MAPUTO – Mozambique is considering converting approximately US$1.4 billion of its debt to China into yuan-denominated loans, as mounting fiscal pressures and growing default risks push the government to explore alternative financing strategies.
The proposal, according to Business Insider Africa, forms part of ongoing debt restructuring negotiations with Beijing, Mozambique’s largest bilateral creditor, at a time when international financial institutions are raising concerns about the country’s debt sustainability.
Officials from the finance ministry indicated that the yuan conversion option has been tabled during discussions, describing it as a viable mechanism to ease pressure on the country’s finances.
The move comes against the backdrop of warnings from the International Monetary Fund and the World Bank, both of which have flagged Mozambique’s rising arrears and weakening liquidity position as signs of increasing default risk. Credit ratings agency Fitch Ratings recently downgraded the country’s credit profile, signalling that a default scenario is becoming more likely.
Analysts say shifting part of the debt into yuan could provide short-term relief by reducing Mozambique’s exposure to the strengthening US dollar, which has made servicing external debt more expensive for many African economies.
The potential restructuring reflects a broader trend across the continent, where governments are increasingly turning to China’s currency as Beijing promotes its global use. Countries such as Kenya have already undertaken similar conversions, with Nairobi restructuring billions of dollars in Chinese loans into yuan to ease pressure on foreign exchange reserves.
Other economies, including Ethiopia and Zambia, are also exploring yuan-based financing arrangements, including currency swaps and tax settlements.
Despite these developments, the yuan remains a relatively small component of global reserves, accounting for less than 2% compared to the US dollar’s dominant share, according to IMF data.
In addition to currency conversion, Mozambique is also negotiating a potential debt-for-development swap with China. The arrangement would see part of its debt obligations redirected towards domestic investment in key sectors such as agriculture, energy, infrastructure, healthcare, education, and climate resilience.
Officials say early-stage projects under consideration include social development initiatives, with a focus on vulnerable groups.
Mozambique’s financial challenges persist despite its vast natural gas reserves, among the largest in Africa. Major liquefied natural gas (LNG) projects led by TotalEnergies and ExxonMobil, valued at around US$50 billion, have faced prolonged delays, with exports now expected later in the decade.
Meanwhile, debt servicing pressures are intensifying. The country’s US$900 million Eurobond is scheduled to begin repayments in 2028, with annual obligations of US$225 million.
The government is also seeking a new programme with the IMF after discontinuing a previous arrangement last year, underscoring the urgency of securing financial relief ahead of looming repayment deadlines.
The outcome of the restructuring talks with China is likely to play a critical role in shaping Mozambique’s fiscal trajectory as it navigates rising debt burdens and constrained liquidity.
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