IMF Completes Third Review for Mozambique

The Executive Board of the International Monetary Fund (IMF) has completed the third review under the three-year Policy Support Instrument (PSI) for the Republic of Mozambique.

Mozambique continues to weather the global economic turmoil well. Real GDP growth is projected to remain above 7 percent in 2011, benefiting from good harvests, a robust performance in the services sector, and the coming online of new megaprojects in the natural resource sector. While risks related to the external environment have increased, Mozambique’s macroeconomic stability and prudent policy mix over the past few years should help the economy mitigate the impact of a temporary global downturn. The tightening of monetary policy in 2011 has been effective in curtailing inflation. The prudent execution of the 2011 budget has contributed to a judicious policy mix that has fostered macroeconomic stability at a critical time and positioned the country well to respond to downside risks should such a need arise. All quantitative targets for end-June 2011 were met, except for reserve money growth which was missed by a small margin. Progress on the structural front has also been good.

The authorities’ economic program under the PSI will continue to emphasize preserving macroeconomic stability and debt sustainability while promoting economic and social development. Monetary policy will be geared toward further reducing inflation while fostering financial deepening. Fiscal policy will seek to step up public investment to close the infrastructure gap and support an expansion of social safety nets to address chronic poverty, consistent with the authorities’ four-year poverty reduction strategy (2011–2014). The necessary fiscal space is expected to be created through a continued strong revenue effort, the phasing-out of the fuel subsidy, selective non concessional borrowing, and a moderate increase in domestic borrowing. The program’s structural reforms will focus on improving public financial management including debt management, tax administration and policy, and monetary policy framework.