IMF Staff Team Concludes Visit to Mozambique

IMF News, December 13, 2016

Source details

IMF staff team headed by Michel Lazare visited Mozambique from December 1-12, 2016 to assess recent economic developments and discuss policies to support macroeconomic stability.
The mission also initiated discussions on a new economic program that could be supported by the IMF.
End-of-Mission press releases convey preliminary findings; the views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board. This mission will not result in a Board discussion.

Monetary policy tightening since October 2016 resulted in a rebalancing of the foreign exchange market.
The metical appreciated by about 8 percent vis-à-vis the US dollar since end-September, following a 40 percent depreciation over the first nine months of the year.
The current account deficit of the balance of payments has been narrowing rapidly, helped by a marked drop in imports and somewhat more stable exports supported by higher global coal prices.
Despite limited foreign direct investment flows and donor financing, the stock of international reserves has recently started to increase and is expected to cover about 3.5 months of non-megaproject imports at end-2016.
Growth has declined in 2016 and is now projected at 3.4 percent (down from 6.6 percent in 2015).
Inflation is expected to peak soon and is still high.

Increased spending on wages and salaries is putting pressure on fiscal policy.
The 2016 budget deficit is still expected to narrow to about 6 percent of GDP, in line with the revised budget law adopted by Parliament in July 2016.
Total public debt, mostly denominated in foreign currency, increased to distressed levels in 2016 owing to the addition of the previously undisclosed loans worth $1.4 billion (10.7 percent of GDP) combined with the impact of the exchange rate depreciation.

Further fiscal consolidation is needed in 2017.
- Contain the expansion of the wage bill.
- Gradually eliminate general price subsidies.
- Protect critical social programs and reinforce the social safety net to cushion the impact on the most vulnerable.
- Limit fiscal risks presented by some large public enterprises.
- Mobilize additional revenue by curtailing tax exemptions and strengthening revenue administration.
- Strong commitment to fiscal adjustment is essential to facilitate ongoing debt restructuring discussions with creditors.
Monetary and financial sector recommendations:
- Maintain the central bank’s commitment to reduce inflation while safeguarding financial stability.
- Remain vigilant to risks, ensure adequate liquidity provision to the economy, and continue to step up supervision and enforcement of prudential regulations.

Agreement reached with the General Prosecutor’s Office and the Embassy of Sweden on terms of reference and the selection of an international company to conduct the ongoing independent audit of EMATUM, Proindicus and MAM.
In due course, it will be important to consider strong governance reforms to address findings and recommendations from the audit report.

Discussions on a possible IMF arrangement were held in a constructive and cooperative atmosphere; good progress was achieved on a number of technical questions.
Additional policy adjustments are required to further consolidate macroeconomic and financial stability and pave the way for a Fund-supported program.
Discussions on a new IMF-supported program will continue in the first part of 2017.

The IMF team met with Prime Minister do Rosario, Minister of the Economy and Finance Maleiane, Bank of Mozambique Governor Zandamela, the Public Prosecutor, other ministers, senior government officials, representatives from the Parliament, private sector, and the donor community.

Source: Press Release No. 16/555 — IMF Staff Team Concludes Visit to Mozambique (December 13, 2016).