12 May 2014

Mozambique: Praise and Warnings From the IMF

Maputo — The International Monetary Fund (IMF) has praised Mozambique's “strong growth performance and low inflation”, while warning of the need to create more jobs and improve “the enabling environment for small and medium enterprises”.

These remarks came in a press release issued on Friday, after the IMF Executive Board had completed its second review of Mozambique's economic performance under an agreed programme supported by an IMF Policy Support Instrument (PSI).

A PSI is an instrument for countries that are not asking the IMF to lend them any money but are still seeking IMF endorsement for their policies (often necessary to persuade other donors or funding agencies to provide support). This PSI was approved by the IMF board in June last year.

The press release cited IMF Deputy Managing Director, Naoyuki Shinohara, as praising progress in Mozambique's poverty reduction strategy, but noting that in 2013 there was a shortfall in government expenditure in the priority areas for the fight against poverty. Shinohara warned “it will be important to strengthen expenditure execution” to ensure that the 2013 shortfall is only temporary.

“The fiscal stance for 2014 is expansionary, partly reflecting some temporary factors—such as spending related to holding general elections—and public investment”, said Shinohara. “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”, he continued. “Building institutional capacity is important to prepare for managing the future resource boom and making growth more inclusive”.

“External borrowing can help fund infrastructure investments”, Shinohara added. “However, using such resources effectively requires a transparent project analysis, prioritization and selection process, and should be informed by the implications for debt sustainability. Furthermore, strict monitoring of project implementation is essential to ensure value-for-money in the use of public resources.”

This follows the visit of an IMF mission to Mozambique in March which, in the words of mission leader Doris Ross, urged the government “to make substantive efforts to bring more transparency to investment priorities and decisions, ensure value-for - money, and overcome considerable weaknesses in public investment planning, project evaluation, implementation, monitoring and ex-post assessment. This is particularly important as much of the investment is financed by borrowing and public debt levels are rising”.

The mission was clearly concerned about last year's 850 million US dollar bond issue by the Mozambique Tuna Company (EMATUM), fully guaranteed by the Mozambican government. The IMF mission believed that including “the quasi-fiscal activities of the company” (350 million dollars) in the 2014 budget, and raising the ceiling for government guarantees were “important initial steps” to bring some transparency to the EMATUM operation.

But the IMF also wanted “close monitoring of and reporting on EMATUM's operations, which will be critical in assessing the associated fiscal risks”.

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