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Republic of Mozambique: Third Review Under the Policy Support Instrument Informational Annex

Author(s):
International Monetary Fund
Published Date:
February 2009
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Mozambique: Relations with the Fund

(as of November 30, 2008)

I. Membership Status: Joined: September 24, 1984; Article XIV

II. General Resources Account:

SDR Million%Quota
Quota113.60100.00
Fund holdings of currency113.60100.00
Reserve Position0.010.01
Holdings Exchange Rate

III. SDR Department:

SDR Million%Allocation
Holdings0.09N/A

IV. Outstanding Purchases and Loans:

SDR Million%Quota
PRGF Arrangements9.748.57

V. Latest Financial Arrangements:

Date ofExpirationAmount ApprovedAmount Drawn
TypeArrangementDate(SDR Million)(SDR Million)
PRGFJul 06, 2004Jul 05, 200711.3611.36
PRGFJun 28, 1999Jun 28, 200387.2078.80
PRGFJun 21, 1996Jun 27, 199975.6075.60

VI. Projected Payments to Fund 1

(SDR Million; based on existing use of resources and present holdings of SDRs):

Forthcoming
20082009201020112012
Principal0.160.971.46
Charges/Interest0.020.050.050.050.04
Total0.020.050.211.021.50

VII. Implementation of HIPC Initiative:

OriginalEnhanced
I. Commitment of HIPC assistanceFrameworkFrameworkTotal
Decision point dateApr 1998Apr 2000
Assistance committed
by all creditors (US$ Million) 11,716.00306.00
Of which: IMF assistance (US$ million)124.6018.46
(SDR equivalent in millions)93.1713.73
Completion point dateJun 1999Sep2001
II. Disbursement of IMF assistance (SDR Million)
Assistance disbursed to the member93.1713.73106.90
Interim assistance--2.312.31
Completion point balance93.1711.42104.58
Additional disbursement of interest income 2--1.101.10
Total disbursements93.1714.83108.00

VIII. Implementation of Multilateral Debt Relief Initiative (MDRI):

MDRI-eligible debt (SDR Million)1106.56
Financed by: MDRI Trust83.05
Remaining HIPC resources23.51
II. Debt Relief by Facility (SDR Million)
Eligible Debt
Delivery
DateGRAPRGFTotal
January 2006N/A106.56106.56

Safeguards assessment

At the request of the Bank of Mozambique, FIN conducted a voluntary safeguards assessment which was concluded in June 2008. This assessment updated the findings of an earlier assessment completed in August 2004. The 2008 assessment noted progress in implementing the recommendations of the earlier assessment. However, weaknesses remain in the external and internal audit functions, financial reporting, and control systems.

Exchange arrangements

Mozambique’s exchange system is a managed float. Commercial banks may buy and sell foreign exchange to individual customers on a fully negotiable basis. The Bank of Mozambique introduced a foreign exchange auction system in January 2005. Auctions are held bi-weekly.

Mozambique still avails itself of the transitional arrangements under Article XIV of the Fund Articles of Agreement, but has eliminated all Article XIV restrictions. It maintains, however, restrictions on the making of payments and transfers for current international transactions subject to Fund approval under Article VIII, as evidenced by (i) the discretionary prior approval for remittances of family living expenses; (ii) the authorization for the purchase of foreign exchange in excess of US$5,000 for certain transactions; (iii) the prohibition for the conversion of balances of nonresidents’ domestic currency accounts into foreign currency or transfer abroad; (iv) the prohibition on advance payments for a service; and (v) the prohibition on advance payments for the import of goods. On June 18, 2007, the Fund granted approval for the retention of these five exchange restrictions until May 31, 2008. At the authorities’ request, an Article VIII mission was conducted by LEG and PDR in March 2004. A new foreign exchange law was submitted to the Assembly in May 2007. Following enactment of the new law and issuance of related regulations, the authorities intend to accept their obligations under Article VIII sections 2, 3, and 4 of the Fund’s Articles of Agreement.

Article IV consultation

In accordance with Decision No. 12794–(02/76), as amended by Decision No 12854–(02/96), Mozambique is on a 24-month Article IV cycle due to the approval of a PSI in June 2007. The 2007 Article IV consultation was completed by the Executive Board on June 18, 2007 (Country Report No. 07/262).

In concluding the 2007 Article IV consultation, Executive Directors commended the Mozambican authorities on the impressive macroeconomic performance and overall satisfactory program performance since the last Article IV consultation. At the same time, they noted there are policy challenges related to sustaining Mozambique’s growth takeoff and to achieving the MDGs. In this regard, they agreed that the strategy to consolidate macroeconomic stability in the context of a continued scaling-up of foreign aid and the acceleration of a second wave of reforms outlined in the authorities’ poverty reduction plan for 2006–09 (PARPA II) would be essential to overcome such challenges. In particular, they looked forward to the timely implementation of reforms to (i) increasing tax revenues; (ii) strengthening public sector operations; (iii) reducing the costs of doing business; and (iv) improving the management of natural resources.

