Maputo, 7 Jul (AIM) – The Executive Board of the International Monetary Fund (IMF) on Friday completed the second review under the Extended Credit Facility (ECF) arrangement for Mozambique, which provides the country with access to 45.44 million Special Drawing Rights (about 60.6 million US dollars).
According to an IMF press release, this money is immediately available for budget support, and brings Mozambique’s total disbursements under the ECF arrangement to slightly more than 212 million dollars.
The IMF says “the three-year ECF arrangement aims to support Mozambique’s economic recovery, reduce public debt and financing vulnerabilities, while fostering higher and more inclusive growth through structural reforms”.
The release praises the Mozambican authorities for taking “substantive actions to resolutely address macroeconomic challenges and keep the programme on track, especially to reduce the wage bill and keep the fiscal outlook aligned with program targets”.
The IMF also declares its support for the Bank of Mozambique’s “tight monetary policy”, which has infuriated Mozambican businesses. The IMF claims restrictive monetary measures are “appropriate to contain inflation pressures”.
The IMF also “approved waivers of non-observance for two performance criteria”. It explained that “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”.
As for the second waiver, “the continuous performance criterion on non-accumulation of public and publicly-guaranteed external arrears was missed due to delays in debt service repayment by a state company”. The IMF did not say which company was involved.
The release said “both waivers of nonobservance were approved based on remedial actions taken by the authorities”.
The IMF said that economic growth “is projected to increase in 2023, driven by increasing liquefied natural gas (LNG) production, agriculture, and services activities”.
Inflation, it added, “has returned to single digits, due to proactive monetary policy and favorable import prices for fuel and food”.
But “fiscal performance in 2022 was worse than expected, mainly due to slippage in the wage bill reform and revenue underperformance”.
“Programme performance has been broadly favorable, though with notable slippages in the fiscal area, while important programme commitments in the areas of fiscal governance and anti-corruption were completed”, the release said.
A statement from Bo Li, the IMF Deputy Managing Director, declared “Economic recovery in Mozambique is strengthening, supported by the LNG projects and rebound in various sectors. The economy has shown resilience to Cyclone Freddy which hit Mozambique in early 2023”.
But he warned that “significant risks remain, mainly due to adverse climate events and a fragile security situation” (a delicate reference to the war waged by islamist terrorists in the northern province of Cabo Delgado).
Bo Li said the Mozambican authorities “are undertaking corrective measures to ensure fiscal discipline in 2023 and continued fiscal consolidation efforts are also warranted over the medium term”.
He expressed the usual IMF obsession with cutting the state wages bill, claiming that “reducing the wage bill in line with regional peers will help create fiscal space for high-priority spending”.
The IMF release added “continued progress is also needed across the governance, anti-corruption, and fiscal structural agenda, including submitting to Parliament the Sovereign Wealth Fund law which aims to develop a transparent, accountable, and efficient framework for managing LNG receipts”.