An International Monetary Fund (IMF) staff team led by Ricardo Velloso
visited Maputo during July 25–August 3, 2018, to take stock of recent
macroeconomic developments, update the macroeconomic framework for 2018-19,
and provide input to the preparation of the 2019 draft budget.
At the end of the mission, Mr. Velloso issued the following statement:
“The Mozambican economy is recovering gradually. Real GDP growth reached 3¾
percent in 2017—¾ percentage point higher than projected by Fund staff in
the last Article IV consultation—supported by a stronger-than-expected
recovery in agriculture and significantly higher mining production.
Inflation declined rapidly, from a peak of 26 percent (year-on-year) in
November 2016 to about 6 percent (year-on-year) in June, reflecting tight
monetary policy, exchange rate stability, and decelerating food price
increases. Strong export performance and subdued import growth have helped
narrow the external current account deficit, supporting a large
accumulation of international reserves, which at end-June covered about 6⅔
months of next year’s projected non-megaproject imports.
“On the fiscal front, the government took important measures that helped
contain the fiscal deficit: subsidies on fuel and wheat were eliminated, an
automatic fuel price adjustment mechanism was adopted, and electricity and
public transportation prices were increased. Responding to rapid
disinflation, the Bank of Mozambique has been easing monetary policy,
cutting its policy rate by a total of 600 basis points since April 2017.
“The near-term outlook is of gradual and broad-based recovery in economic
activity and subdued inflation. Real GDP growth is projected in the range
of 3½ percent to 4 percent in 2018, picking up to the range of 4 percent to
4½ percent in 2019. This recovery is expected to be supported by further
declines in interest rates given the benign inflation outlook. Inflation is
projected to remain low at 6½ percent in 2018, and to decelerate to 5½
percent in 2019. International reserves are projected to remain at
comfortable levels in 2018 and 2019.
“Regarding the ongoing preparations for the 2019 budget, the mission
recommended the submission of a draft budget underpinned by realistic
macroeconomic assumptions, as well as prudent revenue and spending
projections. On the revenue side, the mission recommended removing VAT
exemptions, except for basic basket goods, and strengthening VAT
administration. It advised, on the spending side, 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 parsimony in
additional hires, which should be limited to urgent needs in social
sectors. The mission also stressed the importance to continue limiting
other spending items through better prioritization, including public
investment outlays.
“Given that 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, while ensuring that issuance of
debt guarantees strictly follows the new, stricter approval procedures
established in December 2017. The mission welcomed the ongoing efforts to
clear over time domestic payments arrears to suppliers, and adopt reforms
in public financial management to avoid further accumulation of arrears.
Also, it stressed the importance to eliminate over time the VAT refund
backlog.
“The mission noted that there was room for the Bank of Mozambique to
continue easing monetary policy, but noted that this should be done
cautiously given the uncertainties in the world economy and those posed by
a heavy electoral cycle in Mozambique. It encouraged the Bank of Mozambique
to safeguard a comfortable level of international reserves, and maintain
the flexible exchange rate regime that has served the country well.
“The mission held fruitful discussions with Minister of Economy and Finance
Adriano Maleiane, Bank of Mozambique Governor Rogério Zandamela and other
senior government officials, representatives from the Assembly of the
Republic, private sector, and the donor community. The mission thanks the
authorities for their availability and cooperation as well as the
arrangements made to facilitate the mission’s work.”
