Mozambique

Slow recovery driven by investment, following a contraction caused by political unrest

Activity is gradually picking up after a sharp contraction in the fourth quarter of 2024, caused by political and social unrest, and a mixed start to 2025. The contribution of the extractive sector (15% of GDP in 2024) is expected to pick up again, driven by several announcements foreshadowing significant investments. In early April 2025, the government approved ENI's development plan for the Coral Norte FLNG project to develop a second floating platform, a replica of the first (Coral South). In the short term, growth in LNG revenues will remain constrained by the Coral South project reaching maximum production capacity. The resumption of TotalEnergies' Mozambique LNG (Zone 1) project will also boost investment. At the end of March, the US EXIM Bank released USD 4.7 billion in frozen loans, facilitating the expected recovery in mid-2025. The company has requested the lifting of the force majeure clause, in effect since the jihadist attacks of 2021. In addition, mining production (graphite, rubies, limestone, mineral coal) is expected to increase. In particular, graphite production is expected to recover after the low levels of 2024, a consequence of the suspension of operations at two major mines. The Balama mine is anticipated to resume production by the end of June, following its shutdown in July 2024, initially due to an unfavorable market and subsequently compounded by a blockade of the site by local communities. Meanwhile, Chinese company DH Mining Development Limited has injected USD 30 million into graphite extraction at the Muichi mine, with operations scheduled to have begun on 5 May. Nevertheless, the generated revenues will remain affected by a persistent environment of Chinese overproduction and downward price pressure.

Growth in the non-mining sector should also contribute positively. The agricultural sector (14% of GDP) will benefit from an expansion in arable land (+6%), investment in new commercial farming areas and an increase in the number of families with access to means of production, according to the President's announcements. Climate effects will continue to pose a significant downside risk, but the forecast of a neutral ENSO phenomenon for 2025 is favorable. Electricity supply is expected to improve with the commissioning of the Temane thermal power plant in 2026 and the improvement of hydroelectric reserves at the Cahora Bassa power plant (80% of national production). Significant investments in port capacity are also planned, notably USD 165 million for the expansion of the container terminal at the port of Maputo, led by the Emirati group DP World.

Despite supply chain disruptions and higher food prices due to protests, inflation remained subdued. The Bank of Mozambique was able to continue its monetary easing policy which began in January 2024, and lowered its key policy rate again in March 2025 to 11.75%. The pursuit of this downward trend, coupled with the reduction in reserve requirements on local currency deposits at the end of January, should stimulate credit supply and productive investment, although the insecurity in Cabo Delgado province remains a hindrance.

Weakening domestic debt sustainability

In 2024, the economic recession in the last quarter caused significant budget slippage, prompting an estimated shortfall of 3% of GDP and certain spending cuts as a result. After a delay related to the change of government, the 2025 budget was approved in early May. A more stable domestic environment should allow revenues to normalize to an estimated USD 5.3 billion. Through the broadening of the VAT base, the reform of personal income tax, and the digitisation of tax collection, the government aims to achieve tax revenues equivalent to 25% of GDP (currently 21%). Taxes on mining and oil production, estimated at EUR 102 million, will provide additional leverage, with 10% allocated to supporting local communities and provincial economic development. The reduction in spending (-5.3% compared to 2024) is evidence of a commitment to fiscal consolidation. However, the budget will remain restricted by the public wage bill (13.3% of GDP) and debt interest payments (4.1%), which will continue to crowd out necessary spending on infrastructure and social programmes. Nonetheless, economic stimulus policies will be adopted, particularly to support companies affected by cyclones and post-election tensions. The budget deficit will be financed by external grants and loans, notably from the World Bank and China, as well as through domestic bond issuances. In addition, midway through April 2025, the Mozambican authorities and the IMF agreed to bring an early end to the Extended Credit Facility signed in 2022, and have begun discussions to establish a new agreement.

