Press Release: IMF Completes First Review under the Policy Support Instrument for Mozambique
December 17, 2007
The Executive Board of the International Monetary Fund (IMF) today completed the first review of Mozambique's economic performance under the three-year Policy Support Instrument (PSI). The Executive Board also granted a waiver of nonobservance for the quantitative assessment criterion on reserve money.
The PSI for Mozambique was approved on June 18, 2007 (See Press Release No 07/135) to support the nation's economic reform efforts. It is aimed at consolidating macroeconomic stability as foreign aid is scaled up, promoting structural reforms, as well as implementing the broader policy agenda as envisaged in the Mozambican authorities' national poverty reduction strategy, Plano de Acção para Redução da Pobreza Absoluta (PARPA II).
The IMF's framework for PSIs is designed for low-income countries that may not need IMF financial assistance, but still seek close cooperation with the IMF in preparation and endorsement of their policy frameworks. PSI-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners. This is intended to ensure that PSI-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. Members' performance under a PSI is reviewed semi-annually, irrespective of the status of the program (see Public Information Notice No. 05/145).
Following the Board's discussion on Mozambique, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, made the following statement:
"The Mozambican authorities are to be commended for the strong macroeconomic performance, attributable in large part to the implementation of prudent fiscal and monetary policies in the context of a flexible exchange rate regime. The strategy of consolidating macroeconomic stability in an environment of a continued scaling-up of aid and the acceleration of the second wave of structural reforms should help sustain rapid growth.
"The 2008 budget will continue to target a 0.5 percent of GDP rise in domestic revenue, with priority expenditures exceeding 65 percent of total spending. Expenditures related to the elections will be monitored closely, to avoid fiscal slippages. The rollout of the public financial administration system (e-SISTAFE) to all public entities at the central and provincial levels and to some districts should improve expenditure monitoring. These strengthened accounting and reporting systems should make it possible for international donors to incorporate their projects, including common funds, into the multicurrency single treasury account and e-SISTAFE.
"Fiscal transparency will need to be strengthened further given the number of large investment projects and concessions in the pipeline. In this vein, the authorities are committed to adopting regulations to give force to the new Mining and Petroleum Fiscal Regime laws. Mozambique also intends to adhere to the principles of the Extractive Industries Transparency Initiative.
"The authorities continue to implement a prudent monetary policy. It is noteworthy that, given the success of first-generation reforms, the Bank of Mozambique intends to consider gradually moving to an inflation-targeting framework, as conditions permit.
"The authorities have embarked energetically on the second wave of their structural reform agenda. This will include the design of a comprehensive strategy for the decentralization of fiscal responsibilities to districts and municipalities that pays due regard to both preserving macroeconomic stability and the capacity of local governments to absorb and allocate resources. A new public service wage policy will aim at recruiting and retaining key workers while maintaining fiscal sustainability. Good progress is also being made in reducing the cost of doing business, and the authorities intend to move ahead with their action plan to ensure a level playing field for all investors.
"Public sector and governance reforms will continue, and the authorities are committed to carrying out decisively their anticorruption strategy.
"It is hoped that the debt cancellation negotiations with Mozambique's few remaining official bilateral creditors would soon be concluded successfully, so that the country can receive the full benefits of the Multilateral Debt Reduction Initiative," Mr. Kato said.