Mozambique — Good afternoon,
Distinguished Ministers and Government officials, esteemed organizers of the 2019 Economic and Social Forum of Mozambique (MOZEFO) Conference, ladies and gentlemen.
Let me first express, on behalf of the International Monetary Fund, our heartfelt sympathy and solidarity with the people of Mozambique for the loss of lives and hardship following Tropical Cyclones Idai and Kenneth. As the ongoing reconstruction and humanitarian assistance programs proceed to help restore the livelihoods of those in the affected areas, our hearts and minds continue to be with the families impacted by these tragic events.
1. It was with great honor that I accepted the invitation to be a speaker at this prestigious conference in the beautiful city of Maputo. This conference provides an opportunity for us all to reflect on the outlook for the Mozambican economy and identify the policies required to ensure a stable macroeconomic environment that supports inclusive and sustainable growth.
2. As economists we are often tasked with forecasting the future. But time and again the deep complexity of the world in which we live leaves us spending much of our time trying to understand our current situation. For me, there is much to learn by looking back at our history as we develop steps to move forward.
3. Drawing on its history, it can be argued that Mozambique has much potential for its future. In the last 20 years, Mozambique witnessed strong economic performance.
Growth reached an annual average rate of 7 percent between 1998-2018, making it one of the economies in sub-Saharan Africa with a consistently high growth rate.
This high and sustained growth significantly contributed to the improvement of living standards. The share of Mozambicans living below the poverty line declined from 70 percent in 1997 to 53 percent in 2003 and to 46 percent in 2015.
Some progress was also achieved in reducing income inequality with the Gini coefficient declining from 47 percent in 2003 to 46 percent in 2015.
4. More recently however, economic activity was subdued and just as the economic situation was slowly improving, Tropical Cyclones Idai and Kenneth hit the country hard in March. Economic activity is now expected to slow sharply in 2019 due to the shock to productive capacity, particularly in agriculture. But the economy should rebound in 2020.
What does this mean for macroeconomic policies?
5. On the monetary policy side, despite the shock from the cyclones, inflation remains in low single digits and well-anchored inflation expectations have allowed the Bank of Mozambique to reduce its benchmark interest rate several times in the past two years, contributing to a nascent recovery in credit to the private sector. International reserves buffers have been rebuilt to comfortable levels.
6. On the fiscal side, the Government has implemented a gradual fiscal consolidation, while prioritizing spending in education, health and social protection. Together with debt relief, these efforts, if continued by the incoming administration, will put public debt on a better footing and create fiscal space to help mitigate and deal with the effects of future natural disasters, and pay for well-targeted increases in social and development spending.
What can we say about the future?
7. Mozambique’s medium-term outlook has significantly brightened. The peace process between the Government and Renamo was signed, recent elections were held peacefully, and the process of demobilization, disarmament and reintegration of Renamo fighters is proceeding well. The Government’s continuous efforts to maintain peace and enhance social cohesion are, needless to say, welcome and essential to foster economic development and inclusive growth in a sustainable manner.
8. On the economic front, as substantial investments to explore Mozambique’s vast natural gas reserves begin in earnest next year, the country is poised to become a major exporter of liquified natural gas (LNG). LNG can be a game changer for economic transformation, development and inclusive growth, potentially lifting millions out of poverty if the right policies are put in place. I’ll emphasize three areas which require particularly attention here in Mozambique.
9. First, the Government needs to follow through on its commitment to strengthen the governance framework, enhance transparency and fight corruption. The Diagnostic Report on Transparency, Governance and Corruption, that was published by the Government in August, provides an extremely helpful roadmap for future reforms in these areas. Fighting corruption is a shared responsibility of all members of the Mozambican society. Not that corruption anywhere is acceptable, but the paucity of much needed resources to achieve high growth in our region places an additional emphasis on the criticality of reducing corruption. I hope this Report can be helpful to garner support, including from Mozambique’s development partners, to implement its recommendations. I should stress that tackling corruption is as much something that needs to remain at the top of the agenda across global entities as well.
10. Second, managing natural resources wealth. While more significant fiscal revenues derived from LNG production are only expected towards the end of the 2020s, it is critical for Mozambicans to reflect ahead of time on the right institutional framework to manage the forthcoming LNG wealth. Let me share with you a few lessons from other countries experiences:
Transparency on how resources are used is central to ensure successful management of natural resource wealth.
Smoothing spending over time helps to ensure that new investments can be adequately planned and implemented, especially when faced with absorptive capacity constraints. In addition, it can help to alleviate the effects of Dutch disease.
Moreover, a credible medium-term fiscal framework with fiscal rules to guide policies on public investment and savings, together with a sovereign wealth fund, can help share wealth with all.
11. Third, deepening regional integration. Just like the great Zambezi River - which arises in Zambia, flows through eastern Angola to Nambia and Botswana and then weaves back to through Zambia along the border with Zimbabwe before entering Mozambique and finally joining the Indian Ocean – trade should also be facilitated to flow through the region under the African Continental Free Trade Area (AfCFTA). Tapping into the benefits of regional integration will be essential to boost economic resilience and help our economies grow faster and better navigate the uncertainties of the global economy. The broad support in the region towards the African Continental Free Trade Area (AfCFTA) is encouraging. In order to maximize the large benefits of AfCFTA, such as trade creation, it will be important to eliminate non-trade barriers and enhance the diversification and complexity of our economies to boost their competitiveness.
12. The development challenges facing Mozambique are shared by many countries in sub-Saharan Africa. High levels of debt, a high incidence of poverty, including extreme poverty, slow private sector development, limited job opportunities, particularly for the youth, are unfortunately familiar features of many countries in our region. But there are many examples that highlight how policies to achieve and sustain macroeconomic stability and accelerate the pace of economic and institutional transformation can go a long way to increase productivity and attract private investment. This can then spur a cycle of growth and poverty reduction.
13. In conclusion, a strong and unwavering commitment to sound economic policies and structural reforms, particularly those aimed at strengthening governance, transparency and the fight against corruption, will be critical to transform the Mozambican economy and make it work for all Mozambicans.
14. Let me assure you that the IMF will continue to work closely with Mozambique, bringing the experiences accumulated in our 75 years of existence and our 189 member-countries. We will continue to provide policy advice, technical assistance and training to help you achieve our common goals of macroeconomic stability, inclusive and sustainable growth, as well as poverty eradication. We are at your service.
Thank you for your attention.