Mozambique cooperation with International Monetary Fund -IMF
The IMF Program for Mozambique (2025)
The International Monetary Fund (IMF) has played an influential role in shaping Mozambique's economic policies through its financial assistance programs. Notably, the Extended Credit Facility (ECF) arrangement initiated in 2022 has been a focal point of this engagement. However, as of April 2025, the Mozambican authorities and the IMF decided not to proceed with the remaining reviews of the existing ECF, instead opting to negotiate a new program that aligns with the priorities of the newly elected government under President Daniel Chapo. This analysis explores the engagement of the IMF with Mozambique, examining the 2022–2025 ECF, the reasons for its discontinuation, the planned new program, and a critical perspective on the impacts and challenges.
Overview of the 2022–2025 ECF Program
Approved on May 9, 2022, the three-year ECF arrangement aimed to provide Mozambique with access to SDR 340.8 million (approximately USD 456 million) to support economic recovery, reduce public debt vulnerabilities, and foster inclusive growth through structural reforms. This program was essential in addressing the fiscal and financing challenges that arose following the 2016 "hidden debt" scandal, which previously led to the suspension of an earlier IMF program. The ECF was also instrumental in navigating multiple shocks, including cyclones, the COVID-19 pandemic, and the Cabo Delgado insurgency.
By January 2024, Mozambique had received SDR 204.48 million (about USD 273 million) over four reviews, with specific disbursements aimed at supporting budget financing, bolstering foreign exchange reserves, and facilitating reforms. Key objectives of the ECF included fiscal consolidation, aimed at reducing the fiscal deficit from 5.1% of GDP in 2022 to an anticipated 2.8% in 2023, and addressing high public debt, which was projected to reach 93.9% of GDP in 2023.
The IMF also encouraged maintaining tight monetary policy to control inflation, which peaked at 10.3% in 2022 and was brought down to 3.2% in 2024. It emphasized structural reforms such as the establishment of a Sovereign Wealth Fund (SWF) to manage LNG revenues transparently and enhance governance.
Although the ECF saw success in meeting most quantitative performance criteria and structural benchmarks, challenges remained. Notably, wage bill overruns were forecasted at 14.6% of GDP in 2024 due to the implementation of a new single salary scale, which further strained fiscal resources.
Discontinuation of the ECF and Transition to a New Program
On April 18, 2025, a decision was reached between the IMF and Mozambican authorities to discontinue the ECF. This resolution followed discussions aimed at aligning IMF support with the new government's priorities after President Chapo's inauguration in January 2025, particularly in light of the unrest that surrounded the 2024 elections.
The political climate necessitated a shift in focus toward policies that address public discontent and inequality. The aftermath of the elections had unveiled significant fiscal challenges, including a notable growth slowdown of 1.9% in 2024, falling short of the 5.4% growth rate achieved in 2023.
Looking ahead to 2025, discussions for a new IMF program are set to commence, with emphasis on several key areas. First is the need to rationalize the public wage bill, which currently consumes 92% of tax revenues along with debt interest payments, in order to free up resources for essential social and infrastructure spending. Tax reforms will also be critical to increasing revenue to 25% of GDP by modernizing tax administration and cutting unnecessary exemptions.
Additionally, the upcoming program aims to support sustainable reforms, including improved governance and growth driven by the LNG sector, while also addressing the pressing issues of poverty, which affected 62.8% of the population in 2023. Ensuring macroeconomic stability will be another priority, with a focus on maintaining low inflation, rebuilding reserves, and facilitating recovery from the economic disruptions experienced in 2024.