Mozambique: IMF wants better fiscal policy as debt seen rising to 97.5% of GDP

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Mozambique: IMF wants better fiscal policy as debt seen rising to 97.5% of GDP

12:24 CAT | 10 Jul 2024

File photo: Lusa

The International Monetary Fund estimates that Mozambique’s stock of public debt will grow this year to the equivalent of 97.5% of gross domestic product, and advocates measures to “strengthen” the country’s fiscal policy, in a statement released on Tuesday.

“Efforts to strengthen revenue administration, public financial management, debt management, and SOE [state-owned enterprise] operations are essential to put fiscal policy on a stronger footing,” said the IMF’s deputy managing director, Bo Li, quoted in the statement in which the institution announced that it will immediately disburse another $60 million (€55.5 million) in support under its existing assistance programme for the country.

In the statement, the IMF said that the executive board had concluded the regular consultation process with Mozambique for 2024 and the fourth review of the 36-month Extended Credit Facility (ECF) agreement, which “allows for an immediate disbursement” equivalent to $60.03 million “usable for budget support” – bringing the total disbursements to Mozambique under this assistance programme to $330.14 million (€304.9 million).

In the document, the IMF estimates economic growth for Mozambique of 4.3% this year, compared to 5.4% in 2023, while the public debt stock is expected to grow to 97.5% of GDP, compared to 93.9% last year.

Inflation in Mozambique is expected to fall this year to 3.6%, down from 4.3% in 2023 and far from the peak of 10.9% in 2022.

“A tight monetary policy stance has helped to contain inflationary pressures and rebuild foreign exchange reserves,” said Bo Li, quoted in the statement. “With the weak outlook for non-mining growth, well-anchored inflation expectations, and continued fiscal consolidation, a gradual easing of the monetary policy stance is appropriate.”

The IMF’s deputy executive director argues that “a carefully calibrated fiscal and monetary policy mix is key to preserving macroeconomic stability” in Mozambique.

” Improving monetary policy transmission by deepening the interbank, money, and foreign exchange markets remains important for improved macroeconomic management. Allowing greater exchange rate flexibility is necessary to enhance resilience to external shocks,” Bo Li added, stressing that “further progress is also warranted” in the fight against money laundering and terrorist financing.

At the same time, the IMF’s deputy managing director recognised that “progress has continued across the fiscal structural and governance agenda” in Mozambique, including “publication of a Decree Law requiring the collection of beneficial ownership information” regarding companies, the “publication of financial risk indicators of state-owned enterprises (SOEs)” and “monthly cash flow forecasts by Treasury to inform budget execution.”

ALSO READ: Mozambique: IMF Executive Board completes fourth Review under Extended Credit Facility and 2024 Article IV Consultation

The ECF programme for Mozambique was approved in May 2022 and provides total financing of $456 million (€421.3 million).

In April, the IMF’s managing director, Kristalina Georgieva, publicly acknowledged the good performance of Mozambique’s economy, after receiving its president, Filipe Nyusi, in Washington.

“We have an active programme with Mozambique and I’m pleased to see that the country’s fiscal situation has strengthened, growth is up and inflation is down, reserves are strong,” she said at the time.

Flanked by Nyusi, whom she met for more than half an hour at the financial institution’s headquarters in the US capital, Georgieva added that the result of this performance has been the building of strong institutions, putting good policies into practice.

Source: Lusa