IMF Staff Concludes Visit to Mozambique

IMF News, August 3, 2018

Source details

Date: August 3, 2018.
Mission period: July 25–August 3, 2018.
Press Release No. 18/329.
Team leader: Ricardo Velloso.
Statement represents preliminary findings of IMF staff and does not necessarily represent the views of the IMF’s Executive Board. This mission will not result in a Board discussion.

Real GDP growth reached 3¾ percent in 2017.
The 3¾ percent outcome was ¾ percentage point higher than projected by Fund staff in the last Article IV consultation.
Growth drivers in 2017 included a stronger-than-expected recovery in agriculture and significantly higher mining production.

Inflation declined from a peak of 26 percent (year-on-year) in November 2016 to about 6 percent (year-on-year) in June.
Decline in inflation attributed to tight monetary policy, exchange rate stability, and decelerating food price increases.
Bank of Mozambique cut its policy rate by a total of 600 basis points since April 2017.
The mission noted room for the Bank of Mozambique to continue easing monetary policy but advised caution given global uncertainties and a heavy electoral cycle.

Strong export performance and subdued import growth helped narrow the external current account deficit.
Large accumulation of international reserves: at end-June reserves covered about 6⅔ months of next year’s projected non-megaproject imports.
International reserves are projected to remain at comfortable levels in 2018 and 2019.
The mission encouraged the Bank of Mozambique to safeguard a comfortable level of international reserves and maintain the flexible exchange rate regime.

Real GDP growth projected in the range of 3½ percent to 4 percent in 2018.
Real GDP growth projected to pick up to the range of 4 percent to 4½ percent in 2019.
Inflation projected to remain low at 6½ percent in 2018.
Inflation projected to decelerate to 5½ percent in 2019.
Recovery expected to be supported by further declines in interest rates given the benign inflation outlook.

Fiscal measures already implemented: elimination of subsidies on fuel and wheat; adoption of an automatic fuel price adjustment mechanism; increases in electricity and public transportation prices.
For the 2019 budget, the mission recommended:
- Submission of a draft budget underpinned by realistic macroeconomic assumptions and prudent revenue and spending projections.
- On revenue: removing VAT exemptions, except for basic basket goods, and strengthening VAT administration.
- On spending: reducing the size of the wage bill as a share of GDP through moderation in wage increases, particularly for top earners in the public sector, and limiting additional hires to urgent needs in social sectors.
- Continuing to limit other spending items through better prioritization, including public investment outlays.
The mission welcomed ongoing efforts to clear over time domestic payments arrears to suppliers and to adopt reforms in public financial management to avoid further accumulation of arrears.
The mission stressed the importance of eliminating over time the VAT refund backlog.

Public debt is in distress.
The mission encouraged the government to rely to the maximum extent possible on external grant financing and highly concessional loans.
The mission urged that issuance of debt guarantees strictly follow the new, stricter approval procedures established in December 2017.

The mission held discussions with Minister of Economy and Finance Adriano Maleiane, Bank of Mozambique Governor Rogério Zandamela, other senior government officials, representatives from the Assembly of the Republic, private sector, and the donor community.
The mission thanked the authorities for their availability and cooperation and for arrangements made to facilitate the mission’s work.

IMF Communications Department, MEDIA RELATIONS