An International Monetary Fund (IMF) staff team led by Michel Lazare
visited Mozambique from July 10-19, 2017 to discuss with the authorities
measures needed to follow up on the recent audit report of EMATUM,
Proindicus, and MAM public sector companies. The team also assessed recent
economic developments and discussed monetary and fiscal policies in the
context of the 2018 budget.
At the end of the visit, Mr. Lazare issued the following statement:
“Performance in some sectors of the economy has improved since the latter
part of 2016. The decisive October 2016 monetary policy tightening helped
rebalance the foreign exchange market and resulted in the metical
appreciating by about 30 percent vis-à-vis the US dollar since
end-September 2016. This monetary stance contributed also to a decline in
inflation from a year-on-year peak of 26 percent in November 2016 to about
18 percent in June, despite a large increase in fuel prices in March.
Moreover, higher international coal prices and a marked increase in coal
export volumes helped narrow the trade and current account deficits of the
balance of payments, supporting a large accumulation of international
reserves, which at end-June covered about 6 months of non-megaproject
imports. On the fiscal front, the government took important steps by
removing wheat and fuel subsidies and reinstating the old automatic fuel
price mechanism in March.
“However, the overall outlook remains challenging. Growth declined to 3.8
percent in 2016 and is now projected to edge up to 4.7 percent in 2017,
mainly on account of a surge in coal production and exports. Inflation
remains elevated but is expected to decline further. Despite budget cuts in
investment and in the purchase of goods and services, increased spending on
wages and salaries continues to put pressure on the budget, contributing to
a large accumulation of domestic arrears. Total public debt, mostly
denominated in foreign currency, remains in distress and the government
missed external debt payments.
“Macroeconomic policy discussions centered on the urgent need to further
consolidate public finances. The team emphasized that a strong commitment
to fiscal adjustment is an essential element to ensure policy
sustainability, foster a decline in inflation and interest rates, limit
further increases in public debt, while at the same time facilitate debt
restructuring. The team stressed that the 2018 budget should decisively
reduce the fiscal deficit. It should focus on eliminating tax exemptions
(including for VAT), containing the expansion of the wage bill, and
prioritizing the implementation of only the most critical public
investments while avoiding the further accumulation of arrears. Protecting
critical social programs and reinforcing the social safety net should
cushion the impact of these measures on the most vulnerable segments of the
population. Urgent action is also needed to strengthen the financial
position of loss-making companies and limit the fiscal risks they
represent.
“On the monetary side, the team welcomed the recent introduction of the new
monetary policy regime centering on the use of a new policy rate (MIMO) as
the central bank’s main instrument of monetary policy. The team
acknowledged the strong commitment of the central bank to reduce inflation.
To address financial sector vulnerabilities, the team urged the central
bank to remain vigilant to risks, ensure adequate liquidity provision to
the economy, and continue to step up supervision and enforcement of
prudential regulations.
“The team welcomed the publication of the detailed summary of the Kroll
audit report by the Public Prosecutor’s Office as an important step towards
greater transparency regarding the borrowing undertaken by the Ematum,
Proindicus, and MAM public companies. However, as highlighted in a June 24
press statement 17/243, while the report summary provides useful information on how the loans
were contracted and on assets purchased by the companies, critical
information gaps remain unaddressed regarding the use of loans proceeds.
The team urged the government to take steps to fill the information gaps
and to enhance its action plan to strengthen transparency, improve
governance, and ensure accountability.
“The team met with Prime Minister Carlos do Rosario, Minister of the
Economy and Finance Adriano Maleiane, Bank of Mozambique Governor Rogerio
Zandamela, Public Prosecutor Beatriz Buchili, senior government officials,
representatives from the Parliament, private sector, and the donor
community.
“The team thanks the authorities for their continued hospitality.”
