Mozambique: IMF Dashes Chapo's Hopes and Sets the Course for Hard Times

Chapo's hopes for IMF approval were dashed today (17 February) by the IMF Executive Board, with no discussion of a new loan or programme. President Daniel Chapo has publicly put his hope on a new loan and programme triggering investment and aid.

The IMF mission 12-21 November took a hard line, which was supported today by the Executive Board. The main IMF demands stand - substantial devaluation plus major fiscal and wage reforms. The Board said "A clear communication of reform objectives would be critical to ensure stakeholder buy-in and help build public trust."

The Board statement and November report are on: https://www.imf.org/en/news/articles/2026/02/14/pr-26052-mozambique-imf-executive-board-concludes-2025-article-iv-consultation-with-mozambique and https://www.imf.org/en/news/articles/2025/11/21/pr-25387-mozambique-imf-staff-completes-2025-article-iv-mission

The Executive Board again demanded devaluation. For five years the exchange rate has been fixed at $1 = 63.9 MT (mid-rate) which means the Metical is overvalued. Its real value is probably $1 = 90 MT. The current rate makes imports cheap and exports less profitable.

This has come up recently in the debate over importing food. In 2024 Mozambique imported $441mn of rice and $220mn of cooking oil. Both are produced locally, but cheap imports undercut local producers. A realistic exchange rate would end those imports and increase local farming of rice and oilseeds to fill the gap - and create 1000s of jobs. But Frelimo oligarchs control the highly profitable food imports.

The Executive Board again stressed "containing the wage bill, broadening the tax base, enhancing public financial management, addressing fiscal risks from state-owned enterprises, and strengthening debt management and transparency, while protecting vulnerable groups." The last two hit home. Too much, such as the recent salary scale revision, is done in secret and benefit better off Frelimo cadres. And the November 2024 to March 2025 demonstrations moved from demanding "electoral truth" to stressing corruption, poverty and lack of jobs.

Chapo cannot meet the IMF demands without concessions from the top of Frelimo, which seem unlikely to concede their personal profits and the patronage that keeps the Frelimo party running. The Party hopes to prevent further demonstrations by the use of force and strict new curbs on social media. But insurgents in the north stress the same grievances - corruption, poverty and no jobs - and force, even with Rwandan mercenaries, has not stopped the war.

The IMF's rejection of Chapo's appeals suggests that it is willing to risk young people being shot on the streets, rather than allow national economic collapse.