As Mozambique prepares for its presidential election on Wednesday, the incoming leader will face a series of economic hurdles, including the effects of severe cyclones, rising insecurity, delays in major gas projects, and a high debt burden.
Ruling party candidate Daniel Chapo is the current frontrunner in the race, competing against three other candidates vying to succeed Felipe Nyusi as president of the southeast African nation.
The country is grappling with escalating borrowing costs, which are pushing it toward tighter fiscal policies. Delays in expected gas revenues further complicate the situation, leaving limited options for refinancing its debt, which nearly matches the nation’s annual GDP.
“The debt situation is escalating,” warned Gabriel Muthisse, a former minister of transport and communications. “Funds that should support economic growth are being redirected to debt servicing.”
Currently, Mozambique’s international bond due in 2031 yields close to 13%, reflecting the financial strain the country is under.
With a population of 34 million, Mozambique is still recovering from the fallout of a scandal involving “tuna bonds” linked to Credit Suisse, where significant loans meant for a fishing fleet went unaccounted for, resulting in a debt default and the suspension of IMF lending.
Last year, Credit Suisse settled the case outside of court, but the impact lingers.
“Financing the budget deficit is increasingly challenging,” said Kevin Daly, a portfolio manager at Abrdn, which holds Mozambique’s 2031 bond.
In May 2022, the country secured a $456 million deal with the IMF, but this program is set to end next year and will require renegotiation.
“The economic future largely depends on the successful development of oil and gas resources,” noted Thys Louw, a portfolio manager at global asset manager Ninety One. However, escalating violence from Islamist groups has delayed progress on major gas projects by TotalEnergies and ExxonMobil.
Total remains committed to these developments, but investor confidence is beginning to wane.
“There was a time when there was great enthusiasm for investment in Mozambique,” stated Tshepo Ncube, head of International Coverage at Absa Corporate and Investment Bank. “Now, the sentiment is cautious as everyone waits to see how events unfold.”