A staff team from the International Monetary Fund, led by Michel Lazare,
visited Mozambique during November 30-December 13, 2017 to complete
discussions under the 2017 Article IV Consultation. At the conclusion of
the visit, Mr. Lazare issued the following statement:
“Mozambique’s growth continues to slowdown and the outlook remains
challenging, requiring an urgent rebalancing of the policy mix to ensure
durable macroeconomic stability and enhance inclusive growth prospects.
“Tight monetary policy successfully reduced annual inflation to about 7
percent in November 2017 and the exchange rate has stabilized over the last
6 months. The external position improved allowing the Bank of Mozambique
(BM) to accumulate significant amounts of foreign exchange reserves.
Growth, however, is now expected to decline to about 3 percent in 2017,
compared to 3.8 percent in 2016. Regarding fiscal policy, while the
Government eliminated subsidies on fuel and wheat; significant spending
pressures stemming from debt service and wages, as well as
weaker-than-anticipated revenue collection are expected to result in an
overall fiscal deficit exceeding 8 percent of GDP. The large financing
needs of the Treasury combined with a tight monetary policy to stabilize
inflation continues to press market interest rates higher, depressing
credit availability to the private sector—particularly to SMEs—and
affecting economic activity, employment, and socio-economic conditions.
“On the fiscal front, the mission welcomes efforts made by the Government
to reduce the fiscal deficit, in particular through measures related to the
wage bill and revenues that are proposed in the 2018 budget. However, in
the absence of additional policy actions the outlook for 2018 and the
medium term remains challenging, especially given the continued weakening
of revenue collection and the rigidity of recurrent spending pressures. The
mission urges the authorities to further consolidate its fiscal position by
eliminating VAT and other tax exemptions that could help mobilize
additional revenues and by reducing current spending, while protecting
outlays to social and infrastructure spending.
“On the monetary front, while the loose fiscal stance continues to put
pressure on market interest rates, the mission encourages the central bank
to reassess the pace of policy rate cuts given the large unexpected
declines in inflation.
Over the medium term, a sustained fiscal effort will be required to lower
deficits and limit further accumulation of public domestic and external
debt, including arrears to creditors and suppliers. As such, besides
containing the growth of current spending, the mission urged the
authorities to align the public investments’ program considering project
feasibility, absorption capacity constraints, and debt sustainability.
Progress in the discussions with creditors on a debt restructuring that
were initiated by the authorities in October 2016 would be an essential
contribution to restore debt sustainability. As fiscal policy consolidates,
the mission recommends that further monetary policy rate changes go in
tandem with expected inflation and the evolution of key risks. As for the
financial sector, the mission welcomes the central bank strong resolve to
enhance supervision, enforce prudential requirements and upgrade the
regulatory framework to ensure financial sector stability.
On the structural front, the mission urges the authorities to take decisive
steps to strengthen the business environment and to restructure
financially-weak SOEs that pose significant fiscal and financial sector
risks. The mission commends the authorities for submitting to Parliament
the SOE law and for approving a decree providing a regulatory framework to
the issuance of public debt and guarantees. In this context, the mission
encourages the authorities to continue developing their action plan to
strengthen governance, transparency, and accountability. Regarding the
follow up to the audit of Ematum, Proindicus and MAM companies, the mission
reiterates the need to fill the information gaps in the audit report and
takes note of the Government’s recommendation to wait for the outcome of
the ongoing investigations by the Prosecutor General Office.
“We would like to thank the authorities for constructive discussions and
warm hospitality. The Executive Board meeting on Mozambique’s Article IV
Consultation is tentatively scheduled for end-February 2018.”
The team met with Prime Minister Carlos Agostinho do Rosario, Economy and
Finance Minister Adriano Maleiane, Bank of Mozambique Governor Rogerio
Zandamela, and other sectoral ministers, parliamentarians, representatives
of the Judiciary, senior government officials, private sector, trade
unions, and civil society representatives, as well as with development
partners.
