News Brief: IMF Completes Mozambique Review and Approves US$50 Million Loan
March 27, 2000
IMF Completes Mozambique Review and Approves
US$50 Million Loan
The Executive Board of the International Monetary Fund (IMF) today completed the first review under the Poverty Reduction and Growth Facility (PRGF)1 for Mozambique. As a result, Mozambique will be able to draw up to the equivalent of SDR 36.8 million (about US$50 million) from the IMF.
In view of the emergency situation and its likely impact on the balance of payments, access under the PRGF arrangement has been augmented.
In commenting on the IMF Executive Board's discussion, Shigemitsu Sugisaki, Deputy Managing Director of the IMF, made the following statement:
"The Executive Directors of the International Monetary Fund expressed their deep sympathy for the people of Mozambique who had sustained deep human losses as a result of recent flooding. Regarding the material aspects of the tragedy, the authorities were commended for their quick response in providing assistance to flood victims, mobilizing the support of the international donor community, and planning for the reconstruction of the extensive damage to infrastructure.
"In 1999, Mozambique's overall economic performance was strong, as evidenced by high growth, low inflation, and a comfortable level of international reserves. However, financial policies in the second half of the year had raised some concerns. Regaining control of monetary aggregates and managing the budget prudently are crucial for the preservation of macroeconomic stability, and the authorities' commitment to economic stability is, in this respect, reassuring.
"The Government's structural reform agenda suffered some delays towards the end of 1999. However, the authorities have now implemented some of the delayed measures and intend to proceed with important reforms in the areas of fiscal management and transparency, and public administration-all actions necessary for improving the formulation and monitoring of economic policies. In this context, the authorities' commitment to start the publication of quarterly budget execution reports is particularly welcome. Reforms to promote private sector development will also be important. Following the introduction of trade restrictions affecting the cashew and sugar sectors in 1999, the authorities intend to carry out comprehensive studies to guide the liberalization of these sectors and to strengthen their performance.
"Significant progress in strengthening the poverty focus of the Government's economic and social policies has been achieved in recent years, as evidenced by a thorough poverty assessment, the formulation of a poverty action plan, and an interim poverty reduction strategy paper. It is now important to widen the dialogue on poverty issues and include a broad spectrum of civil society in the process of preparing a full poverty reduction strategy paper, which will serve as the basis for future support under the Fund's Poverty Reduction and Growth Facility, and for further debt relief under the Enhanced HIPC Initiative," Sugisaki said.
1On November 22, 1999, the IMF's concessional facility for low-income countries, the Enhanced Structural Adjustment Facility (ESAF), was renamed the Poverty Reduction and Growth Facility (PRGF), and its purposes were redefined. It is intended that PRGF-supported programs will in time be 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 each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. At this time for Mozambique, pending the completion of a PRSP, an Interim PRSP is being prepared by the government, and a participatory process is underway. It is understood that all policy undertakings are subject to reexamination and modification in line with the strategy that is to be elaborated in the PRSP. Once completed and broadly endorsed by the Executive Boards of the IMF and World Bank, the PRSP will provide the policy framework for future reviews under this PRGF arrangement.
PRGF loans carry an interest rate of 0.5 percent a year, and are repayable over 10 years with a 5½ year grace period on principal payments.