Mozambique: IMF Demands Austerity and Devaluation

Mozambican President Daniel Chapo.

There will be no IMF agreement or loans this year, said the IMF team which visited Mozambique 21-29 August. It simply said negotiations "will continue in the coming months". And it set harsh conditions including "decisive action to restore macroeconomic stability", which in IMF jargon means harsh austerity imposed quickly.

The IMF team said the "fiscal deficit", that is expenditure in excess of income, was 2.4% of GDP in the first half of 2025. It said this is because "government expenditures continue to grow at a faster pace" than income, as well as due to low tax revenue.

The IMF also demands devaluation. The exchange rate has been fixed for several years at MT64=$1, when the real rate should be at least MT90=$1. This makes imports cheap. Mozambique imported $441mn of rice last year, which could have been produced locally. But the low exchange rate means imported rice is cheaper than locally produced rice. Similarly the Maputo middle class consumes imported goods, many imported by thousands of "mukheristas", informal importers who go mainly to South Africa but also as far away as Brazil, and who pay officials to avoid paying import taxes. The middle class drives imported Japanese second hand cars, which would be unaffordable for many at the higher exchange rate and with honest customs officials.

At a middle level salaries are rising because Frelimo controls the civil service and pushed through a salary scale that gives higher salaries and allowances to senior civil servants. Illegal trade, from the mukheristas to unlicenced minibus drivers to hardwood timber traders, operate through Frelimo recognised networks of people taking bribes. Jobs and government contracts require commissions and party contacts.

The demands of the IMF cannot be met just by squeezing the poor. One priority of the new government is to meet the demands from within Frelimo's local and national elite, which increases in size with each election as more people want to join the Frelimo gravy train. The government's priority is exactly what the IMF says Mozambique cannot do.

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