PREVIEW
A year of crisis management by Frelimo has left the economy in bad shape
President Daniel Chapo’s hopes of securing a new International Monetary Fund loan on softer terms have been squashed after the Fund stated that major fiscal reforms and a devaluation of the metical would be prerequisites for any new loan agreement.
In its annual Article IV review of Mozambique’s economy last week, the Fund concluded that the country has built up heavy debt-servicing arrears with bilateral and multilateral lenders, and repeatedly failed to address ballooning deficits and low growth (Dispatches, 19/1/26, Sonko and Chapo play a waiting game with the IMF).
‘Under existing policies, chronic fiscal deficits and reliance on costly domestic debt, combined with weaker economic growth, result in an unsustainable debt path,’ the IMF said.
‘Overall public debt is in debt distress, due to persistent debt-service arrears, while external debt is assessed at high risk of debt distress,’ it added.
The warnings should not come as a surprise. The government has been relying on three-month Treasury Bills to finance consumption; financial agencies have given local currency loans a junk rating for over a year (AC Vol 66 No 7, After the fight, Frelimo runs out of ideas). Last November, the Fund recommended measures to cut public spending and boost tax revenues, and complained that successive governments had failed to deal with its growing debt burden.
Yet the Fund’s position will frustrate Chapo, who took office in January 2025 after a bitterly disputed presidential election the previous October, that led to lengthy protests by opposition activists, including boycotts of businesses linked to the ruling Frente de Libertação de Moçambique (Dispatches, 14/1/25, More protests but Mondlane softens his stance). Only weeks ago, Chapo said that a planned March staff visit by the IMF could produce an agreement on a new loan facility.
Frelimo’s public legitimacy was badly damaged by the elections. Now the combination of spending cuts and devaluation, which would mean lower consumer purchasing power, will ratchet up the anger of Mozambicans even further.
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