and Cabo Delgado, and east of Madagascar where many cyclones start and go on to hit Mozambique. The higher sea temperature makes cyclones stronger and carrying more rain. This means cyclones this year are expected to be worse the usual.)
‘The deteriorating security situation in Cabo Delgado is delaying the start of production at Coral Norte and Area 1, on which the surge in growth and revenue in 2029 depends’, warns the report. The Ministry report warns that there is a possibility that gas will be delayed for another year by the war. It notes that heavy rain and cyclones due to El Niño could also cause delay. So far the only gas production is from the Coral Sul offshore platform.
Badly run state companies: The report cites three badly run state companies – airline LAM, airports ADM, and telephone TMCEL. All are now being restructured, but the report cites a ‘high fiscal risk’ and the likelihood of further state subsidies.
The overvalued currency makes it hard for Mozambican producers to compete with imported goods, such as rice. The IMF and local business want devaluation. But foreign debt and repayments are mostly in US $ and a devaluation from the current MT69 = $1 to MT77 = $1 (which is widely predicted), would cost the Metical equivalent of $180mn per year in higher debt service.
Relatório de Riscos Fiscais 2027 https://mef.gov.mz/index.php/publicacoes/politicas/relatorios-de-riscos-ficais/2522-relatorio-de-riscos-fiscais-2027 (This in a clear and well-done report, Portuguese only. Pages 4, 7, 9, 15-19 cited here)
Can the IMF be a lifeboat for Mozambique?
Aid to Mozambique has largely stopped and it cannot borrow. Last week Moody’s Ratings pushed Mozambique near to the bottom – Caa3 – ‘poor quality and very high credit risk’ – and in April Fitch Ratings dropped Mozambique to cc – ‘the level of default risk is among the highest’. The World Bank is one of the few remaining funders, and recently gave Mozambique $35mn to buy medicines.
But Mozambique is looking to the IMF as a saviour, and believes that agreeing an IMF programme would release other new funding. President Daniel Chapo has made this a high profile issue, hoping that Mozambique’s resources make the country important enough that hard-line IMF staff will be more flexible and give Mozambique special treatment. On Tuesday 22 September he met with IMF Managing Director Kristalina Georgieva on the sidelines of the United Nations General Assembly annual high level meeting in New York.
In April 2025 Mozambique and the IMF suspended (but did not cancel) the programme, because Mozambique could not or would not meet IMF demands, particularly devaluation (opposed by the Ministry of Finance, see above) and cuts to the wages of higher paid officials and civil servants. IMF officials said there would be no further meetings until the demands were met.
But in March 2026 the Mozambican government unexpectedly (and unnecessarily) fully paid its $630mn debt to the IMF, which also meant it no longer had any arrears. At the IMF Spring meetings in Washington, 13-18 April this year, Mozambican Finance Minister Carla Loveira met senior IMF officials and it was agreed that the IMF would send missions to Mozambique. These occurred in June and September this year, but with no easing of IMF demands.
It appears that devaluation will take place in 2027, despite Finance Ministry opposition, and another IMF mission is expected next month (November). But Frelimo depends on high wages for its support, and upper wages were increased in the 2022 payroll reform leading to the present crisis where wages and debt service take all government income. The size of the civil service is not large compared to similar poor African countries, but the wages are much higher.
There are two reasons for this. First, Frelimo needs the support of a middle class that feels relatively comfortable. Second, Frelimo is no longer the party of workers and peasants, but of civil servants, notably in education. State jobs are prized and require Frelimo party membership and campaign support.
So the question is: Can top level political involvement facilitate an IMF deal keeping high levels of civil service pay. And would an IMF deal mean more donor lending and aid?
Can Frelimo keep control for the next decade?
Gas could make Mozambique relatively wealthy, but not for another decade. Only one small floating platform is producing now, but that allowed an analysis of the contracts. Income is limited until all of the exploration and development costs are paid off, which takes about 8 years, and then there is a sudden income jump. Area 1 (TotalEnergies) will not start production until 2029-2030, and Area 4 (Exxon Mobil) three years later. So in the period 2032- 2038 when initial costs are being paid off, government income from gas will be about $1bn per year. Only then is there a jump and by 2040 Mozambique will be earning $4bn per year from gas (compared to total government income now of $5.2 bn).
Mozambique is one of the most unequal countries in Africa. Unless there are policy changes, it will be another decade before there will be significant extra revenue that can be spent on the poor and on training young people. After a decade young people will no longer be young – will they still be jobless and poor?
Does Frelimo believe it can continue for another decade with the present governance model – stealing elections and killing protesters and opposition political figures, as well as ignoring the war in Cabo Delgado?
A first test will be the trial of opposition leader Venâncio Mondlane, charged with treason for calling for protests against the 2024 election. Under Mozambique’s constitution, judges are chosen according to party affiliation. Mondlane must be tried by a panel of 5 judges of the Constitutional Council; 3 of those chosen have Frelimo links. They have already ruled that the trial cannot be broadcast live or recorded, and will be held in a small courtroom, although Carta de Moçambique (24 September) reported that the judges were minded to allow broadcasting of the accusation, Mondlane’s initial statement, and the judgement – but none of the evidence. Broadcasting and recording can be allowed by judges, and the secret debt and Carlos Cardoso murder trials were broadcast nationally. The start of the trial has been postponed until 17 November.
More details of Mozambique public debt
Mozambique’s total government debt is rising, from $17.2 bn in the first quarter to $17.4 in the second quarter. But Mozambique can only borrow small amounts internationally, so foreign debt fell from $8.9bn to $8.8bn, but domestic debt rose from $8.3 to $8.8bn. Two thirds of foreign debt is to just four creditors: World Bank IDA ($3,108mn), China ($1,284mn), International Fund for Agricultural Development ($940mn), and the hidden debt bonds ($897mn).
New government foreign borrowing in the first half of the year was $57mn: IDA $46bm, India $9mn, and Japan $1mn. Foreign debt service was 16 times as much as new loans, $915mn, as shown in the table.
Government debt service payments, first half of 2026, $ mn
State company debt, $mn
This data was published by the Finance Ministry on 24 September: Boletim Dívida Pública II Trimestre 2026 https://mef.gov.mz/index.php/publicacoes/politicas/gestao-da-divida-publica/2523-boletim-divida-publica-ii-trimestre-2026
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