18 December 2007
London — The Executive Board of the International Monetary Fund (IMF) on Monday praised the Mozambican government's economic record following its first review of the economy as part of the three-year Policy Support Instrument (PSI), agreed between the IMF and the government.
The PSI is not a loan arrangement, but is effectively an endorsement by the IMF of the recipient country's economic policies. It is intended to signal to donors and financial markets that the country is on the "right course" along a national programme agreed with civil society and development partners articulated in a Poverty Reduction Strategy Paper (PRSP).
The PSI for Mozambique was approved in June in support of the Action Plan for the Reduction of Absolute Poverty (PARPA II), as the Mozambican PRSP is known.
Following the Board's meeting on Mozambique, Takatoshi Kato, the IMF Deputy Managing Director and Acting Chair, said "the Mozambican authorities are to be commended for the strong macroeconomic performance, attributable in large part to the implementation of prudent fiscal and monetary policies in the context of a flexible exchange rate regime"
In his view, "the strategy of consolidating macro-economic stability in an environment of a continued scaling-up of aid and the acceleration of the second wave of structural reforms should help sustain rapid growth". (The language may sound dry and technical, but it seems to imply that the IMF has given up earlier attempts to impose a ceiling on the amount of foreign aid Mozambique can receive).
Kato stressed that election expenditure will need to be monitored closely. He also expected that the roll-out of the public financial administration system (e-SISTAFE) at central and provincial levels - and to some districts - should improve expenditure monitoring.
The IMF also expects Mozambique to adopt regulations to give force to the new Mining and Petroleum Fiscal laws, and to adhere to the Extractive Industries Transparency Initiative.
Kato also welcomed the " prudent monetary policy" of the government and the "second wave of their structural reform agenda".
The IMF deputy head added "it is hoped that the debt cancellation negotiations with Mozambique's few remaining official bilateral creditors would soon be concluded successfully, so that the country can receive the full benefits of the Multilateral Debt Reduction Initiative" (those creditors include countries that are outside the Paris Club, such as Libya, Iraq and Angola).
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