Mozambique: Further fiscal consolidation is necessary – IMF

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Mozambique: Further fiscal consolidation is necessary – IMF

1:21 CAT | 17 May 2024

FILE - Pablo Lopez Murphy, Mozambique Mission Chief [Photo: CTA]

The International Monetary Fund (IMF) warned on Thursday that Mozambique needs to deepen fiscal consolidation, rationalise wage bill spending , and prioritise social spending to guarantee fiscal and debt sustainability.

“Further fiscal consolidation in 2024 is necessary to secure fiscal and debt sustainability and preserve macroeconomic stability.,” IMF team leader Pablo Lopez Murphy said at the end of a two-week visit to Mozambique.

READ: IMF staff completes visit to Mozambique

In a statement released yesterday in Maputo, Murphy explained that “challenges in implementing the new single salary scale have resulted in wage bill spending overruns, which are crowding out important spending priorities including social transfers and infrastructure”.

Therefore, he continued, “rationalizing wage bill spending should underpin fiscal consolidation, social spending should be prioritized, and debt management could be further strengthened to avoid arrears..”

In the statement issued at the end of the visit discussing the policies that underpin the Fourth Review under the Extended Credit Facility (ECF)-supported arrangement, Pablo Lopez Murphy considered that the Mozambican economy’s growth should accelerate from 2.5% last year to 3.5% this year, with tight financial conditions limiting the acceleration of growth.

Even so, ” the medium-term outlook for the extractive sector is strong as large LNG projects are expected to resume activities.,” the statement said.

For the IMF, with inflation low for several months and having reached 3.3% in April, the Bank of Mozambique has room to cut interest rates even further, as it did in the first quarter of this year, when it lowered the reference rate by 150 basis points to 15.75%.

” With inflation expectations well anchored, fiscal consolidation continuing, and credit to the private sector decreasing, further easing of monetary policy would be appropriate,” the statement reads..

The IMF’s financial adjustment programme in Mozambique was approved in May 2022 and provides for total funding of $456 million (€416.2 million), of which $273 million (€249.2 million) have already been disbursed in the first three assessments of the programme.

Source: Lusa