31 October 2008
Maputo — The International Monetary Fund (IMF) has found that Mozambique has been hit by rising international food and fuel prices, which have slowed growth.
Visiting the country in the last two weeks of October, an IMF mission found that the economy remains strong, and that core inflation, which excludes energy and food, is running at below four per cent a year, according to an IMF press release.
However, once food and energy are included, inflation jumps to over ten per cent. Projections for economic growth in 2008 stand at 6.5 per cent, down from last year's seven per cent.
The IMF team came to Mozambique to review its three-year Policy Support Instrument (PSI) and to discuss its support for the country's economic reforms. It found that all the programme's targets and benchmarks were met, and that "important progress has been made in strengthening public finance management, in improving the operational capacity of the revenue administration and in broadening the tax base".
However, the IMF team warned that the country is not immune to the financial turmoil currently buffeting the international economy. The financial crisis essentially derives from the corrupt lending practices of American banks, which the IMF would never tolerate for a moment if they happened in an African country.
The IMF stated that Mozambique faces "considerable risks arising from the impact of the current global financial crisis. Large variations in international prices and the recent substantial price declines for commodities have a substantial impact on Mozambique's external trade and a deeper slowdown in global demand would also affect export volumes".
The release added that "the global financial crisis may adversely affect private capital inflows. In addition, the economy remains heavily dependent on inflows from the international donor community. This support is key to help Mozambique progress toward the Millennium Development Goals".
Welcoming the government's "prudent" fiscal and monetary policies, the IMF notes that next year's budget sees the reinstatement of the fuel taxes that were suspended earlier this year to cope with soaring international oil prices. Oil prices at one pint hit 147 US dollars a barrel, but have now slumped to around 65 dollars a barrel.
The IMF reported that increased revenue from taxes will enable the government to hire 12,000 new teachers and 1,500 new health workers in 2009.
The PSI is designed to support Mozambique's economic reform as the country receives increased flows of foreign aid, promoting structural reforms. It is also intended to support the government's poverty reduction programme.
The PSI is a vehicle for the IMF to support low-income countries that may not need, or want, IMF financial assistance, but still seek IMF advice, monitoring, and endorsement of their policies.
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