Mozambique: Return of IMF aid a ‘life-saver’ – economists

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Mozambique: Return of IMF aid a ‘life-saver’ – economists

2:28 CAT | 06 Apr 2022

File photo: Lusa

Mozambican economists Lusa spoke to on Wednesday said that the resumption of financial assistance from the International Monetary Fund (IMF) to the country is a “life-saver” and sends a “message of confidence” to investors and partner countries.

“The resumption of IMF financial assistance to Mozambique is, without doubt, a life-saver for the country because it helps to relieve pressure on the budget, and above all, on spending, because it helps to expand the state’s financial margin,” said economist Elcídio Bachita.

Bachita noted that the agreement with the IMF made financial resources more accessible to the country and under favourable conditions, as the financial envelope announced by the organisation was interest-free and had a relatively long grace period and repayment period.

“The financial assistance programme from the IMF means the country is once again in a position to resort to more favourable credit because the other creditors know that the country is backed,” he said.

Elcídio Bachita considered the conditions imposed by the IMF for the resumption of financial support to the country to be inevitable, justifying those impositions with the concern to avoid the “previous lack of control, mainly concerning the public debt.

“The IMF suspended support for the country following the discovery of the hidden debts, and it is normal that it makes its return conditional on guarantees of rigour and transparency. That’s how they work,” he noted.

Concerning the reform of the Value Added Tax (VAT), included in the IMF’s announcement on the resumption of financial assistance to the country, Bachita stressed that it comes from the understanding that the country’s tax burden is a factor blocking the economy.

“Mozambique has one of the highest VAT rates in Southern Africa, and the private sector has been asking for many years for this tax to be reduced,” he said.

João Mosca, an economist and director of the Observatório do Meio Rural (OMR), a Mozambican non-governmental organisation (NGO), noted that the resumption of IMF aid sends a message of hope but also of caution because the US$470 million (€430 million) announced by this international financial organisation, to be disbursed over three years, is meagre for the “deficits” that Mozambique faces.

“It gives a message of confidence to investors, and with this message of confidence you not only attract investment but also cooperation” with international partners, Mosca said.

Mosca noted that investors and Mozambique’s partner countries would read the IMF’s decision as a sign that the African country is once again safe for business and receiving aid.

“The IMF has now come to say that four or five years have passed after the punishment [due to hidden debts], and now we will try to recover our relationship slowly,” he noted.

Mosca warned, however, that investors and some donor countries will react cautiously because they know that the country still faces problems of transparency and armed violence in the north.

Mosca accused the IMF of acting as “a spearhead” for big capital, providing support that helps countries position themselves as a stage for multinationals to operate without impacting economic and social development and poverty reduction.

Through a massive privatisation programme, Mosca pointed to the “destruction” of Mozambique’s cashew industry and the “weakening” of the state business sector as examples of policies advocated by the IMF that have harmed the country.

Last week, the IMF announced it had reached an agreement with Mozambique to implement an Extended Fund Programme until 2025, disbursing financial aid for the first time since the hidden debt scandal.

Source: Lusa