Ex-post assessment of performance under Fund-supported programs

An ex post assessment (EPA) of Mozambique’s performance under Fund-Supported Programs since 1987 was undertaken in December 2003 under the guidelines on assessments of countries with a longer-term program engagement. The EPA was circulated to the Executive Board on November 21, 2003 (Country Report No. 04/53).

Directors commended the authorities for their pursuit of sound macroeconomic policies and wide ranging structural reforms over the past fifteen years which contributed to strong growth of the economy, and a steady decline in poverty rates. Noting that despite considerable progress Mozambique remains a very poor and vulnerable country, Directors urged the authorities to persevere in their efforts to consolidate macroeconomic stability and accelerate and deepen structural reforms with a view to sustaining economic growth, encouraging employment creation, and further reducing poverty.

FSAP participation and ROSCs

A Financial Sector Assessment Program (FSAP) for Mozambique was undertaken during the first quarter of 2003. The related Financial Sector Stability Assessment was circulated to the Executive Board on November 19, 2003 (Country Report No. 04/52). An update to the FSAP is scheduled in early 2009. A ROSC on fiscal transparency was issued on February 22, 2001. This ROSC was updated in the context of the 2002 Article IV consultation (Country Report No. 02/140) and the 2003 Article IV consultation (Country Report No. 04/50). The ROSC on fiscal transparency was updated in May 2008. A Report on the Observance of Standards and Codes (ROSC) data module was prepared in June 2002 and issued on March 5, 2003. This data module was updated in August 2005.

Management’s visit

At the invitation of the authorities, Mr. Kato, Deputy Managing Director, visited Maputo, Mozambique in July 2005. The Managing Director visited Mozambique on August 2007 for a meeting with the African Consultative Group on Quotas, Voice, and Representation.

IMF Technical Assistance Provided to Mozambique(2005–08)
DepartmentsTimingFormPurposeCounterparts
FinanceFebruary 2008MissionUpdate of safeguard assessmentBank of Mozambique
Fiscal AffairsApril–May 2008MissionRevenue Administration reformMinistry of Finance
Oct–Nov 2007MissionTax Administration inspectionMinistry of Finance
September 2007MissionPublic Private Partnerships and Fiscal RisksMinistry of Finance
August 2007Peripatetic expertTax Policy and AdministrationMinistry of Finance
August 2007MissionFiscal ROSC update and Public Financial Management inspectionMinistry of Finance
April–May 2007MissionTax Administration inspectionMinistry of Finance
April–May 2007MissionPetroleum Fiscal RegimeMinistry of Finance Ministry of Mineral Resources
December 2006MissionTax AdministrationMinistry of Finance
March 2006MissionTax Policy reviewMinistry of Finance
November 2005MissionPublic expenditure managementMinistry of Finance
October 2005Fourth multipartite review of the joint IMF/SECO/DANIDA tax and customs administration reform project; inspection missionReform of the tax system and its administrationMinistry of Finance
May 2005Inspection missionPublic expenditure managementMinistry of Finance
April–May 2005Mid-term review of the joint IMF/SECO/DANIDA domestic tax and administration reform projectReform of the tax system and its administration; advice on the creation of a Central Revenue Authority.Ministry of Finance
Monetary and Capital MarketsMay 2008MissionStrengthening Monetary Policy Formulation and ImplementationBank of Mozambique
December 2007MissionImplementation of IFRS for Central Bank accounts.Bank of Mozambique
August 2007MissionPost-FSAP TA assessment banking supervision, monetary Policy and operationsBank of Mozambique
April 2007Short-term consultantBanking supervisionBank of Mozambique
October 2006MissionPost-FSAP TA assessment banking supervision, monetary Policy and operationsBank of Mozambique
Feb–March 2006MissionAML/CFT legislationBank of Mozambique
Jan–Feb 2006Short-term consultantMonetary policy frameworkBank of Mozambique
Jan–Feb 2006Short-term consultantMonetary operationsBank of Mozambique
January 2006Short-term consultantExchange rate managementBank of Mozambique
September 2005MissionPost-FSAP TA assessment banking supervision, monetary Policy and operationsBank of Mozambique
StatisticsMarch–April 2008MissionNational accounts statisticsNational Institute of Statistics
February 2008MissionBalance of payments statisticsBank of Mozambique
December 2007MissionBalance of payments statisticsBank of Mozambique
November 2007MissionMonetary and financial statisticsBank of Mozambique
June–July 2006MissionConsumer price statisticsNational Institute of Statistics (INE)
August 2005–July2006Long-term consultantNational accounts statisticsNational Institute of Statistics
July 2005MissionGovernment finance statisticsNational Institute of Statistics
June–July 2005MissionConsumer price statisticsNational Institute of Statistics
May 2005MissionBalance of payments statisticsBank of Mozambique

Resident Representative: Mr. Felix Fischer has been the IMF’s resident representative to Mozambique since March 14, 2006.

