IMF Staff Concludes Visit to Mozambique

IMF News, September 29, 2016

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An IMF staff team headed by Michel Lazare visited Mozambique from September 22-29, 2016 to assess recent economic developments and discuss government policies to restore confidence and underpin economic stability.
The mission met with Prime Minister do Rosario, Minister of the Economy and Finance Maleiane, Governor Zandamela of Bank of Mozambique, the Attorney General, other sectoral ministers, senior government officials, civil society, private sector representatives, and the donor community.
The mission initiated discussions on the terms of reference (TOR) for an international and independent audit of the companies EMATUM, Proindicus and MAM, with the objective of strengthening transparency, governance, and accountability to avoid recurrence of past debt problems.
At the end of the mission, Mr. Lazare issued a statement summarizing findings and policy implications.

Growth is currently expected to be 3.7 percent in 2016 (down from 6.6 percent in 2015).
Inflation reached 21 percent on a year on year basis in August 2016.
The metical depreciated by about 40 percent since the start of the year.
The discovery in April 2016 of previously undisclosed debt worth $1.4 billion (10.7 percent of GDP) substantially increased debt ratios and the debt service burden.
A significant decline in imports has been more than offset by a weakening of exports, foreign direct investment, and donor financing, maintaining pressure on international reserves, which have continued to decline.

Fiscal: A revised 2016 budget was approved by Parliament in July including measures to contain non-essential spending.
Monetary: The central bank raised reserve requirements and its benchmark interest rate by 300 basis points to reduce excess liquidity.
Exchange rate policy: The central bank has allowed the exchange rate to fluctuate to help restore balance between supply and demand for foreign exchange and support the needed ongoing balance of payments adjustment, while limiting the loss of international reserves.
The 2017 draft budget is set to further consolidate the state of public finances while preserving critical social programs.

Following a meeting between President Nyusi and IMF Managing Director Christine Lagarde in Washington on September 15, 2016, the mission made considerable progress with the Attorney General’s Office on drafting detailed TOR for an international and independent audit of EMATUM, Proindicus and MAM.
Drafting of the TOR is ongoing and is expected to be completed soon.
The objective of the audit is to strengthen transparency, governance, and accountability to avoid recurrence of past debt problems.

Further policy tightening is needed to safeguard macroeconomic stability given rising inflation and the depreciating metical.
The mission welcomed the central bank’s intent to continue adjusting its monetary stance to help reduce inflationary pressures.
The authorities have requested the Fund to resume discussions on financial support as soon as possible.
A solid track record of implementation of sound macroeconomic policies and an effective initiation of the audit process in the near term would help create the conditions for a possible resumption of program discussions with the IMF.

IMF Staff Concludes Visit to Mozambique — September 29, 2016.