Written by: Qusay Ahmed

Witnesses MozambiqueIts economic crisis has escalated significantly in recent weeks, amid growing indications that it may resort to restructuring its only international bond, according to reports issued by international lending institutions and credit rating agencies.

Mozambique, with a population of about 35 million, faces complex economic challenges involving overlapping financial, security and developmental dimensions, putting the country under increasing pressure on macroeconomic stability.

A shrinking economy and debt nearing restructuring

According to Reuters, the crisis stems from the slowdown in the implementation of massive natural gas projects in the north of the country, as a result of the armed rebellion that the region has been witnessing for years, which has hampered development plans in one of the largest gas reserves in Africa, with the support of global companies such as Total Energies and ExxonMobil.

The social unrest that followed the elections in late 2024 also contributed to further complicating the economic landscape.

Although total public debt stabilized at around 90% of GDP by the end of 2024, the International Monetary Fund reclassified the country’s debt last February as unsustainable rather than sustainable, citing a deterioration in public finances.

The fund also noted the accumulation of debt arrears estimated at 1.3% of GDP, including dues to international financial institutions and domestic creditors.

At the financial markets level, the risk spread on Mozambique's sovereign bonds rose to 1,185 basis points, while the economy contracted by 0.5% last year, with the local currency, the metical, depreciating against the dollar.

Financial pressures have also raised concerns about the country’s only international bond, worth $900 million and due in 2031, with an interest payment due in September.

Fitch Ratings downgraded Mozambique's credit rating to CC, reflecting a high risk of default or restructuring.

In a related context, financial reports indicated that the government is preparing for new talks with the International Monetary Fund next June, following the end of a previous financing program worth $456 million, amid calls for financial reforms that include controlling spending and expanding exchange rate flexibility.

Mozambique also faces additional pressures stemming from high inflation rates, the impact of conflicts in the Middle East on fuel and fertilizer prices, the effects of climate change and recent devastating cyclones, as well as persistent poverty and weak infrastructure, which limit the government’s ability to achieve sustainable economic growth.