IMF Staff Concludes Visit to Mozambique

IMF News, May 6, 2023

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IMF team led by Mr. Pablo Lopez Murphy conducted discussions with the Mozambican authorities during April 24 to May 5, 2023, on the Second Review under the Extended Credit Facility (ECF) arrangement.
Discussions were described as constructive and fruitful and will continue in the coming weeks to try and reach Staff Level Agreement.
The team will continue discussions virtually and through the Resident Representative Office in Maputo.

Mozambique’s economic recovery has gained momentum.
Sectors most impacted by COVID-19 (hospitality, transport, and communications) have rebounded; agriculture has benefited from favorable rainfalls.
Growth in 2022 stood at 4.1 percent and is projected to rise to 5 percent in 2023.
The pick-up in growth is partly driven by extractive industries, including the first LNG project (Coral South) which began production in October 2022.

Inflation has been moderate (9.3 percent in March 2023), reflecting frozen fuel prices and lower-than-expected second-round effects of food and fuel price increases.
The exchange rate has been stable since mid-2021, which helps contain inflation.

Fiscal performance in 2022 was weaker than expected:
- The primary deficit (after grants) was about ½ percent of GDP above projected target—reflecting a significant overrun (of 3 percent of GDP) in the cost of implementing the wage bill reform.
- Lower spending on other goods and services offset part of the wage bill overshoot, such that total current expenditure exceeded projections by about 1 percent of GDP.
- Revenue was about 1 percent of GDP lower than planned, reflecting lower than expected taxes on goods and services (especially VAT).
Government actions already taken:
- Changes to the reference wage and salary supplements.
- Auditing the process of mapping public employees from their original salary level to their new salary level.
IMF staff recommendation:
- Fund staff encourages the government to proceed with additional measures to reduce the annual wage bill to its approved budget level.
- Ensuring that the public wage bill is brought down is critical for safeguarding fiscal and macro sustainability.

Progress on structural reforms has been relatively steady.
With regards to those included in the Fund-financed program:
- The draft Sovereign Wealth Fund law was submitted to Parliament by end-December.
- Two Structural Benchmarks (SBs) related to budgetary planning and financial programming were met.
- The SB on implementing the proposed elimination of VAT exemptions and zero-ratings was not fully met as parliamentary revisions to the submitted code excluded some items.
- There remains space to eliminate exemptions that do not impact the most vulnerable.

The IMF staff team met with Prime Minister Adriano Maleiane, Minister of Economy and Finance Max Tonela, Governor of the Bank of Mozambique Rogerio Zandamela, and other senior officials.
The mission also met with representatives of civil society, development partners, and the private sector.
The team thanked the Mozambican authorities for their cooperation and frank and constructive dialogue and plans during the mission.

Press Release No. 23/136 — IMF Communications Department