IMF Executive Board Concludes 2022 Article IV Consultation with the Republic of Mozambique and Approves US$456 Million Extended Credit Facility Arrangement
IMF News, May 9, 2022
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- IMF Executive Board Concludes 2022 Article IV Consultation with the Republic of Mozambique and Approves US$456 Million Extended Credit Facility Arrangement
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- Published: May 9, 2022
Arrangement approval and purpose
- The IMF Executive Board approved a three-year Extended Credit Facility (ECF) arrangement for the Republic of Mozambique of SDR 340.8 million (about US$456 million), equivalent to 150 percent of the country’s quota.
- An immediate disbursement of SDR 68.16 million (about US$91 million) is available upon approval.
- The arrangement aims to:
- Support the economic recovery.
- Reduce public debt and financing vulnerabilities.
- Create space for priority investments in human capital, climate adaptation and infrastructure.
- Catalyze additional financing by development partners.
Policy focus and reform priorities supported by the program
- Key policy actions and reforms supported:
- Establishing a sovereign wealth fund to transparently manage LNG wealth.
- Mobilizing additional tax revenue and removing distortionary tax exemptions.
- Strengthening public financial management and governance.
- Strengthening management of state-owned enterprises and their debts.
- Improving fiscal risk management and debt transparency.
- Buttressing the anti-money laundering/combating the financing of terrorism (AML/CFT) framework.
- Further governance reforms and anti-corruption measures.
- Fiscal policy stance:
- Envisages a moderate pace of fiscal adjustment that balances sustaining activity with reducing debt and financing vulnerabilities.
- Maintains space for social protection spending for the most vulnerable households.
- Authorities committed to a sovereign wealth fund and advised to complement this with a framework to weather commodity price volatility and consider a fiscal rule.
- Monetary and financial sector policy:
- The Bank of Mozambique raised its policy rate 200 basis points in March 2022.
- The IMF described the prudent monetary stance as warranted given rising inflationary pressures.
- The Bank’s pursuit of adopting an inflation targeting regime is commended.
- Continued efforts recommended to strengthen financial sector supervision, promote financial inclusion, and address AML/CFT weaknesses.
Macroeconomic developments and outlook
- Growth and COVID-19:
- Real GDP contracted -1.2 percent in 2020, the first in 30 years; growth resumed in 2021 and is becoming more broad-based.
- Vaccine rollout intensified in late 2021 with 46 percent of the population having received at least one shot (42 percent fully vaccinated by end-March 2022).
- Poverty increased from a poverty headcount ratio of 61.9 percent in 2019 to an estimated 63.3 percent in 2020.
- Inflation and external shocks:
- Inflation rose to 6.7 percent year-on-year in March 2022, driven by rising global prices and the impact of tropical storms on local food prices.
- The war in Ukraine is pushing up fuel and food prices.
- Medium-term prospects:
- Growth excluding extractive industries is expected to rise to about 4.0 percent per year.
- Higher overall growth rates are expected from large liquefied natural gas (LNG) projects set to begin production later in 2022.
- Vulnerabilities and risks:
- Significant risks include security concerns, high debt levels, and vulnerability to natural disasters.
- The country is highly vulnerable to natural disasters; building climate resilience is critical.
Executive Board assessment and recommendations
- Directors welcomed prudent macroeconomic policy management and reform implementation despite challenging conditions.
- Directors encouraged:
- Maintaining focus on macroeconomic stability.
- Accelerating reforms to promote inclusive growth, address governance and corruption concerns, and strengthen management of public resources.
- Growth-friendly fiscal consolidation and measures to reduce public debt vulnerabilities.
- Continued reforms in tax administration and public financial management.
- Transparent management of future LNG resources through a sovereign wealth fund and adoption of a fiscal rule to mitigate commodity price volatility.
- Continued efforts to implement measures from the “Diagnostic Report on Transparency, Governance and Corruption” and follow up on findings from the audit report on COVID-19 related spending.
- Strengthening financial sector supervision and addressing AML/CFT framework weaknesses.
Mozambique: Selected Economic Indicators (by year)
- National income and prices
- Nominal GDP (MT billion): 2018 896; 2019 963; 2020 975; 2021 1,054; 2022 1,173
- Real GDP growth (percentage change): 2018 3.4; 2019 2.3; 2020 -1.2; 2021 2.2; 2022 3.8
- Consumer price index (percentage change, end of period): 2018 3.5; 2019 6.7; 2020 9.0; 2021
- Government Operations (percent of GDP)
- Total revenue: 2018 23.8; 2019 28.7; 2020 24.5; 2021 25.3; 2022 25.0
- Total expenditure and net lending: 2018 31.3; 2019 29.8; 2020 33.2; 2021 30.6; 2022 32.4
- Overall balance, after grants: 2018 -7.3; 2019 0.3; 2020 -5.4; 2021 -4.4; 2022 -3.6
- Primary Balance after grants: 2018 -2.9; 2019 -2.3; 2020 -1.8; 2021 -0.2; 2022
- Public sector debt
- Public sector debt: 2018 106.7; 2019 99.0; 2020 121.1; 2021 104.2; 2022 101.4
- of which: external: 2018 86.2; 2019 79.4; 2020 98.7; 2021 81.1; 2022 77.6
- Money and Credit
- Reserve money (percentage change): 2018 22.5; 2019 19.1; 2020 -14.4; 2021 10.7
- M3 (Broad Money) (percentage change): 2018 8.2; 2019 12.1; 2020 23.6; 2021 2.8; 2022 12.0
- Credit to the economy (percentage change): 2018 -2.5; 2019 5.0; 2020 14.8; 2021 3.0; 2022 8.7
- Credit to the economy (percent of GDP): 2018 24.6; 2019 24.0; 2020 27.2; 2021 25.9
- External sector (percentage change)
- Merchandise exports: 2018 10.0; 2019 -10.2; 2020 -23.1; 2021 55.5; 2022 20.1
- Merchandise exports, excluding megaprojects: 2018 20.2; 2019 8.3; 2020 -22.0; 2021 42.7; 2022 15.9
- Merchandise imports: 2018 18.1; 2019 9.5; 2020 -12.9; 2021 65.7
- Merchandise imports, excluding megaprojects: 2018 8.9; 2019 9.3; 2020 -4.5; 2021 37.9; 2022 7.8
- External current account, after grants (percent of GDP): 2018 -30.3; 2019 -19.1; 2020 -27.6; 2021 -22.4; 2022 -44.9
- Net international reserves (millions of U.S. dollars, end of period): 2018 2,885; 2019 3,605; 2020 3,493; 2021 2,927; 2022 2,400
- Gross international reserves (millions of U.S. dollars, end of period): 2018 3,081; 2019 3,884; 2020 4,070; 2021 3,470; 2022 3,076
Press Release No. 22/145; May 9, 2022. IMF Communications Department.