Mozambique: Fiscal tightening needed in 2025 to ensure economic stability – IMF

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Mozambique: Fiscal tightening needed in 2025 to ensure economic stability – IMF

2:49 CAT | 06 Mar 2025

File photo: Johannes P. Christo/Reuters

The International Monetary Fund ( IMF) has argued that Mozambique needs a “fiscal consolidation” in 2025 to ensure the sustainability of public accounts, given the significant fiscal slippage seen in the previous year.

“Preliminary estimates suggest that there was significant fiscal slippage in 2024, which is partly explained by the slowdown in economic activity during the last quarter,” said Pablo Lopez Murphy, quoted on Wednesday in an IMF statement on the evaluation carried out in recent days of the Extended Credit Facility (ECF) agreement.

“Fiscal consolidation in 2025 is necessary to ensure fiscal and debt sustainability and preserve macroeconomic stability,” added Murphy, who led the IMF team and discussions with the Mozambican authorities, including the country’s president and prime minister, from 19 February to 4 March, alluding to the policies that underpin the fifth and sixth reviews under the ECF.

He also stressed that “slippages in payroll spending continue to drive out important spending priorities, including social benefits and infrastructure”, advocating the “rationalisation of payroll spending and the reduction of tax exemptions”.

Also in order to “sustain fiscal consolidation”, he pointed out, “social spending must be prioritised and debt management can be further strengthened to avoid defaults”.

According to the conclusions of this IMF mission, inflationary pressures “have increased but remain under control”.

“Despite disruptions in the supply chain and higher food prices related to social unrest, inflation remained below the implicit target of 5%,” the mission chief recognised.

The IMF also pointed out that economic activity in Mozambique “contracted sharply in the last quarter of 2024, reflecting the impact of social unrest” in the context of the country’s post-election protests, leading to a 4.9% drop in Gross Domestic Product (GDP) in the fourth quarter, putting overall growth last year at 1.9%.

“By 2025, growth should recover to 3.0% as social conditions normalise and economic activity picks up, especially in services,” the IMF predicts.

According to the IMF, discussions related to revisions to the Extended Credit Facility (ECF) programme with Mozambique “will continue in the coming weeks”.

This ECF programme was approved in May 2022 and provides a total financing of US$456 million (€416.2 million) to Mozambique, with four tranches already released.

On June 15, 2024, the IMF announced a “technical agreement” with the Mozambican government on economic policies to conclude the fourth evaluation of the country’s assistance programme, making it possible to disburse a further €55.9 million (exchange rate at the time).

Earlier, the third evaluation of this 36-month programme, carried out in January, concluded, releasing the third tranche of US$60.7 million (€56.6 million) for budgetary support. At the time, total disbursements to Mozambique under this ECF totalled around US$273 million (€254.7 million).

Source: Lusa