Press Release No. 12/506

Press Release: IMF Completes Fifth Review Under the Policy Support Instrument for Mozambique

December 21, 2012

The Executive Board of the International Monetary Fund (IMF) has completed the fifth review under the three-year Policy Support Instrument (PSI) for the Republic of Mozambique.¹ The Board's decision was taken on a lapse of time basis.²

Despite the difficult global environment, Mozambique’s economic performance in 2012 has been remarkable, building on a track record of strong economic policies that effectively supported growth while bringing down inflation and strengthening international reserves. Real GDP growth for 2012 is set to reach 7.5 percent, benefiting from a robust performance in the services sector and a stronger-than-expected contribution from the nascent coal industry, and inflation has remained low. While global risks are sizeable, the increase in coal extraction will continue to lead Mozambique’s economic growth, and Mozambique’s economic stability and prudent policy mix over the past few years should help the economy weather the global slowdown. The gradual easing of monetary policy in 2012 has supported private sector credit growth while preserving a low inflation environment. The prudent execution of the 2012 budget has contributed to a judicious policy mix that has fostered economic stability despite global uncertainty. All assessment criteria for end-June 2012 were met, except for a temporary breach of the ceiling on net credit to the government. There was broadly satisfactory progress in structural reforms, despite some delays.

The authorities’ economic program under the PSI will continue to emphasize preserving economic stability and debt sustainability while promoting economic and social development. Monetary policy will be geared toward private sector credit expansion, while remaining committed to the medium-term inflation target. Efforts to strengthen supervision and the crisis management framework will safeguard the financial sector from cross-border spillovers. Fiscal policy, through a prudent 2013 budget, will aim to utilize the available fiscal space to close the infrastructure gap and support an expansion of social safety nets to foster inclusive growth, consistent with the authorities’ four-year poverty reduction strategy (2011–2014). The prudent use of nonconcessional external borrowing will help to bridge the gap between the country’s vast infrastructure needs and a trend decline in donor support, while further institutional enhancements and capacity building will strengthen Mozambique’s ability to manage its natural resource wealth. The program’s structural reforms focus on improving public financial management including debt management, tax administration and policy, and the monetary policy framework.

The Executive Board approved Mozambique’s second three-year PSI on June 14, 2010 (see Press Release No. 10/242).

¹ 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. A country’s performance under a PSI is reviewed bi-annually.

² The Executive Board takes decisions under its lapse of time procedure when it is agreed by the Board that a proposal can be considered without convening formal discussions.