IMF says Mozambique must adopt urgent and decisive package of measures

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IMF says Mozambique must adopt urgent and decisive package of measures

12:18 CAT | 27 Jun 2016

The International Monetary Fund believes that Mozambique should adopt an urgent and decisive package of measures to prevent further deterioration of the economy and warned that the country was in danger of debt distress.

“The [IMF technical] mission and the [Mozambican] authorities agreed that the context calls for an urgent and decisive package of policy measures to avoid a further deterioration in economic performance,” an IMF statement sent to Lusa on Friday at the end of the technical team’s visit said.

In particular, the IMF said, “substantial fiscal and monetary tightening, as well as exchange rate flexibility, are needed to restore macroeconomic sustainability, reduce pressures on inflation and the balance of payments and help alleviate pressures on the foreign exchange market while restoring balance between supply and demand on the foreign exchange market”.

“It was also agreed [between the IMF and the Mozambican government] that the adjustment should preserve critical social programs,” the press release adds.

The IMF’s end-of-mission report notes that Mozambique now has a high probability of having achieved a high level of risk of debt distress, with its public debt reaching 86 percent of gross domestic product at the end of 2015 as a result of US$1.4 billion in loans contracted by the Mozambican government between 2013 and 2014 and not disclosed to parliament or international financial organizations.

“Against this background, performance under the IMF 2015-2017 stand-by credit facility has been disappointing, with most assessment and performance criteria or indicative targets being missed at end-December 2015 and end-March 2016,” the IMF notes.

The organization stresses that Mozambique faces difficult economic challenges, with economic growth in 2016 expected to fall to 4.5 percent, against 6.6 percent in 2015, almost 3.3 percentage points below historical levels, and substantial risk of projections falling further.

The IMF notes that inflation has been rising rapidly, reaching 16 percent in May, and that fiscal policy in 2015 and the first half of the year was overly expansionary, with the increase in government indebtedness far exceeding program goals.

“Simultaneously, the metical has depreciated by about 28 percent since the beginning of the year, with international reserves continuing to fall,” the statement reads.

The IMF points out that its technical mission made good progress in identifying with the authorities a package of measures to strengthen transparency, improve governance, guarantee accountability and avoid the practise of taking on undisclosed debt as much as possible.

Source: Lusa