The Executive Board of the International Monetary Fund (IMF) completed today the second review of Mozambique's economic performance under the program supported by the Policy Support Instrument (PSI). In completing the review, the Board approved the modification of three assessment criteria, including two end-June 2014 assessment criteria as the result of the higher than anticipated fiscal revenues and a continuous assessment criterion related to an increase of the non-concessional borrowing ceiling as this is in line with a PSI objective of facilitating a scaling up in infrastructure investment.
The PSI was approved by the Executive Board on June 24, 2013 (see Press Release No. 13/231). The IMF's framework for PSIs is designed for low-income countries that may not need, or want, IMF financial assistance, but still seek IMF advice, monitoring and endorsement of their policies. The PSI is a voluntary and demand driven instrument, supported by strong country ownership (see Public Information Notice No. 05/145).
Following the Executive Board's discussion, Mr. Naoyuki Shinohara, Deputy Managing Director and Acting Chair, issued the following statement:
"Mozambique's strong growth performance and low inflation are commendable. Natural resource exploitation underpins the medium-term outlook and entails benefits as well as risks.
"The implementation of the Poverty Reduction Strategy is progressing, but it will be important to strengthen expenditure execution to ensure that the 2013 shortfall on priority spending was temporary. Making growth more inclusive will require generating more employment, and improving human capital and the enabling environment for small and medium-sized enterprises.
"The fiscal stance for 2014 is expansionary, partly reflecting some temporary factors--such as spending related to holding general elections--and public investment. Fiscal consolidation will be needed in the medium term. Monetary policy needs to remain vigilant and stand ready to take action to keep inflation to the authorities' medium-term target.
"The structural reform agenda is progressing, but implementation could be invigorated, especially in the areas of public financial management reforms and the identification of fiscal risks. Building institutional capacity is important to prepare for managing the future resource boom and making growth more inclusive. Financial sector development and business facilitation will also be essential.
"External borrowing can help fund infrastructure investments. However, using such resources effectively requires a transparent project analysis, prioritization and selection process, and should be informed by the implications for the debt sustainability. Furthermore, strict monitoring of project implementation is essential to ensure value-for-money in the use of public resources."