Mozambique is exploring a plan to convert roughly $1.4 billion of its debt owed to China into yuan-based loans as financial strain intensifies and default risks grow.
The idea has emerged during ongoing debt restructuring negotiations with Beijing, which remains the country’s largest bilateral lender.
According to the finance ministry, the option was introduced during discussions and considered a feasible alternative. Officials noted that such proposals are often raised by partners in cooperation arrangements.
These talks are unfolding at a sensitive moment for the resource-rich southern African nation.
Recent warnings from the International Monetary Fund and World Bank suggest Mozambique’s debt levels are no longer sustainable, citing increasing arrears and tight liquidity conditions.
Last month, Fitch Ratings downgraded the country’s credit profile, indicating that a default is increasingly likely.
Shifting some of the debt into yuan could provide short-term relief by lowering reliance on the US dollar, whose strength against many African currencies has made servicing external debt more costly.
Mozambique’s consideration reflects a wider trend across the continent, where several governments are adopting China’s currency as Beijing seeks to expand its global influence.
Kenya, for instance, converted around $5 billion of loans from the Export-Import Bank of China into yuan last year, helping reduce repayment costs and ease pressure on its foreign reserves.
Ethiopia is weighing a similar approach, while Zambia has discussed a currency swap with China and has started accepting part of its mining taxes in yuan.
However, the yuan still represents a small share of global reserves. IMF figures show it accounts for under 2%, compared with 56.8% for the US dollar, highlighting its limited global dominance despite gradual growth.
Mozambique is also negotiating a potential debt-for-development arrangement with China, which would channel part of its liabilities into funding domestic projects.
The finance ministry indicated plans to broaden this approach, converting portions of debt into investments targeting key sectors.
Priority areas identified include agriculture, energy, infrastructure, healthcare, education, and climate resilience, with one of the initial projects expected to focus on children.
If finalised, Mozambique would join a handful of African nations experimenting with such frameworks with China. Egypt signed a similar agreement last year.
Despite holding vast natural gas reserves, Mozambique has struggled to fully capitalise on them. Major projects led by TotalEnergies and ExxonMobil, valued at about $50 billion, have faced prolonged delays, with exports now projected toward the end of the decade.
At the same time, debt obligations continue to mount. The country’s $900 million Eurobond is set to begin repayments in 2028, requiring annual payments of $225 million.
The government is also pursuing a new programme with the IMF after discontinuing a previous one last year, underscoring the urgency of securing financial support ahead of upcoming repayment pressures.