IMF Staff Concludes Visit to Mozambique

IMF News, November 13, 2019

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IMF staff team led by Ricardo Velloso visited Maputo during November 6–12, 2019 to take stock of recent economic developments and update macroeconomic projections.
End-of-mission statement conveys preliminary findings of IMF staff; 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.

Real GDP growth decelerated to 2¼ percent (year-on-year) in the second quarter of 2019, affected by a weak performance in agriculture due to Tropical Cyclones Idai and Kenneth.
Inflation declined to 2¼ percent (year-on-year) in October, from about 5 percent a year earlier, as tight monetary conditions more than offset the supply shock to prices induced by the cyclones.
The exchange rate has been broadly stable.
International reserves at the Bank of Mozambique increased to about US$3.9 billion at end-October, covering 6¾ months of next years’ projected non-megaprojects imports.

Real GDP growth is projected to reach 5½ percent in 2020, from 2.1 percent projected for 2019, supported by:
- post-cyclones reconstruction efforts,
- a recovery in agriculture,
- economic stimulus from further gradual easing of monetary conditions and clearing of domestic payments arrears to suppliers,
- construction and other activities boosted by investments in the liquefied natural gas (LNG) megaprojects.
Inflation is projected to remain low, increasing slightly to 5 percent at end-2020, from 3 percent at end-2019.

Recommended gradual fiscal consolidation over the medium term, with a view of eliminating the primary fiscal deficit by 2022, while protecting or increasing well-targeted social spending.
Financing should continue to rely on external grants and highly concessional loans given the high level of public debt.
The mission welcomed the significant progress on clearing domestic payments arrears to suppliers; noted additional efforts will be needed to address the VAT refund backlog.
The recently-concluded Eurobond exchange lowered interest payments and extended maturities broadly in line with the baseline scenario in the debt sustainability analysis published in April.
Gradual fiscal consolidation and success in the Government’s strategy to secure additional debt relief from international private creditors remain critical for public debt sustainability.

There is ample room for the Bank of Mozambique to continue easing monetary policy given well-anchored inflation expectations, provided this easing is supported by a prudent fiscal policy stance.
The mission welcomed the Bank of Mozambique’s strong commitment to maintain a flexible exchange rate and safeguard financial sector stability.

The mission welcomed the authorities’ comprehensive diagnostic of governance and corruption challenges in Mozambique, published in August and supported by IMF technical assistance, and encouraged implementation of the reforms under the roadmap outlined in the report.
The mission welcomed ongoing efforts by the Attorney-General’s Office to bring accountability to the issue of the previously undisclosed loans, as well as the Government’s initiatives to fight corruption and strengthen transparency.

The mission welcomed progress in the development of the LNG megaprojects in Cabo Delgado.
Reiterated the importance of building stronger institutions to ensure that fiscal revenue from such projects transforms the lives of the Mozambican people and plays a significant role in sustainable development and poverty reduction.
Welcomed the Government’s intention to save part of the capital gains tax—from the sale to Total of Anadarko/Occidental’s share in one of the projects—into an embryonic, future sovereign wealth fund.

The mission held discussions with President Filipe Nyusi, Prime Minister Carlos do Rosário, Minister of Economy and Finance Adriano Maleiane, Minister of Mineral Resources and Energy Ernesto Max Tonela, Bank of Mozambique Governor Rogério Zandamela, other senior government officials, private sector, and the donor community.
The mission thanked the authorities for their availability and cooperation and the arrangements made to facilitate the work.

Source: Press Release No. 19/411 — IMF Staff Concludes Visit to Mozambique (November 13, 2019).