Mozambique - Foreign Exchange Reserve
Mozambique 2025 - Foreign Exchange Reserve Adequacy and Volatility: The Dual Reality of Stability and Shortage
Mozambique's foreign exchange (FX) environment in 2025 is characterized by a significant structural challenge: the apparent stability of the metical (MZN) contrasts sharply with an acute shortage of foreign currency liquidity in the commercial banking system. This contradiction is the result of deliberate policy actions taken by the Bank of Mozambique (BdM) to manage inflation and reserves, alongside structural weaknesses in the export economy.
I. Foreign Exchange Reserve Adequacy and Import Cover
The BdM has prioritized the rebuilding of its international reserves following challenges posed by past economic shocks and the suspension of the fuel import subsidy. By 2025, the overall reserve figures generally indicate adequate coverage when excluding the transactional impact of megaprojects.
Reserve Levels and Coverage Metrics
Gross international reserves stood at US$3.5 billion at the end of December 2023. This figure represents an expansion of about 23% compared to the same period in 2022. By May 2025, Mozambique's Net International Reserves (NIR) reached their highest level in four years, totaling $3.8 billion. Later in August 2025, foreign exchange reserves were measured at US$4,035.00 million.
When assessing adequacy, the BdM typically excludes megaproject (MP) transactions, as these large foreign enterprise-led and funded activities do not bear on international reserves
.Import Cover: At the end of December 2023, gross international reserves were sufficient to cover 4.3 months of imports of goods and services, excluding transactions of megaprojects (MP). By March 2024, NIR covered 4.8 months of imports of goods and services, excluding megaprojects. The minimum reserve level commonly recommended for Low-Income Countries (LICs) is three months of import requirements.
Including Megaprojects: When megaproject imports are included, the cover ratio is substantially lower. At the end of March 2024, reserves covered 3.1 months of imports of goods and services, including MP.T
he BdM projects that its gross international reserves will remain at about 3 months of imports in the medium term. The recovery of reserves in 2023 was supported by the discontinuation of the FX window used to cover the fuel import bill in June 2023.
II. The Exchange Rate Paradox: Stability vs. Depreciation Pressure
The Mozambique Metical (MZN) has maintained a remarkable nominal stability against the US dollar since mid-2021.
Nominal Stability: Throughout 2023, the US dollar remained stable on the domestic foreign exchange market, quoted at approximately MZN/USD 63.93 at the end of the year. The metical has been largely de facto stabilized against the US dollar.
Minimal 2025 Depreciation: Despite structural deficits, the metical only weakened by 0.98% over the 12 months leading up to November 11, 2025, stabilizing around MZN 63.89 per US dollar.
Administrative Freezing and Implicit Devaluation Risk
This perceived stability is not reflective of true market equilibrium and is seen by critics as being maintained administratively or "frozen".
Market Distortion: The alleged freezing of the exchange rate is believed to be contributing to the shortage of foreign currency in the national banking system. This policy discourages exporters and currency holders from releasing dollars, as they retain currency in the hope of future metical depreciation.
Parallel Market Premium: The resulting scarcity in official channels forces the private sector to resort to the parallel market. Data collected in 2025 revealed that while commercial banks did not have foreign currency available, in the parallel market, foreign currency was immediately available, often at a marginal difference that can exceed 15%.
Future Depreciation Risk: Analysts caution that because foreign exchange reserves remain limited and the currency is likely overvalued (estimated at about 38 percent overvaluation by one model in 2023), market forces may compel authorities to allow a devaluation of the metical in 2026, leading to a consequent sharp rise in inflation. Vulnerability to exchange rate movements is expected for a commodity exporter with a relatively high share of external public debt denominated in foreign currency.
III. Policy Responses and Foreign Exchange Management
The BdM has responded to the chronic FX shortage by introducing regulatory measures aimed at increasing the supply of foreign currency to the formal market, a strategy that moves toward greater control of diaspora and export earnings.
Mandatory Conversion of Export Revenues (De-Dollarization Policy)
To provide short-term relief for local businesses and ensure economic stability, the BdM reduced the percentage of foreign exchange that exporters can retain.
Conversion Increase: The Bank of Mozambique increased the mandatory conversion rate on income from the export of goods and services and income from investment abroad from the current 30 percent to 50 percent.
Liquidity Injection: This measure requires exporters to convert 50% of their revenues into local currency. This action was calculated to inject approximately US$750 million into the economy, more than covering the estimated shortage of US$373 million.
Regulatory Flexibility: In April 2025, the BdM approved new Exchange and Prudential Notices to provide commercial banks with greater flexibility in managing foreign currency. The BdM has also committed to fostering better price discovery by adopting a revised methodology for calculating the reference exchange rate based on actual volume-weighted market transactions by the end of 2024.
The BdM also increased the Reserve Requirement Ratio (RRR) for foreign currency deposits in 2023 to 39.5%, a measure that contributes to reserve accumulation but may also limit the liquidity available to commercial banks.
The struggle to maintain the metical's stability despite intense underlying scarcity is like trying to hold a lid tightly on a boiling pot: the external pressure (high import demand and perceived currency overvaluation) is intense, forcing the regulator to employ strong measures like forced conversion to keep the lid—the exchange rate—from blowing off, thus delaying a potentially sharp currency correction.