Mozambique must reduce wage bill to invest in priority areas – IMF

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Mozambique must reduce wage bill to invest in priority areas – IMF

4:14 CAT | 14 Jul 2023

in file CoM

The International Monetary Fund has said that Mozambique’s government should “reduce the wage bill” in line with other countries in the region, in order to invest in priority areas, such as combating food insecurity and poverty.

“On the expenditure side, reducing the wage bill in line with regional peers will help create fiscal space for high-priority spending,” the IMF’s Deputy Managing Director and Acting Chair, Bo Li, says in a communiqué on the final approval of the review of the Extended Financing Program (ECF) for Mozambique.

The announcement of approval of this revision was made on July 6, guaranteeing the disbursement of US$60.6 million (€54 million) to Mozambique, and confirmed today in the institution’s communiqué.

In the note accompanying the announcement of the approval of the second revision of the program first approved in May, 2022, which raises the total amount already received by Mozambique to US$212.09 million (€194 million) out of a prospective total of US$456 million (€418 million euros), the IMF says it has” approved waivers of non-observance for two performance criteria”, namely:

(i) the end-December 2022 performance criterion on domestic primary budget balance was missed due to overruns in the implementation of the wage bill reform and revenue shortfalls;

(ii) the continuous performance criterion on non-accumulation of public and publicly-guaranteed external arrears was missed due to delays in debt service repayment by an SOE.

“Both waivers of non-observance were approved based on remedial actions taken by the authorities,” the communiqué notes..

In the document released today, the Deputy Managing Director at the IMF Bo Li recognizes that “economic recovery in Mozambique is strengthening, supported by the liquefied natural gas (LNG) projects” and by “rebound in various sectors”.

“The economy has shown resilience to Cyclone Freddy which hit Mozambique in early 2023, Bo Li notes. “While the outlook remains positive, significant risks remain, mainly due to adverse climate events and a fragile security situation.”

He adds that the Mozambican authorities “undertaking corrective measures to ensure fiscal discipline in 2023 and continued fiscal consolidation efforts are also warranted over the medium term”.

“On the revenue side, broadening the VAT base will help mobilise revenues in an efficient way”, he adds, while acknowledging that “the monetary policy stance is appropriate to help contain inflationary pressures and rebuild reserves”.

“While inflation has decelerated faster than expected, continued caution is warranted to help anchor inflationary pressures and support macroeconomic stability,” Bo Li’s summary concludes.

Source: Lusa