Mozambique: Creditors may be penalised to ensure IMF funding - Moody's
During a press conference in Washington yesterday, IMF Director of Fiscal Affairs Department Vitor Gaspar said: “In the Fiscal Monitor, we urge policymakers to avoid pro-cyclical policy actions that provide unnecessary stimulus when economic activity is already pacing up. Instead, most countries should deliver on their fiscal plans and put deficits and debt firmly on a downward path. As I said, there is no room for complacency.” Photo: UN Multimedia.
The International Monetary Fund (IMF) estimates that Mozambique’s public debt will continue to rise until 2022, when it will represent 130.3 percent of the country’s gross domestic product (GDP), and then decline to 112.5 percent of the GDP the following year .
According to the Fiscal Monitor forecasts presented yesterday afternoon in Washington, Mozambique is one of six sub-Saharan African countries with unsustainable debt, alongside Senegal, Zambia and Côte d’Ivoire and others.
The IMF expects Mozambique’s public debt to continue to rise until 2022, from 110.1 percent of the GDP this year to 116.6 percent in 2019 and 122.1 percent in 2020.
Mozambique’s public debt will continue its upward trend in 2021, reaching 126.7 percent of GDP, and also in 2022, when it will represent 130.3 percent of GDP, before falling to 112.5 percent of GDP the following year.
At a press conference on the presentation of the report, IMF officials have argued that if sub-Saharan African countries followed adjustment and development plans they would be able to counter the increase in public debt and accelerate economic growth.
“Debt vulnerabilities have risen in some countries in the region, and six low-income countries in Sub-Saharan Africa are in debt distress. The causes are country-specific, but most of the countries are in fragile situations or they are facing adjustment to the price of their major export commodity. Our projections show that if countries fully implement their fiscal consolidation plans, debt levels will stabilise and remain sustainable,” Deputy Director of the Department of Fiscal Affairs Catherine Patillo said.
“There is variation. The projections show that in two-thirds of countries in the medium term debt would be going down; that means another third not. The average public debt levels are projected to stabilise, but the forecasts are predicated on strong fiscal adjustment and/or an acceleration in growth,” Patillo said.
“They have to deliver on their planned adjustment,” she said, “There is no room for complacency.”
She then explained that there are three general priorities for this region.
“First, prudent fiscal policy is needed in most countries to rein in the build-up in public debt. For oil exporters in particular, there is a need to adjust their fiscal positions, taking advantage of the uptick in commodity prices. And a high priority is building capacity for more non-oil revenues, as well as enhancing the efficiency of public spending.”
On the other hand, she continued, “domestic revenue mobilisation is really one of the most pressing challenges,” since it is possible mobilise on average 3 to 5 percent of GDP in additional tax revenues by strengthening VAT systems as Angola prepares to do in 2019, reducing exemptions, expanding income tax coverage and harnessing new technologies,
Finally, she stressed, fiscal policies should strike the appropriate balance between debt sustainability and addressing important development needs. “Revenue mobilisation can give countries the ability to spend on pressing development needs, human capital, physical capital, and protect social spending, even during fiscal consolidation,” she said.
The increase in revenue in these countries, Vitor Gaspar said at the end of the Fiscal Monitor presentation, is “an instrument for sustainable development. In that context, higher tax capacity will also help sustain debt service, but that is not an end in itself. The end in itself is sustainable development, which is served by state capacity and the ability to spend on priority areas: health, education, public infrastructure, and much else”.