How did Mozambique pay off its debts and emerge from its economic crisis?

Developing countries face a number of crises, foremost among them the issue of debt; it is one of the most prominent challenges and obstacles to the internal development process of countries, due to its direct impact on the economy and sustainable development.

Mozambique is considered one of the leading countries in dealing with debt crises, especially in light of its relationship with international financial institutions, most notably the International Monetary Fund, as Mozambique experienced a severe debt crisis following the hidden debt scandal in 2016.

In 2016, there was a scandal called “hidden debts,” in which Mozambique borrowed undisclosedly, leading to a decline in investor confidence and the suspension of international support, particularly from the International Monetary Fund, which resulted in worsening the country’s economic conditions, higher fiscal deficit levels, and slower growth.

Because of that crisis, the Mozambican government adopted a package of economic and financial reforms, including debt restructuring, enhancing transparency in public finance management, exploiting its natural resources to boost revenues, and restoring cooperation with the International Monetary Fund through reform programs aimed at achieving economic stability.

How did Mozambique pay off its debts, and how did it deal with the crisis?

Mozambique managed to repay its debts through a multi-pronged strategy, which included the following:

1- Debt Management Strategy 2025–2029:
A plan was developed that aims to establish a flexible framework for balancing financing needs, costs and risks, enhancing the credibility of economic policy and debt sustainability, in addition to achieving a balance between internal and external financing, and protecting public finances from the increasing pressures resulting from declining foreign aid and revenue shortfalls.

2- Collaborating with international consultants to improve debt management:
Mozambique has contracted with a global consulting firm to help it implement a debt management strategy, to restructure debt, negotiate with creditors, and improve the risk of its debt portfolio.

3- Partial debt restructuring and early repayment of some obligations:
Negotiations with creditors, such as the World Bank and the International Monetary Fund, included rescheduling some debts, postponing payments, or combining short-term debts with long-term debts to reduce annual financial pressures, as well as negotiating to obtain new financial support programs on better terms.

4- Reordering priorities in the general budget to provide the necessary liquidity:
This included updating the tax system, reducing tax evasion, exploiting natural resources, postponing some non-urgent projects, and enhancing transparency and financial accountability to restore the confidence of international investors and financiers.

– Mozambique's motives for repaying its debts:

After adhering to the plan set by the State of Mozambique, it finally announced the full repayment of its debts to the International Monetary Fund, which amounted to approximately 515.04 million Special Drawing Rights (SDRs), equivalent to approximately US$630 million at the exchange rate prevailing at the time of repayment.

Mozambique thus becomes the only country, out of more than 80 debtor countries, to have completely discharged its outstanding obligations to this multilateral institution.