Mozambique’s government has frozen spending aside from salaries and pensions until it has carried out a budget review, which it will present on July 10 when it will announce austerity measures, the Finance Ministry said.
The International Monetary Fund warned this month that Mozambique, whose debt is equal to 86 percent of national output, requires substantial fiscal and monetary tightening measures and exchange rate flexibility to reduce pressure on inflation and its balance of payments.
“Budgetary changes and the financial program will be temporarily suspended until the proposed revisions are approved,” Finance Ministry Permanent Secretary Domingos Lambo said in a letter seen by Bloomberg. Finance Ministry spokesman, Rogerio Nkomo, didn’t answer three calls to his mobile phone.
Mozambique is struggling to pay its debt after a commodity slump reduced its export revenue and the depreciation of the metical boosted the payment costs in dollars. The government in April owned up to the existence of $1.4 billion of previously undisclosed borrowing, including loans taken out by state-owned companies.
Foreign direct investment contracted by a third to $650 million in the first quarter, putting further pressure on the nation’s balance of payments and exchange rate, Finance Minister Adriano Maleaine said Wednesday. Mozambique spends about $7 billion annually on imports.
The Mozambican metical fell as much as 3.3 percent to 65.65 per dollar in earlier trade in Maputo, the capital, trading 0.3 percent stronger at 63.34 per dollar at 5:44 p.m. It has declined 24 percent against the dollar this year, better than only the Nigerian naira and the Sierra Leone leone in Africa.
The yield on Mozambique’s $727 million Eurobond due January 2023 was down 5 basis points to 18.5 percent after hitting a record 19.2 percent on Monday. The nation holds total debt of $11.6 billion, including foreign loans of $9.2 billion. The IMF, which is owed $247 million, sent a mission to assess the country’s economic situation earlier in June and projects the economy will expand at 4.5 percent this year, down from 6.6 percent in 2015.
“It is highly likely that fiscal consolidation was one of the requirements from the IMF that they discussed in recent meetings,” Hanns Spangenberg, a senior economist at NKC African Economics, said by phone from Paarl, South Africa. “One thing the IMF has been hammering on about is transparency. The IMF will come back to the table, but not in the next few months and probably not this financial year.”