IMF Executive Board Completes the Second Review under the Extended Credit Facility Arrangement for the Republic of Mozambique

IMF News, July 6, 2023

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Canonical URL: IMF Executive Board Completes the Second Review under the Extended Credit Facility Arrangement for the Republic of Mozambique

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Published: July 6, 2023

Review outcome and disbursement

The Executive Board completed the Second Review under the three-year ECF arrangement for Mozambique.
Immediate disbursement: SDR 45.44 million (about US$ 60.6 million), usable for budget support.
Total disbursements under the ECF arrangement after this review: SDR 159.04 million (about US$ 212.09 million).
Waivers of nonobservance approved for two performance criteria:
- Missed end-December 2022 performance criterion on domestic primary budget balance due to overruns in the implementation of the wage bill reform and revenue shortfalls.
- Missed continuous performance criterion on non-accumulation of public and publicly-guaranteed external arrears due to delays in debt service repayment by a SOE.
Waivers were approved based on remedial actions taken by the authorities.
The monetary policy consultation clause (MPCC) band was breached at the lower bound as inflation decelerated faster than expected; the monetary policy consultation with the Executive Board was completed.
The Executive Board completed the financing assurances review and approved the authorities’ request for modification of conditionality.

Program objectives, performance, and conditionality

Objective of the three-year ECF arrangement: support Mozambique’s economic recovery, reduce public debt and financing vulnerabilities, and foster higher and more inclusive growth through structural reforms.
Program performance summary:
- Broadly favorable overall, with notable slippages in the fiscal area.
- Important program commitments in fiscal governance and anti-corruption were completed.
Specific fiscal developments:
- Fiscal performance in 2022 was worse than expected, mainly due to slippage in the wage bill reform and revenue underperformance.
Monetary policy stance:
- Characterized as tight and appropriate to contain inflation pressures.

Economic outlook and risks

Growth:
- Projected to increase in 2023, driven by increasing liquified natural gas (LNG) production, agriculture, and services activities.
Inflation:
- Returned to single digits, attributed to proactive monetary policy and favorable import prices for fuel and food.
- Inflation decelerated faster than expected (MPCC band breach at the lower bound).
External sector:
- LNG investments are driving the current account deficit.
- Expected increase in LNG exports and moderation of food and energy imports is projected to improve the current account balance going forward.
Risks:
- Primary downside risks: delays to LNG projects and deepening geo-economic fragmentation.
- Additional downside risks: inflation pressures from higher wages, natural disasters, and food insecurity.
- Upside risk: ramping up of LNG projects.

Policy recommendations and authorities’ actions (as highlighted by Mr. Bo Li, Deputy Managing Director and Acting Chair)

Fiscal policy:
- Authorities are undertaking corrective measures to ensure fiscal discipline in 2023; continued fiscal consolidation efforts warranted over the medium term.
- Revenue side: broadening the VAT base to help mobilize revenues efficiently.
- Expenditure side: reducing the wage bill in line with regional peers to create fiscal space for high-priority spending.
- Continue strengthening the social safety net to address food insecurity and elevated poverty.
Monetary policy and macroeconomic management:
- Monetary policy stance appropriate to contain inflationary pressures and rebuild reserves; continued caution warranted.
- Implement an appropriate and carefully calibrated policy mix between fiscal and monetary policy.
- Improve transmission of the policy rate by implementing an inflation targeting regime over the medium term to allow greater exchange rate flexibility to cope with external shocks.
Structural and governance reforms:
- Continue progress on governance, anti-corruption, and fiscal structural agenda.
- Submit to Parliament the Sovereign Wealth Fund law to develop a transparent, accountable, and efficient framework for managing LNG receipts.
- Key reforms include improvements in revenue administration, public financial and debt management, and SOE transparency.
- Strengthen the AML/CFT framework and monitor vulnerabilities in the financial sector, including cybersecurity risks.
- Implement policies to enhance climate resilience given strong vulnerabilities to climate change.
Program implementation:
- Continued program ownership by the authorities, complemented with capacity development efforts and donor support, remains essential for Mozambique to achieve its development objectives.

Key statistics (Table 1: Mozambique: Selected Economic Indicators, 2019–23)

National Income and Prices
- Nominal GDP (MT billion): 2019: 963; 2020: 983; 2021: 1,053; 2022: 1,223; 2023: 1,414
- Real GDP growth (percentage change): 2019: 2.3; 2020: -1.2; 2021: 2.4; 2022: 4.2; 2023: 7.0
- Consumer price index (percentage change, end of period): 2019: 3.5; 2020: 6.7; 2021: 10.3; 2022: [not provided]
Government Operations (percent of GDP)
- Total revenue: 2019: 29.0; 2020: 23.9; 2021: 25.3; 2022: 23.4; 2023: 23.5
- Total expenditure and net lending: 2019: 28.2; 2020: 32.9; 2021: 30.9; 2022: 32.3; 2023: 30.2
- Overall balance, after grants: 2019: 0.3; 2020: -5.7; 2021: -4.7; 2022: -4.9; 2023: -2.8
- Primary Balance after grants: 2019: -2.6; 2020: -2.0; 2021: 0.4; 2022: [not provided]
- Public sector debt: 2019: 99.0; 2020: 120.0; 2021: 104.9; 2022: 95.5; 2023: 89.7
- of which: external: 2019: 79.4; 2020: 97.8; 2021: 81.2; 2022: 71.1; 2023: 65.6
Money and Credit
- Reserve money (percentage change): 2019: 19.1; 2020: 9.0; 2021: -14.3; 2022: 0.6; 2023: 85.9
- M3 (Broad Money) (percentage change): 2019: 13.4; 2020: 23.3; 2021: 1.9; 2022: 8.7; 2023: 5.2
- Credit to the economy (percentage change): 2019: 13.1; 2020: 4.0; 2021: 6.0; 2022: [not provided]
- Credit to the economy (percent of GDP): 2019: 23.8; 2020: 26.4; 2021: 25.9; 2022: 23.2; 2023: 21.2
External Sector (percentage change)
- Merchandise exports: 2019: -10.2; 2020: -23.1; 2021: 55.6; 2022: 47.2; 2023: -1.9
- Merchandise exports, excluding megaprojects: 2019: 8.3; 2020: -22.0; 2021: 43.0; 2022: 31.9; 2023: 8.8
- Merchandise imports: 2019: 9.5; 2020: -12.9; 2021: 33.2; 2022: 70.2; 2023: -29.5
- Merchandise imports, excluding megaprojects: 2019: 9.3; 2020: -4.5; 2021: 37.8; 2022: 12.1; 2023: 7.9
- External current account, after grants (percent of GDP): 2019: -19.1; 2020: -27.6; 2021: -22.4; 2022: -32.9; 2023: -15.5
- Net international reserves (millions of U.S. dollars, end of period): 2019: 3,605; 2020: 3,493; 2021: 2,927; 2022: 2,333; 2023: …
- Gross international reserves (millions of U.S. dollars, end of period): 2019: 3,884; 2020: 4,070; 2021: 3,470; 2022: 2,888

IMF Executive Board Completes the Second Review under the Extended Credit Facility Arrangement for the Republic of Mozambique, July 6, 2023

References

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