Press Release No. 08/123

Press Release: IMF Completes Second Review Under the Policy Support Instrument (PSI) for Mozambique

May 29, 2008

The Executive Board of the International Monetary Fund (IMF) has completed the second review of Mozambique's economic performance under a three-year Policy Support Instrument (PSI). The Executive Board also granted a waiver of nonobservance of two end-December 2007 quantitative assessment criteria pertaining to base money and to net credit to the Government, as well as one structural assessment criterion on a draft law on excise tax on alcoholic beverages.

The PSI for Mozambique was approved on June 18, 2007 (See Press Release No 07/135) to support the nation's economic reform efforts. It is aimed at consolidating macroeconomic stability and at achieving sustained economic growth and poverty reduction through the pursuit of prudent macroeconomic policies as well as promoting structural reforms. The strategy to achieve this goal remains set in the Mozambican authorities' national poverty reduction strategy, Plano de Acção para Redução da Pobreza Absoluta (PARPA II).

Following the Board's discussion on Mozambique, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, made the following statement:

"Mozambique's overall macroeconomic performance under the Policy Support Instrument has been satisfactory, reflecting prudent fiscal and monetary policies in the context of a flexible exchange rate regime and the authorities' commitment to avoid monetary financing of the budget. Economic growth remains resilient to shocks, and average annual inflation has decelerated despite high oil and food import prices.

"The authorities are to be commended for the progress in improving tax administration and public financial management. Implementation of the e-SISTAFE (public financial administration system) has progressed well, but timely donor financial support will be important for its completion. The causes of the 2007 shortfalls in aid disbursements will need to be addressed to allow a scaling-up of aid in 2008. It will be important for the government to use well-targeted and fiscally sustainable measures to mitigate the social impact of further increases in oil and food prices, while at the same time resisting pressures for unsustainable additional spending related to the elections. It will also be important to ensure that the civil service wage and pension reforms do not compromise fiscal sustainability.

"The Bank of Mozambique has continued to strengthen its monetary policy framework and internal audit procedures. The Treasury's commitment to provide weekly cash-flow projections to the central bank is an important step towards better liquidity management.

"Reforms to stimulate private sector development and improve management of Mozambique's natural resources are a high priority. It will be important to implement the medium-term strategic plan to improve the business environment. Good progress has been made in implementing the mining and petroleum fiscal regime laws. It will be important to enhance the Ministry of Finance oversight of the fiscal terms of new megaproject agreements. Adherence to the Extractive Industries Transparency Initiative will help make Mozambique's business environment more transparent.

"Strengthening public governance remains a key focus of the reform agenda, and implementation of the government's governance strategy needs to be completed in a timely manner," Mr. Portugal said.

The IMF's framework for PSIs is designed for low-income countries that may not need IMF financial assistance, but still seek close cooperation with the IMF in preparation and endorsement of their policy frameworks. PSI-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners. This is intended to ensure that PSI-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. Members' performance under a PSI is reviewed semi-annually, irrespective of the status of the program (see Public Information Notice No. 05/145).