Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the first review under the three-year ECF arrangement for Mozambique.[1]The Board also completed the financing assurances review and approved the authorities’ request for modification of conditionality.[2]This allows for the immediate disbursement of SDR 45.44 million (about US$59.26 million), usable for budget support, bringing Mozambique’s total disbursements under the ECF arrangement to SDR 113.6 million (about US$150million).
Growth is projected to increase in 2022, with the strengthening economic recovery despite the worsening international economic environment and rising commodity prices, reflecting a strong vaccination campaign and full lifting of COVID-related restrictions in July 2022. Inflation has risen to double digits, driven by global fuel and food prices and tropical storms that impacted domestic food supply in the second quarter. Fiscal developments in 2022 are broadly aligned with expectations, with strong revenue and contained spending. Large liquefied natural gas (LNG) investments are driving the current account. The first LNG project started production in November 2022. Program implementation has been strong, despite the challenging environment, with completion of important program commitments in the areas of fiscal governance and anti-corruption.
Risks to the outlook are significant but balanced. Passthrough of fuel and food inflation to other prices, social unrest, terrorism activity in the north and natural disasters are downside risks, balanced by upside risks from the strengthening recovery, strong prospects for LNG demand, and scope for higher-than-expected non-LNG growth in the medium-term.
Following the Executive Board discussion, Mr. Bo Li, Deputy Managing Director and Acting Chair, made the following statement:
“The economic recovery is strengthening, supported by a successful COVID vaccination campaign. Program performance has been strong, with all quantitative targets and the structural benchmark met at end-June. While the outlook remains positive, driven by large liquefied natural gas (LNG) projects, significant risks remain, including from adverse climate events and fragile security situation. Governance weaknesses and debt vulnerabilities also pose challenges. In that context, continued capacity development and donor support remain imperative for Mozambique to achieve its development objectives.
“Solid revenue performance and spending restraint helped align fiscal outcomes with program objectives. The authorities’ fiscal policy reforms will contribute to medium-term fiscal consolidation. A broader VAT base will help secure buoyant and diversified revenues independent of commodity prices. Reforming public sector remuneration will improve efficiency in delivering public services and create space for other spending priorities over time. Revenue administration and public financial management reforms are also essential to achieve fiscal policy objectives.
“The draft Sovereign Wealth Fund law is a welcome step to develop a transparent, accountable, and efficient framework for managing LNG receipts. Additional efforts are needed to mitigate revenue volatility, continue strengthening public investment management, and integrating natural resource revenues into the broader fiscal framework.
“The monetary policy stance and proactive tightening since early 2021 are appropriate to manage inflation expectations. The Monetary Policy Consultation Clause (MPCC) upper inflation band was breached due to the rise in global fuel and food prices and the impact of domestic floods on food production. Continued caution is warranted to ensure adherence to program targets on reserves going forward. Additional exchange rate flexibility would help absorb external shocks.
“Progress continues across the governance and anti-corruption agenda. The authorities are implementing their action plans to address shortfalls in the AML/CFT framework and Mozambique’s grey listing by the Financial Action Task Force. Amending the public probity law and continued implementation of recommendations from the audit of COVID spending are near-term priorities.
“The climate policy agenda is being articulated and efforts should continue in integrating climate resilience criteria in public investment and project selection.”
Table 1. Mozambique: Selected Economic Indicators, 2019–23 | |||||
2019 | 2020 | 2021 | 2022 | 2023 | |
National Income and Prices | |||||
Nominal GDP (MT billion) | 963 | 983 | 1,033 | 1,142 | 1,292 |
Real GDP growth (percentage change) | 2.3 | -1.2 | 2.3 | 3.8 | 5.0 |
Consumer price index (percentage change, end of period) | 3.5 | 3.5 | 6.7 | 15.0 | 8.5 |
Government Operations (percent of GDP) | |||||
Total revenue | 29.0 | 23.9 | 25.7 | 25.7 | 25.9 |
Total expenditure and net lending | 29.8 | 32.9 | 31.5 | 33.2 | 33.3 |
Overall balance, after grants | 0.3 | -5.4 | -4.8 | -3.7 | -3.9 |
Primary Balance after grants | 3.5 | -2.3 | -2.1 | -0.2 | -0.7 |
Public sector debt | 99.0 | 120.0 | 107.0 | 102.9 | 101.4 |
of which: external | 79.4 | 97.8 | 82.8 | 77.6 | 75.9 |
Money and Credit | |||||
Reserve money (percentage change) | 19.1 | 9.0 | -14.4 | -5.1 | 11.2 |
M3 (Broad Money) (percentage change) | 12.1 | 23.6 | 2.8 | 2.3 | 11.8 |
Credit to the economy (percentage change) | 5.0 | 14.8 | 3.0 | 3.0 | 11.5 |
Credit to the economy (percent of GDP) | 24.0 | 27.0 | 26.5 | 24.6 | 24.3 |
External Sector (percentage change) | |||||
Merchandise exports | -10.2 | -23.1 | 55.6 | 38.9 | -2.5 |
Merchandise exports, excluding megaprojects | 8.3 | -22.0 | 42.7 | 14.7 | 8.6 |
Merchandise imports | 9.5 | -12.9 | 33.2 | 70.1 | -35.5 |
Merchandise imports, excluding megaprojects | 9.3 | -4.5 | 37.8 | 10.2 | -0.6 |
External current account, after grants (percent of GDP) | -19.1 | -27.3 | -23.6 | -41.5 | -14.7 |
Net international reserves (millions of U.S. dollars, end of period) | 3,605 | 3,493 | 2,927 | … | … |
Gross international reserves (millions of U.S. dollars, end of period) | 3,884 | 4,070 | 3,470 | … | … |
Sources: Mozambican authorities; and IMF staff estimates and projections. | |||||
[1]Arrangements under the ECF provide financial assistance that is more flexible and better tailored to the diverse needs of low-income countries (LICs), including in times of crisis (e.g., protracted balance of payments problems).
[2]The 36-month ECF arrangements was approved in May 2022 (Press Release).