Press Release No. 08/69

Press Release: Statement by the IMF Staff Mission to Mozambique

April 1, 2008

An International Monetary Fund (IMF) mission, led by Mr. Jean A. P. Clément, visited Maputo from March 18-31, 2008, to review progress under Mozambique's three-year Policy Support Instrument (PSI), approved on June 18, 2007, and to discuss the IMF's ongoing support for Mozambique's reform efforts.

The mission issued the following statement in Maputo today:

"In 2007, economic growth remained strong despite severe exogenous shocks. Revenues were higher than programmed due to buoyant direct domestic taxes. However, investment expenditures were lower than envisaged because of a shortfall in external financing. Thanks to prudent monetary policies, the average core inflation (which excludes food and energy items) was contained at 5.1 percent and headline inflation declined from 13.2 percent in 2006 to 8.2 percent, despite high international food and oil prices. Net international reserves have continued to increase and reached a comfortable level equivalent to 5 months of imports of goods and services.

"Overall performance under the program was satisfactory. However, two quantitative assessment criteria at end-2007 and one structural assessment criterion were missed. Base money exceeded the target on account of a temporary increase in money demand over the festivity season and net credit to government was higher in part due to a shortfall in aid disbursements in meticais. Important progress has been made in strengthening public finance management and in broadening the tax base. On the structural side, the internal and external audit over public finances has been strengthened considerably. Furthermore, the Council of Ministers adopted a new medium-term strategy aiming to reduce the cost of doing business to make Mozambique's business environment the most competitive in SADC by 2015. To ensure the transparent management of natural resources, the mission welcomes the authorities' decision to become a member of the Extractive Industry Transparency Initiative (EITI). In particular, the authorities intend to strengthen their monitoring and transparency of megaprojects. In this context, all regulations related to the mining and petroleum fiscal laws were issued.

"The outlook for 2008 remains positive and, despite the severe humanitarian impact, the overall repercussion of the floods on economic growth is likely to be limited. The Government has decided to grant temporarily subsidies to minibus (chapas) operators to alleviate the social hardship from rising international oil prises. The mission agrees with the authorities that prudent fiscal and monetary policies need to continue to be implemented to consolidate macroeconomic stability in the context of a flexible exchange rate system. The budget includes a continued effort to mobilize revenues and priority expenditures will represent 65 percent of total expenditures (including the hiring of 12,000 new teachers and 5,000 health workers). The authorities have stated their intention to prepare reforms of the public sector salary policy and the National Institute of Social Security (INSS) that are fiscally sustainable. The Government also intends to maintain the pace of public finance management and tax administration reforms.

"The ambitious second generation reform agenda, aiming at sustaining growth and reducing poverty, will need the continued support of the international community. This support is key to help Mozambique progress toward the Millennium Development Goals. The strategy to achieve these goals is set out in the Plano de Acção Para a Redução da Pobreza Absoluta II. The main risks to the program relate to natural calamities, a continued surge in international oil and food prices, and spending pressures during the forthcoming elections.

"Mozambique's second review under the PSI-supported reform program is expected to be taken up by the IMF Executive Board in May 2008."