AFRICA | IMF Warns of 'Significant Fiscal Slippages' Following Mozambique's Social Unrest

MAPUTO, March 5, 2025 – In the wake of devastating social unrest that contracted Mozambique's economy by 4.9 percent in late 2024, International Monetary Fund officials concluded a critical two-week visit with a stark assessment of the country's fiscal challenges. 

The IMF delegation, led by Pablo Lopez Murphy, has pressed Mozambican authorities for aggressive fiscal consolidation measures while acknowledging the delicate balance required as the nation attempts to recover.

"The path forward demands painful choices," Murphy indicated in his concluding statement after extensive discussions on the Fifth and Sixth Reviews under the Extended Credit Facility arrangement. 

The high-level talks included meetings with newly elected President Daniel Chapo and other senior officials amid mounting concerns over the country's economic trajectory.

Economic activity in Mozambique crashed in the final quarter of 2024, dragging annual growth down to a mere 1.9 percent—a shadow of the previous quarter's 3.7 percent expansion. 

The IMF projects a modest recovery to 3.0 percent growth for 2025, contingent upon normalizing social conditions and a resurgence in service sector activity.

Preliminary analysis revealed what Murphy diplomatically termed "significant fiscal slippages" in 2024, partially attributed to the economic slowdown during the tumultuous final quarter. 

The IMF has emphasized that 2025 must bring meaningful fiscal consolidation to secure sustainability and preserve macroeconomic stability in the fragile economy.

The delegation highlighted persistent wage bill overruns that continue to cannibalize critical spending priorities, including social transfers and infrastructure development. 

Murphy's team prescribed a bitter medicine of wage bill rationalization and reduced tax exemptions to underpin fiscal consolidation, while insisting that social spending must remain prioritized. Additionally, they recommended strengthened debt management practices to prevent arrears.

The social unrest in Mozambique during the last quarter of 2024, following the general elections on October 9, significantly impacted the country's economy. 

Protesters run from police during a "national shutdown" against the election outcome in Luis Cabral township in Maputo, Mozambique, on Nov. 7, 2024

This period of instability, characterized by demonstrations, street protests, barricades, and clashes with the police, ultimately led to a contraction of nearly 5% in Mozambique's GDP for the fourth quarter of the year.

The unrest not only affected business operations, including the mining sector, but also led to the closure of key trade corridors, compounding the economic challenges already faced by the country due to natural disasters like cyclones. 

The International Monetary Fund (IMF) has noted that the combined effects of political instability and natural disasters have forced a downward revision of economic growth forecasts for Mozambique, which initially were more optimistic​

The situation remains fragile, with the economic outlook for 2025 expected to show only modest growth, dependent on the resolution of the political situation and the implementation of structural reforms

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