Maputo — The Executive Board of the International Monetary Fund (IMF) declared on Monday that it is allowing immediate disbursement to Mozambique of 45.44 million Special Drawing Rights (SDRs - equivalent to 60.7 million US dollars), which can be used to support the Mozambican state budget.
This follows completion of the Third Review under Mozambique's three-year Extended Credit Facility (ECF) arrangement with the IMF. It brings Mozambique's total disbursements under the ECF to about 273 million dollars.
According to an IMF press release, "the three-year ECF arrangement aims to support Mozambique's economic recovery and reduce public debt and financing vulnerabilities, while fostering higher and more inclusive growth through structural reforms'.
The IMF Board declared that Mozambique's "programme performance has been satisfactory. Five of eight structural benchmarks (SBs) were met as of end-December 2023, and three of four quantitative performance criteria (QPCs) were observed'.
It added that "based on remedial actions adopted by the authorities, the Executive Board approved a waiver of non-observance of the continuous performance criterion on non-accumulation of new public and publicly guaranteed external payment arrears which was missed due to delays in debt service repayment'.
The IMF has long been calling on the Mozambican authorities to set up a Sovereign Wealth Fund, and so the release described December's approval of such a fund by the Mozambican parliament, the Assembly of the Republic, as "an important step toward ensuring transparent and sound management of natural resource wealth'.
"Continued fiscal consolidation efforts are warranted to reduce financing needs and contain debt vulnerabilities', the release continued. "With inflation expectations well anchored, tighter fiscal policy, and weak non-mining growth, there is scope for gradual monetary policy easing' - which is a mild suggestion that the Bank of Mozambique should start reducing its interest rates.
The Deputy Managing Director and acting Chair of the IMF, Bo Li, cited in the release, claimed that Mozambique's economic recovery "is accelerating, supported by the liquefied natural gas (LNG) projects amid modest non-mining growth.'
"At the same time', Bo Li added, "inflation pressures have declined sharply. While the outlook remains positive, significant risks remain, mainly due to adverse climate events and the fragile security situation.'
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"The authorities are undertaking measures to ensure fiscal discipline over the short and medium term', he said. "Given Mozambique's high debt and tight financing conditions, continued fiscal consolidation efforts are warranted. On the revenue side, broadening the VAT (Value Added Tax) base will help mobilize revenues in an efficient way. On the expenditure side, continued wage bill reform will help create fiscal space for high-priority spending, including social spending'.
Bo Li believed that the tight monetary policy followed by the central bank "has helped to contain inflationary pressures and rebuild foreign exchange reserves'.
But that policy could now be eased, and "implementing an appropriate and carefully calibrated policy mix between fiscal and monetary is key to preserving macroeconomic stability'.
Bo Li also praised the authorities for "progress on the recommended actions of the 2021 Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) Mutual Evaluation Report, and publication of the external audit reports for 2020 and 2021 COVID spending'.
