Mozambique: IMF Praises Mozambique for Prudent Policies

The International Monetary Fund (IMF) has praised Mozambique's prudent economic management at a time when the country faces severe challenges.

Following an IMF Staff Visit to Mozambique, which concluded on 16 December, a statement released by the head of mission, Alvaro Piris, noted "the Mozambican economy is recovering from a sharp contraction, following several years of economic shocks".

Piris added that "a modest but broad-based recovery is taking hold in 2021. After real GDP contracted in 2020 - the first contraction in 30 years - growth resumed in early 2021 and is expected to reach 2.2 per cent for the year. Robust growth in agriculture and mining was complemented by a modest recovery in services as COVID-related restrictions were eased. Seasonal factors, supply-chain constraints, and international food and fuel price increases led inflation to rise to 6.8 per cent year on year in November, remaining within the Bank of Mozambique's target of less than ten per cent".

Mozambique has been hit by the twin crises of the Covid-19 global pandemic and islamist terrorism in the northern province of Cabo Delgado, and Piris pointed out that "two large waves of Covid infections in the first and third quarters of 2021 prompted strict confinement measures, lowered incomes, and resulted in the loss of schooling for an already vulnerable population", Piris added. "Terrorist attacks have caused thousands of deaths and displaced more than 800,000 people in the northern province of Cabo Delgado, with many in the northern region suffering food insecurity".

He warned that "while the authorities have managed prudently and successfully addressed Covid and security-related challenges, including with international support, concessional financing has now declined, and high public debt and tight financing constraints should be addressed through fiscal measures".

"A tight monetary stance", the statement continued, "has helped keep inflation in check and preserve macro-economic stability, but limits credit growth and scope for the exchange rate to facilitate economic adjustment. Reducing fiscal financing needs through a moderate adjustment that does not impair recovery will help put debt on a firm downward trajectory and allow for a better policy balance".

Looking to the future, Piris noted that "the longer-term outlook is shaped by LNG (Liquefied Natural Gas) production, with downside risks. Growth is expected to rise further in 2022, reflecting a broader recovery of the non-LNG economy. In the longer term, non-LNG growth is projected at 4 per cent".

Piris added that growth will rise sharply as LNG projects begin production, "currently expected in 2023 and 2026". However, "while agricultural performance may be stronger than envisaged in 2022, considering expected favourable meteorological conditions, new waves of Covid infection could prompt confinement measures, while firms' (including state-owned enterprises') balance sheets have been weakened by the crisis, reducing the scope for investment, and potentially weakening banking sector asset quality over time".

Another danger to the economy is the "vulnerability to natural disasters and the effects of climate change". Piris described this as "a recurrent vulnerability, as is renewed deterioration of the security situation that could further delay or stop the LNG projects".

The team leader also revealed that the IMF will soon enter into discussions with the government to support its programme with an Extended Credit Facility, which "could help ease financing pressures as the economic recovery takes hold, support the authorities' agenda in poverty reduction and restoring sustainable and equitable growth, while also helping catalyse additional development financing".

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