IMF thinks the money pot is empty and collapse is nigh, but Frelimo is ‘cautiously optimistic’
Frelimo and the IMF do not appear to be looking at the same country. IMF staff say “current policies are unsustainable”. But government “remains cautiously optimistic about near- and medium-term prospects, underpinned by Mozambique’s natural resource endowment,” said Adriano Ubisse, IMF Executive for Mozambique, writing “on behalf of the Mozambique authorities”. IMF points to no jobs and growing poverty and uncontrolled spending. IMF wants immediate austerity and control of corruption
This is the second newsletter on two documents published by the IMF on Thursday (17 February), two days after the IMF released its Executive Board statement rejecting a new loan and programme for Mozambique. First is a 104-page packet on the “2025 Article IV Consultation” with the staff report submitted to the Executive Board at its13 February meeting, a debt sustainability analysis, and a statement by the Executive Director for Mozambique. Second is a staff paper on “selected issues”.
No jobs and growing poverty ‘heighten risks of social tensions.’
Despite continued GDP growth, the past decade has been a lost decade for most Mozambicans. GDP per capita was falling and poverty was increasing. Between 2000 and 2015 real GDP grew at 7.9% per year, but between 2016 and 2024 average annual growth as only 2.9% per year. The staff selected issues paper (pp 4-10) noted that Mozambique “ranked 182 out of 193 nations in the 2023 UNDP Human Development Index, reflecting weak education and health outcomes, limited access to electricity, significant gender disparities, and persistently high poverty rates.”
IMF staff point out that Mozambique generated only one-third as many jobs per unit of per capita GDP growth as other Sub-Saharan Africa counties. “Manufacturing – a sector typically associated with high-productivity and employment – has been contracting since the 2000s … This structural weakness is particularly concerning given the large LNG projects on the horizon, which are capital- intensive and offer limited employment opportunities. These dynamics underscore the urgency of pursuing efforts to create an environment conducive to a job-rich growth model – key to inclusive and sustainable development.”
Government admitted that Mozambique “is a net importer of nearly all goods.” (Article IV staff report, p 9)
Two-thirds of all manufacturing firms are informal. But IMF staff say “some informal jobs offer training, better wages, and relatively high productivity, serving as stepping stones toward formal employment”. So instead of just pushing for formalisation, it would be better to “harness the potential of this sector”.
Staff also point out that because of the fiscal squeeze, “social transfers to the most vulnerable fell sharply – from 0.7% of GDP in 2019 to 0.1% in 2024. These trends underscore the need for reprioritizing public spending toward infrastructure, education, health, and social protection to foster inclusive growth.”
“Current estimates by IMF staff suggest that Mozambique will need to create around 550,000 new jobs annually by 2030 to employ the new entrants to the workforce, with the demand continuing to rise over the next two decades. Without adequate job creation, poverty and food insecurity could worsen, heightening risks of social tensions.”
Trade and deficit data comparisons show at least $500mn leaking from government
IMF staff did basic comparisons of trade of deficit and trade data and found differences of hundreds of millions of dollars which suggests unrecorded expenditure, unpaid taxes and other thefts and fraud. (Article IV staff report, pp 53-55)
Increases in government fiscal debt can be calculated in two ways. One is simply the excess of expenditure over revenue – known as above-the-line (AL). The other is calculating the change in government debt – arrears and outstanding loans – known as below-the-line (BL). These should be equal at the end of the year. But in Mozambique, there are huge gaps. IMF thinks BL is more accurate.
“During 2020–24, the average annual fiscal deficit measured AL was 3% of GDP, compared to 5.4% of GDP when measured BL.” This means 2.4% of GDP, or about $500mn per year, was borrowed and added to government debt, but which does not appear in the government spending accounts. “Large unexplained gaps may signal unrecorded transactions in AL accounts or off-budget operations, eroding trust in fiscal data.”
A similar problem comes up with trade statistics, when comparing Mozambican and partner country data. What trade with Mozambique does the trading partner report, and is it the same at Mozambique reports? “Mozambique’s official trade data often diverges significantly from partner-country records, indicating systemic issues rather than isolated errors. … The magnitude and persistence of Mozambique’s discrepancies suggest structural problems such as trade mis-invoicing, capital flight, and tax evasion.”
