Mozambique: Inflation falls to 4% in February year-on-year - INE
File photo: Macauhub
The International Monetary Fund (IMF) considers that the Mozambican economy is recovering at a faster pace than previously expected.
According to a press release issued at the end of a visit by an IMF Staff Mission between 25 July and 3 August, the team led by Ricardo Velloso visited Maputo “to take stock of recent macroeconomic developments, update the macroeconomic framework for 2018-19, and provide input to the preparation of the 2019 draft budget”.
According to Ricardo Velloso, the Mozambican economy is gradually recovering. He noted that real GDP growth reached 3.75 per cent in 2017 – 0.75 per cent higher than projected by Fund staff during the last visit.
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Velloso stated this was “supported by a stronger than expected recovery in agriculture and significantly higher mining production”.
He added, “inflation declined rapidly, from a peak of 26 per cent (year on year) in November 2016 to about 6 per cent (year on year) in June, reflecting tight monetary policy, exchange rate stability, and decelerating food price increases”.
The IMF also noticed that “strong export performance and subdued import growth have helped narrow the external current account deficit, supporting a large accumulation of international reserves”.
The head of the delegation praised the government for taking “important measures that helped contain the fiscal deficit: subsidies on fuel and wheat were eliminated, an automatic fuel price adjustment mechanism was adopted, and electricity and public transportation prices were increased”.
The worst of the emergency measures could be over, with the IMF noting that “responding to rapid disinflation, the Bank of Mozambique has been easing monetary policy, cutting its policy rate by a total of 600 basis points since April 2017”.
For the future, “the near-term outlook is of gradual and broad-based recovery in economic activity and subdued inflation. Real GDP growth is projected in the range of 3.5 per cent to 4 per cent in 2018, picking up to the range of 4 per cent to 4.5 per cent in 2019”.
The statement added “this recovery is expected to be supported by further declines in interest rates given the benign inflation outlook. Inflation is projected to remain low at 6.5 per cent in 2018, and to decelerate to 5.5 per cent in 2019. International reserves are projected to remain at comfortable levels in 2018 and 2019”.
The Mission called on the government to prepare next year’s budget based on “realistic economic assumptions, as well as prudent revenue and spending projections”.
It recommended removing VAT exemptions, except for basic basket goods, and strengthening VAT administration.
The Mission acknowledged that public debt is in distress but merely called on the government to “rely to the maximum extent possible on external grant financing and highly concessional loans, while ensuring that issuance of debt guarantees strictly follows the new, stricter approval procedures established in December 2017”.
It welcomed “the ongoing efforts to clear over time domestic payments arrears to suppliers and adopt reforms in public financial management to avoid further accumulation of arrears. It also stressed, “the importance to eliminate over time the VAT refund backlog”.
During the visit to Mozambique, the IMF staff held “fruitful discussions with Minister of Economy and Finance Adriano Maleiane, Bank of Mozambique Governor Rogerio Zandamela and other senior government officials, representatives from the Assembly of the Republic, private sector, and the donor community”.
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