IMF Executive Board Concludes 2011 Article IV Consultation with Mozambique

Public Information Notice (PIN) No. 11/82
June 27, 2011

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On June 17, 2011, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Mozambique.1


Mozambique has sustained strong economic growth over nearly two decades, helped by foreign investment, mainly in mega-projects in the natural resource sector, and generous support by development partners. However, trend growth has declined in recent years and poverty reduction stagnated, suggesting the need for building more inclusive growth through economic diversification, employment creation, and the expansion of social protection.

Mozambique has weathered the adverse shocks of recent years relatively well. Economic growth remains one of the highest in the region, partially reflecting the authorities’ supportive policy stance during the global crisis. Growth in 2010 is estimated at 6½ percent, supported by external demand. Inflation, even excluding food and fuel, strongly picked up and reached double digits, triggered by the accommodating monetary policy adopted during the crisis and a depreciating exchange rate during much of the year. The current account deficit narrowed more than expected, supported by buoyant mega-projects exports. Strong revenue collections, reflecting tax administration efforts, and spending restraint helped contain the fiscal deficit in 2010, in spite of the high costs of the fuel subsidy which put pressures on domestic spending.

Mozambique’s medium-term outlook remains favorable. Economic growth is projected to accelerate to 7¼ percent in 2011 and close to 8 percent over the medium term. This mainly reflects strong new mega-project activity and stepped-up public investment. Headline inflation is projected to decline to single digits as a result of appropriately tight macroeconomic policies, while Mozambique’s external position should remain comfortable. Nonetheless, continued spillovers from international food and fuel prices could be a drag on macroeconomic and social stability.

Significant policy challenges remain over the medium term. The new Poverty Reduction Strategy aims to respond to these challenges and create the conditions for high, sustained, and inclusive economic growth. This includes policies to increase production and productivity in labor-intensive sectors, such as agriculture, and promoting employment through improvements in the business environment. Private sector activity would benefit from a larger contribution of the financial sector. Fiscal space needs to be created to finance large public investment and support an expansion of social protection, while safeguarding macroeconomic stability and debt sustainability. This will hinge on enhancing government revenues, safeguarding donor support, pursuing a prudent borrowing strategy, and stepping up debt management and investment planning. Continued improvements in public financial management will facilitate expenditure prioritization and execution.

Executive Board Assessment

Executive Directors commended the authorities for prudent policies that have resulted in a strong economic performance. Directors noted that, although Mozambique’s medium-term prospects continue to be favorable, significant challenges remain in managing macroeconomic risks and ensuring that the benefits from growth are shared fairly across the population.

Directors underscored that safeguarding price stability and containing inflation expectations remain key policy priorities for the period ahead. In this regard, they supported the authorities’ intention to tighten fiscal and monetary policies as needed to bring about an early and sustained decline in core inflation.

Directors welcomed the authorities’ new Poverty Reduction Strategy (PARP). They supported the goals of broadening the country’s productive and export base, creating additional employment opportunities, and expanding the social safety nets. Continued structural reforms to improve productivity and the business environment will be important to achieve sustained growth and poverty reduction. Directors encouraged the authorities to seek the expertise of development partners in designing well-targeted social protection systems.

Directors supported the authorities’ prudent fiscal stance aimed at preserving macroeconomic stability and debt sustainability. They welcomed the authorities’ intention to gradually phase out the fuel subsidy. With a view to creating fiscal space, Directors encouraged the authorities to sustain efforts to improve tax administration and seek new revenue sources. In particular, they encouraged the authorities to adopt a prudent approach to generating additional budgetary revenue from the natural resource sector while protecting Mozambique as a destination for foreign investment. Directors emphasized the importance of adhering to a prudent borrowing strategy, further strengthening debt management, and improving investment planning.

Directors noted the resilience of the banking system during the global crisis, and recommended continued vigilance in light of remaining vulnerabilities. In particular, Directors stressed the importance of adequate capital buffers at all banks, better diversified loan books, and a strict oversight of financial flows between banks and their parent companies abroad. They welcomed progress in establishing a crisis resolution framework and enhancing bank supervision, while noting the need for steps to make the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) framework more effective.

Directors welcomed the authorities’ acceptance of the obligations under Article VIII of the Fund’s Articles of Agreement.

Mozambique: Selected Economic and Financial Indicators, 2009-12
  2009 2010 2011 2012
  Act. Est. Proj. Proj.
  (Annual percentage change, unless otherwise indicated)

National income and prices


Nominal GDP (MT billion)

269 323 380 439

Nominal GDP growth

12.1 20.1 17.4 15.7

Real GDP growth

6.3 6.6 7.2 7.5

GDP per capita (US$)

477 454 550 603

Consumer price index (annual average)

3.3 12.7 9.5 7.2

Consumer price index (end of period)

4.2 16.6 8.4 5.6

Exchange rate, MT per US dollar, eop

27.5 32.8 ... ...

Exchange rate, MT per US dollar, per.avg.


External sector


Merchandise exports

-19.1 4.5 14.8 17.3

Merchandise exports, excluding megaprojects

4.3 -31.3 6.9 3.4

Merchandise imports

-6.1 -2.5 16.1 10.8

Merchandise imports, excluding megaprojects

-10.6 -7.4 16.4 12.6

Terms of trade

-0.7 15.0 4.9 5.2

Nominal effective exchange rate (end of period)

-7.1 -22.4 ... ...

Real effective exchange rate (end of period)

-6.3 -15.0 ... ...

Money and credit


Reserve money

27.3 29.2 14.3 16.9

M3 (Broad Money)

32.6 22.8 20.0 23.1

Credit to the economy

58.6 27.5 19.5 20.0

(Percent of GDP)

26.5 28.2 28.6 29.7
  (Percent of GDP)

Investment and saving


Gross domestic investment

16.3 20.6 21.3 21.5


12.8 12.6 11.7 11.4

Other sectors

3.5 8.0 9.6 10.1

Gross domestic savings (excluding grants)

-2.6 4.3 4.3 5.3


-0.4 1.2 1.0 0.8

Other sectors

-2.2 3.1 3.3 4.5

External current account, before grants

-18.9 -16.4 -17.0 -16.2

External current account, after grants

-12.1 -10.2 -11.4 -10.9

Government budget


Total revenue

17.4 19.6 20.2 20.6

Total expenditure and net lending

32.2 31.4 33.9 34.4

Overall balance, before grants

-14.8 -11.8 -13.7 -13.8

Total grants

9.4 8.1 7.3 7.1

Overall balance, after grants

-5.4 -3.7 -6.4 -6.8

Domestic primary balance, before grants

-4.3 -3.2 -3.1 -3.4

External financing (incl. debt relief)

5.0 4.3 5.8 5.8

Net domestic financing

0.2 -0.5 0.5 1.0


0.2 0.0 0.0 0.0

Total public debt

38.2 39.3

Of which: external

35.4 35.2

Of which: domestic

2.8 4.1
  (US$ millions, unless otherwise indicated)

External current account, before grants

-1,908 -1,603 -2,055 -2,195

External current account, after grants

-1,220 -999 -1,380 -1,478

Overall balance of payments

194 58 91 302

Net international reserves (end of period) 1

1,840 1,908 2,000 2,302

Gross international reserves (end of period) 1

2,012 2,099 2,189 2,487

Months of projected imports of goods and nonfactor services

5.4 4.8 4.5 4.7

Sources: Mozambican authorities; and IMF staff estimates and projections.


1 Includes disbursements of IMF resources under the ESF and August 2009 SDR allocation.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


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