Mozambique reports much lower levels of imports and exports than its partners do. Over 2021-2024, South Africa said it exported to Mozambique 150% of what Mozambique said it imported from South Africa. China said it exported 170% of Mozambique’s reported imports from China. These are not small differences because imports from South Africa and China account for 25% and 15% of Mozambique’s total imports. “Foreign exchange controls and shortages incentivize practices such as under-invoicing of trade to retain more FX [foreign exchange] abroad, while tax and tariff avoidance and policy-induced informality further exacerbate the problem.” This is clear at the Ressano Garcia border post with South Africa – business people and informal traders (mukheristas) simply go to informal money traders near the border post and trade Meticais for South African Rand to buy goods or pay bills in South Africa. And as the foreign exchange crisis becomes worse, it is increasing. IMF staff say “Mozambique’s trade data shows persistent and widening discrepancies with partner-country statistics.”
IMF demands austerity now and growth later
The IMF loan and programme was confirmed in the 2024 Article IV consultions included conditions that both President Nyusi and IMF staff knew could not be implemented, notably devaluation of the Metical and a sharp cut to the total wage bill. They left it for the new President, Daniel Chapo, to capitulate, and he did not. The previous Fund-supported program lapsed in April 2025. The government requested a successor Fund-supported program in May, but that required implementation of IMF demands. THE IMF staff note that “critical policy recommendations in the 2024 Article IV – including fiscal consolidation and greater exchange rate flexibility have not been implemented.
The Article IV Staff Report (pp 1,4, 8, 11, 12, 17) says that “front-loaded fiscal consolidation is essential to restore fiscal sustainability and reduce debt vulnerabilities, while creating fiscal space for development and safety nets for the most vulnerable. Wage bill rationalization should be prioritized, and the tax base broadened.” Second, “greater exchange rate flexibility” is required – that is, devaluation.
“Front-loaded fiscal consolidation” means that austerity comes first, and any growth comes later. “While fiscal consolidation and external rebalancing would temper economic growth in the near term, these comprehensive measures would lay the foundation for stronger and more sustainable growth over the medium term.” Pain now and gain only in the future.
Later in the report is admits that “while consolidation may weigh on short-term growth, it will lay the foundation for stronger medium-term growth by reinforcing macroeconomic stability.” And it admits that growth will return only when LNG revenues materialize (around 2030).
The wage bill of 14.4% of GDP in 2024 accounts for roughly half of government spending. By reducing the public wage bill to 11% of GDP by 2028, “this would create space to increase domestically financed capital and social spending, which recover under the reform scenario.” Demands already made last year were eliminating the 13th-month salary, freezing base salaries, promotions and career progressions; strict limit on overtime; and restricting new hires to priority sectors (health, education and justice). These restrictions would apply for the whole period 2026-30.
Because these policies will cause hardship, the IMF says “a clear and well-targeted communications strategy is needed to build public trust and secure stakeholder buy-in for fiscal consolidation and expenditure realignment. The narrative should explain why consolidation is necessary, how it benefits the population, and what safeguards are in place to protect the most vulnerable. Transparency is key – the authorities mustshare data, timelines, and trade-offs in simple, consistent language that emphasizes fairness and social protection. Multiple channels should be used to ensure broad outreach and engagement, including traditional media, and digital platforms. By fostering understanding and trust, the strategy will help mitigate discontent and enhance the credibility of the adjustment.”
Attacking corruption and uncontrolled spending
“Mozambique continues to lag regional peers on corruption and governance indicators “, warns the IMF. “Strengthening governance, transparency, accountability, and the rule of law is critical for fostering a predictable business environment that can attract investment and create jobs. Addressing public financial management weaknesses – such as budget credibility, procurement monitoring, arrears financing, and fiscal transparency – is crucial.”
“Addressing underlying causes – poor budget credibility and weak expenditure controls – is crucial. Establishing sequential expenditure stages (commitment, verification, payment) is warranted to strengthen expenditure controls…. Enhancing transparency in procurement processes is critical to mitigating corruption risks.”
“Improving governance, transparency, financial integrity, and accountability – while reinforcing the rule of law – is vital for creating a predictable business environment, attracting investment, and generating jobs.”
“Unlocking private sector growth requires decisive implementation of the anti-corruption framework, stronger accountability institutions, enhanced judicial integrity and independence, and better protection and enforcement of property rights and contracts.” (Staff report, pp 1, 17-19)
This newsletter in pdf is on https://bit.ly/Mozambique-662
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