From empty fuel pumps to dollars selling for a steep premium on the street, Mozambique’s foreign-currency crunch is becoming increasingly obvious in the natural gas-rich southeast African nation.

Motorists in Maputo, the capital, hunt for filling stations that have stock and join increasingly long queues when they find them. Red and white tape cordoning off pumps that have run dry has become a common sight. Informal currency traders are seeing rising demand for dollars, and expect the gap between the official and parallel-market rates to continue widening.

Mozambique’s foreign-currency shortage follows months of post-election unrest. Pressures have built under what the International Monetary Fund has dubbed a “de-facto stabilised” exchange rate. Allowing depreciation could fuel inflation in a tense political environment, while the central bank is reluctant to tap reserves.

Already, a dollar costs 78 meticais on the informal market in downtown Maputo, a premium of more than 20% to the Banco de Moçambique’s official rate that’s barely changed since July 2021. And as it becomes more difficult to source foreign exchange from commercial banks, the informal market is booming.

“People have no choice,” said Santos, a street currency trader near Maputo’s bustling central market who only wanted to provide his first name. “More and more are buying from us because they can’t get dollars elsewhere.”

At least one flour mill can’t access foreign currency for wheat imports, and bakers face a 17% price surge since January, Victor Miguel, head of the local bread-makers association, said by phone.

The Banco de Moçambique, the headquarters of which are located a block away from where Santos trades, has played down the foreign currency shortage, saying its January move to cut mandatory reserves for commercial lenders freed up dollar liquidity. This month, it increased the value of export revenues that companies must convert to local currency to 50% from the prior 30%.

The central bank didn’t immediately respond to a request seeking comment. Neither did Mozambique’s main business-lobby group, which has previously complained of hundreds of millions of dollars in unmet demand for foreign exchange among its members. The local banking association declined to comment.

Banco de Moçambique Governor Rogério Zandamela last month dismissed concern over foreign-exchange shortages and highlighted the importance of building strategic international reserves. The country’s reserves slipped in January to $3.68-billion, data from the central bank show.

Trade Gap

The official foreign-exchange holdings had rebounded in 2023 after the central bank stopped providing dollars directly to cover fuel imports, and are far above the indicative target from the International Monetary Fund.

Still, a trade deficit points to continued pressure. The nation imported $164-million more goods than it exported last year, with natural gas closing in on coal as the biggest export by value at about $2-billion each, the data show.

Mozambique this month approved a $7.2-billion plan for a second floating liquefied natural gas-production platform, from which the government expects to reap $23-billion over 2 1/2 decades.

Those revenues are years away: The vessel won’t produce gas until at least 2028. And a bigger $20-billion LNG export project TotalEnergies SE is leading remains on hold.

In the meantime, delays in IMF funding and reduced aid flows from the US will further squeeze dollar supply.