Mozambique State Budget and Public spending

Mozambique State Budget, Public Debt, and Macroeconomic Issues in 2025

The 2025 State Budget, public debt dynamics, and macroeconomic environment in Mozambique are critical for understanding the country's economic trajectory. This analysis provides an overview of the 2025 Economic and Social Plan and State Budget (PESOE), public debt, and relevant macroeconomic issues, including growth, inflation, and external vulnerabilities.

Mozambique 2025 State Budget

The 2025 PESOE, approved by the Mozambican government, sets forth economic, social, and budgetary goals for the year. It projects a deficit of 126.8 billion meticais, approximately USD 1.9 billion, accounting for 2.9% of GDP. This budget represents a 9% reduction in spending compared to 2024, reflecting a commitment to fiscal restraint following post-election unrest in late 2024 that adversely affected growth and revenue generation.

In terms of revenue, the budget aims to bolster mobilization efforts to reach 25% of GDP. This will be achieved through various measures, including broadening the VAT base, reforming personal income tax, and digitizing tax collection processes. Furthermore, revenue from coal, aluminum, and emerging gas sectors, which is expected to grow from its current contribution of 0.2% of GDP in 2024, will enhance overall fiscal health.

Expenditure plans prioritize wages, which make up 14.6% of GDP, along with security provisions and limited social transfers. However, the substantial wage bill, coupled with debt interest payments projected at 4.2% of GDP in 2024, poses challenges for public investment, as it crowds out necessary infrastructure and social spending. The financing of capital expenditure largely depends on external grants and loans, with the Recovery and Resilience Plan (RRP) expected to drive much-needed investment.

To address the budget deficit, the government intends to finance it through concessional external borrowing from institutions like the World Bank and China, alongside domestic bond issuance. This strategy aims to maintain alignment with the 2024 budget law ceiling of 46.3 billion meticais while diversifying funding sources to reduce reliance on external aid, which currently accounts for 2% of GDP. The overarching fiscal goals for 2025–2027 emphasize stabilizing domestic debt, managing fiscal risks, and promoting growth through optimized expenditure, all of which align with the government's Five-Year Program and IMF-supported reforms.

Public Debt

Public debt in Mozambique is projected to rise to 97.5% of GDP in 2025, up from 93.9% in 2023, as noted by the International Monetary Fund (IMF). External debt constitutes a significant portion, accounting for 75% of the total debt, with private external debt representing 63% of total external debt and reaching approximately 160.3% of GDP in 2024. This high level of debt is primarily driven by investments in gas and hydroelectric projects.

Mozambique's external debt is largely concessional, with notable loans from multilateral organizations—29% owed to the World Bank and 17% to bilateral donors such as China. Although the external debt-to-GDP ratio decreased from 72.1% in 2022 to 66.2% in 2023, the country faced USD 1.2 billion in arrears by the end of 2023.

On the domestic front, public debt reached 364.3 billion meticais (approximately USD 5.25 billion) by May 2024, reflecting an increase driven by wage bill reforms and revenue shortfalls. Short-term debt constitutes about 15% of the total, consistent with the Medium-term Debt Strategy. The IMF assesses the public debt as sustainable, albeit at a high risk of distress, particularly since some indicators surpass sustainability thresholds. Ongoing borrowing for LNG projects is expected to be covered by gas revenues, providing some support for long-term sustainability. Contingent liabilities have been revised down from 18.8% to 14.7% of GDP in 2024, incorporating disputed debts from state-owned enterprises.

Progress has been made in resolving the "hidden debts" from 2013 to 2016, totaling USD 2.2 billion. In 2023, Mozambique made a settlement of USD 220 million via domestic treasury bonds for part of the Proindicus debt. In 2024, an agreement for USD 142 million was reached to cover remaining obligations, reducing contingent liabilities to 1.5% of GDP. However, litigation regarding the VTB component remains unresolved.

Despite these efforts, various challenges continue to affect the banking sector. High-interest payments, a significant currency risk with 77% of debt in foreign currencies, and restricted market access due to regulations under the IMF program limit the fiscal space. As of January 2025, debt restructuring talks are underway to address the USD 900 million Eurobond maturing in 2031.

Summary

Mozambique's State Budget, public debt dynamics, and macroeconomic environment in 2025 reveal a complex and multifaceted economic landscape. While the government has made strides toward fiscal stabilization and enhancing revenue mobilization, persistent challenges related to public debt, inflation, and external vulnerabilities remain significant. Continued efforts in policy reform and strategic management of resources will be crucial for fostering sustainable economic growth in Mozambique and ensuring the well-being of its citizens.

Macroeconomic Challenges

Mozambique's economy faces several macroeconomic challenges that require attention. GDP growth contracted to 1.9% in 2024, down from 5.4% in 2023, driven by factors including post-election unrest, Cyclone Chido, and various supply chain disruptions. For 2025, growth is projected to improve to 3.0%, fueled by recoveries in services, aluminum production, and construction, though this remains below the long-term average forecast for the period.

Inflation has eased to 3.2% in 2024, down from higher rates in previous years, benefiting from lower global oil and food prices, a stable exchange rate, and the Banco de Moçambique's prudent monetary policy. However, inflationary pressures may resurface, particularly concerning food and fuel prices.

The current account deficit is another pressing issue, anticipated to widen to 43.0% of GDP by 2025, primarily exacerbated by rising import levels for LNG projects. Mozambique's international reserves have dwindled to cover only 2.2 months of imports, a decline from 3.1 months the previous year, creating potential vulnerabilities to external stability.

The social climate in Mozambique showcases rising poverty rates, with 62.8% of the population living in poverty as of 2023, exacerbated by economic stagnation and inequitable distribution of resources. While economic growth has historically not translated into broad improvements in living standards, addressing structural issues such as low financial literacy and insufficient infrastructure remains crucial for fostering inclusivity in economic development.

Summary

Mozambique's economic environment in 2025 is characterized by a delicate interplay of fiscal challenges, debt dynamics, and macroeconomic issues. The 2025 State Budget reflects a cautious approach to fiscal management amid significant pressures from public debt and declining revenue.

Efforts to stabilize the economy through effective policy measures, alongside the advancement of strategic projects in the liquefied natural gas sector, remain essential for enhancing resilience and improving the overall economic outlook. However, addressing persistent issues such as poverty, external vulnerabilities, and infrastructural weaknesses will be critical for realizing the nation's developmental aspirations. For further details, interested parties can refer to resources provided by the Banco de Moçambique, the International Monetary Fund, or the World Bank.