The domestic public debt has risen sharply in recent years, reaching 39% of total debt, as a result of the withdrawal from international financial markets on back of the scandal dubbed the “Tuna bonds” hidden debt scandal. However, nearly half of the debt will have to be refinanced within a year. In March 2025, the government was forced to exchange USD 54 million in maturing bonds for new five-year bonds with a lower interest rate, an operation similar to a first debt swap in 2024. Further conversions are planned for May and September 2025, as well as in 2026. However, these restructurings have been perceived by rating agencies as a sign of “technical default,” illustrating the country's limited ability to manage its maturities. In addition, the high proportion of public debt in bank assets (40%) will continue to restrict credit to the private sector. The IMF and the World Bank consider the external and overall debt risk to be high. However, the external debt ratio (61%) is expected to decline further. Repayments will remain moderate, although in 2023 the country began paying higher interest on its eurobond due to mature in 2031. The current account will remain heavily in deficit in 2025, a consequence of the deterioration in the goods and services account balances due to higher imports of mining-related equipment and services. A slight increase in exports will help mitigate the impact. However, revenues will remain vulnerable to fluctuating demand from key trading partners (India, China, South Africa) amid the economic fallout from US tariffs. The primary income deficit, affected by the repatriation of foreign corporate profits, will be partially offset by expatriate remittances. Imports related to LNG projects will be fully covered by investments via the financial account, limiting their impact on international reserves, which the government expects to cover 4.7 months in 2025.

Following contested elections, unrest could pave the way for reforms

The general elections held on 9 October 2024 resulted in victory for Daniel Chapo, candidate of the Mozambique Liberation Front (Frelimo), which has been in power since independence, with 65% of the vote. The party also won the Parliamentary majority and all provincial governor positions. However, between the election and Chapo's investiture on 15 January 2025, the country was rocked by widespread popular protests. The protests were encouraged by opposition candidate Venancio Mondlane of the Optimistic Party for the Development of Mozambique (Podemos), who denounced massive electoral fraud. The mobilisation also spread to a broader contestation of Frelimo and the political and economic system, particularly the high levels of income inequality. More than 300 deaths and 3,000 injuries among civilians were reported. The unrest subsided following a crackdown by security forces, but pockets of insurrection have persisted throughout the country. In early April 2025, Parliament approved a bill aimed at establishing an inclusive national dialogue and promoting political reconciliation. The bill, which was the result of an agreement reached on 5 March between Chapo and the leaders of the three opposition parties, without Mondlane, who had broken ties with Podemos, provides for constitutional reform, a limitation of presidential powers, a reform of public administration, the depoliticisation of institutions, and stronger decentralisation.

The security situation in the northern province of Cabo Delgado will remain unstable. Since 2017, the region has been the scene of a jihadist insurgency led by a group affiliated with the Islamic State. The new administration will make counterterrorism a priority, supported by Rwandan troops but without the Southern African Development Community forces, which withdrew in July 2024, although some South African troops are expected to remain deployed. Improvements in security conditions will be hampered by a lack of coordination between the various forces and their limited capabilities. In addition, securing the site of the Zone 1 LNG project will remain the priority, particularly if construction work resumes in 2025.

The protectionist stance of the US government, the country’s largest donor in 2024, penalises Mozambique in 2025. In particular, the suspension of aid programs funded by the US Agency for International Development (USAID), estimated at nearly USD 600 million, will weaken the health and education sectors. Meanwhile, Mozambican and Rwandan armed forces will continue to benefit from the support of the European Union, which has extended the term of its assistance mission (formerly an advisory mission) until 30 June 2026. Last November, the EU confirmed the provision of an additional EUR 20 million in aid to support the Rwandan military intervention in Cabo Delgado. At the regional level, the country's integration is strengthening with the signing in May of agreements to develop an energy corridor with Zambia and to improve cooperation with Zimbabwe in electricity production, supply, and transport.

Last updated: May 2025