Press Release: IMF Executive Board Completes First Review Under the Three-Year PRGF Arrangement for Mozambique and Approves US$2.4 Million Disbursement

February 11, 2005

The Executive Board of the International Monetary Fund (IMF) today completed the first review of Mozambiqu e's economic performance under an SDR 11.36 million (about US$17.1 million) Poverty Reduction and Growth Facility (PRGF) arrangement (see Press Release No. 04/153).

The completion of the review enables the release an amount equivalent to SDR 1.62 million (about US$2.4 million), which will bring total disbursements under the PRGF arrangement to an amount equivalent to SDR 3.24 million (about US$4.9 million).

The Executive Board approved a three-year arrangement under the PRGF for Mozambique on July 6, 2004 to support the country's economic reform program into 2006.

Following the Executive Board's discussion on Mozambique's economic performance, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, stated:

"Mozambique's economic performance under the PRGF-supported program continued to be satisfactory during 2004. Real GDP growth has remained strong; inflation has declined to single-digit levels; and the international reserve position has further strengthened. Progress has also been made on the structural front, notwithstanding some delays related in part to capacity constraints, and in reducing the still high levels of poverty.

"The authorities are continuing to maintain a prudent fiscal stance, but need to promptly address the recent weakening of the revenue performance. The successful launching of the new financial administration system (SISTAFE) in the Ministry of Finance is regarded as an important step toward increasing fiscal transparency and strengthening public expenditure management.

"The government's program for 2005 seeks to sustain rapid growth, consolidate the gains toward price stability, and deepen structural reforms. Achieving the program's primary deficit target will require strong efforts to strengthen tax revenue, as well as close monitoring of the government's wage bill and restraint in non-priority outlays. The authorities are moving ahead with the steps required to establish a Central Revenue Authority and with a comprehensive public sector reform program supported by the World Bank.

"The Bank of Mozambique will maintain a prudent monetary stance in the context of the current managed float exchange rate system. The program envisages further measures to improve liquidity management and strengthen the balance sheet of the Bank of Mozambique.

"The authorities remain committed to strengthening the financial system, fostering a healthy competitive environment, and expanding access to financial services by the poor. The recent completion of the diagnostic reviews of the major banks constitutes an important step in this regard. Sustained efforts in this area, further progress in reducing the cost of doing business and easing labor market rigidities, and improvements in governance and the judicial system will be key to stimulating private sector development, sustaining strong growth, and further reducing poverty," Mr. Kato stated.

The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½-year grace period on principal payment.


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