The International Monetary Fund (IMF) said on Monday that Mozambique’s priorities, following the new financing, are to support economic recovery and reduce public debt, which remains above 100% of gross domestic product (GDP).
“Mozambique has managed the COVID pandemic relatively well, maintaining macroeconomic stability and reform momentum even as the country has weathered a series of shocks, culminating with the effects of the war in Ukraine. With policy space now limited, sustaining the economic recovery underway and tackling debt vulnerabilities are priorities,” IMF Deputy Director General Bo Li is quoted as saying in a statement released in Washington yesterday.
The document, issued after the announcement of the approval of a US$470 million loan under an Extended Credit Facility (ECF) arrangement, stresses that “the authorities are implementing an extensive reform agenda, including strengthening the management of state-owned enterprises and their debts, improving fiscal risk management and debt transparency, and strengthening public financial management and the anti-corruption framework”.
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“The reform agenda supported by the program includes further governance reforms, buttressing the anti-money laundering framework, and creating a sovereign wealth fund,” the statement reads.
The Fund predicts that Mozambique’s economic growth will accelerate. “Medium-term prospects are positive; growth excluding extractive industries is expected to rise to about 4.0 percent per year, with higher overall growth rates related to large liquefied natural gas (LNG) projects that are set to begin production later in 2022,” the statement reads.
On Monday, Mozambique’s Minister of Economy and Finance of Mozambique, Max Tonela, announced the IMF board’s approval of the Mozambique program at a press conference, calling it “the beginning of a new phase in the resumption of sustainable growth in our economy”.
This is the first time that the Fund has financed Mozambique since the disclosure of the so-called ‘hidden debts’ in 2016, with only occasional financial aid recorded following specific disasters, such as the Covid-19 pandemic and Cyclones Kenneth and Idai in 2019.
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The IMF representative in Mozambique, Alexis Mayer-Cirkel, said at yesterday’s press conference that the IMF’s objective was to support a set of government reforms aimed at ensuring economic recovery, highlighting the importance of public finance management.
“This financial aid program helps in the recovery in order to facilitate and create space for the budget to be able to maintain itself in the face of fiscal pressures, derived from the various shocks that we are all experiencing in the world,” declared Alexis Mayer-Cirkel, adding that the debt grace period is 10 year, with a long repayment term thereafter.
During the negotiations, the IMF advocated a series of fiscal and VAT policy reforms, as well as the creation of a sovereign wealth fund for revenues from mineral resources.
The agreement in principle between the IMF and Mozambique was announced on March 28, and was approved by the board of directors on Monday afternoon (09-05).
