An IMF team will visit Mozambique in June to discuss a new loan, in a sudden reversal of its position announced on 23 April. A year ago in April 2025 Mozambique and the IMF suspended (but did not cancel) the programme, because Mozambique could not or would not meet IMF demands, particularly devaluation and cuts to the wages of higher paid officials and civil servants. Going into this year's IMF Spring meetings in Washington, 13-18 April, the hard line remained. IMF officials said no further meetings until the demands were met.
But there were three changes:
+ In March the Mozambican government unexpectedly fully paid its $630mn debt to the IMF, which also meant it no longer had any arrears.
+Then on 2 April Mozambique hired international debt consultant Alvarez & Mashal. Reza Baqir is A&M Managing Director and Global Head of Sovereign [debt] Advisory Service. He worked at the IMF for 20 years and for four years headed the IMF’s Debt Policy Division.
+ Third Mozambique made clear to the IMF that it would accept devaluation.
That was enough for the Mozambican delegation to convince the IMF to meet with them in Washington during the spring meetings. That meeting was successful and an IMF team will arrive in June to begin very difficult discussions on a new loan.
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Devaluation is highly controversial at the top of Frelimo. The exchange rate has been set at $1 = 63.9MT for five years. Most economists argue that the correct value of the Metical is $1 = 90MT or even 100MT. This large a devaluation would mean imports cost much more and exports are more profitable. The problem is political, because senior Frelimo people control some of the import trade. At present the overvalued Metical makes it cheaper to buy imported rice rather than grow it in Gaza or Zambezia. Devaluation would make domestic rice competitive and create thousands of Mozambican jobs. But Frelimo bigwigs will complain. The debate will be over how long it takes to devalue - in a single big bang, or over several years.
Paying off the loan was unnecessary - the IMF did not demand it. The money came from $ reserves held by the central bank (which opposed repayment). Local bankers argue it would have been better to repay the $800 mn foreign payment backlog at the end of 2025, to ease the local economy. But the opposite position is taken by those who say it is better to talk to the IMF with clean hands. Another argument is that the IMF loan must be repaid in hard currency - $ - and devaluation would substantially increase the debt (in local currency, MT).
Aid is falling and Mozambique's debt is so unsustainable it can no longer obtain foreign hard currency credit. Many other poor countries have the same problem and there is a move for a partial global debt cancellation similar to HIPC in 2000. That would take at least a couple of years to negotiate and debt cancellation beneficiaries would have to be in good standing with the IMF - thus paying off the IMF loan. (Reuters, Fitch, O Pais, AIM, Evidencias, Zitamar)
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