Mozambique: World Bank-IMF Joint Management Action Plan
TitleProductsTiming of MissionsExpected delivery date
A. Mutual information on relevant work
program in next 12 months
Bank work programCEM on export competitiveness and regional integrationFeb–May 2008Jan-2009
PRSC5 supporting government reforms program in PFM, governance andNov 2008 (delivered)
economic development reforms
FSTAP project support to financial sector reformsOct-08ongoing
ESW on inter-goverrnmental fiscal architecture (for decentralization)July 2008 (delivered)
Fund work programThird Review of the PSIOct-08Dec-08
Follow up mission on Tax AdministrationApr-08May-08
Inspection mission on PFMAug-08Sep-08
Follow up mission on Monetary Policy and Operations, BankingSep-08Nov-08
Supervision and Accounting
B. Requests for work program inputs
with summary justification
Bank request to the FundUpdated Macro Framework data and PSI review Staff ReportPSI reviewsApril and October 2009
Board Chairman Summing up from PSI review discussion (or AssessmentSep-09
letter) not older than six-months
Fund request to the BankUpdates on advancing structural reforms: procurement, decentralization,March and September 2008
business environment, financial sector
C. Agreements on joint products and
missions
Joint productsPolicy advice on subsidies (food and energy)May–September 2008June 2008 (delivered)
Policy discussion on improving the domestic benefits of large investmentFeb–May 2008May 2008 (delivered)
projects
Policy advice on Public Sector Salary Reforms (incl. pensions)ongoingongoing
FSAPFeb-09Apr-09
PFM update work plan for 2009-11 in light of findings from PEFA andMeeting in February 2009Apr-09
ROSC
PFM: continue to monitor consolidation and expansion of e-SISTAFE.ongoingongoing
DSAOct-08Dec-08
Support to EITI membership, and scoping report on EITI++ongoingOct 2008 (delivered)

Mozambique: Statistical Issues

1. Data provision has some shortcomings, but is broadly adequate for surveillance. Despite the increase in budget resources allocated to the compilation of official statistics, continued high reliance on external funding raises concerns about the sustainability of the programs of the National Institute of Statistics (INE). The authorities are making efforts to improve the quality and timeliness of economic and financial data through participation in the Fund’s General Data Dissemination System (GDDS) and in the external sector module of the GDDS Project for Anglophone African Countries (funded by the U.K. Department for International Development (DFID)). GDDS metadata have been posted on the Fund’s Dissemination Standards Bulletin Board (DSBB) since November 2003.

2. In May 2005, a STA mission updated the data module of the Report on the Observance of Standards and Codes (ROSC) prepared in June 2002. The mission noted that significant effort has been made to address previously identified shortcomings. The improvements in the institutional environment and the increased allocation of resources for the compilation of national accounts, balance of payments, and more recently, government finance statistics should help to address weaknesses in the prerequisites for the quality of the statistics. The methodological soundness, accuracy, and reliability of macroeconomic statistics are starting to show improvements as a result of these actions.

National accounts

3. The national accounts are prepared by the INE in accordance with the 1993 System of National Accounts (1993 SNA). In August 2007, the INE released for the first time quarterly GDP estimates at constant prices covering 2000–07, along with a revised annual GDP series for the period 1991–2006, having 2003 as the new base year. A (March–April 2008) STA mission advised the authorities on further improvements needed to advance the quarterly national accounts compilation at current prices, that could be released starting in mid-2009. The INE has launched a new household income and expenditure survey and new economic censuses leading to a new business registry. Furthermore, it is compiling more comprehensive and timely foreign trade data based on improved classification systems.

Prices and labor market

4. A revamped consumer price index for Maputo based on weights derived from the 2002–03 household survey was released in February 2006. A national index obtained by integrating the indices for Maputo, Beira, and Nampula was released in April 2006. A STA mission in June 2006 found important advances regarding the use of the COICOP classification and the strengthening of human resources in the compilation of the CPI. Several issues remain outstanding, however, such as price collection procedures not fully consolidated at the provincial level, imputation methods, and possible inconsistencies in the overlapping period between the new and old series.

5. There are insufficient sectoral labor market and employment data, and where available, they have limited coverage. A one-year labor market survey of the entire country, undertaken by INE in collaboration with the Labor Ministry, was launched in October 2004.

Monetary statistics

6. A STA mission in September 2004 prepared a work plan for the implementation of the Monetary and Financial Statistics Manual (MFSM) and the development of an integrated monetary database (IMD) to meet the needs of the Bank of Mozambique (BM), AFR, and STA. The mission recommended improving the classification and valuation of some financial instruments, estimating the full instrument and sectoral breakdown based on available information, and expanding the coverage of the survey on other depository corporations to include credit cooperatives.

7. A follow-up monetary and financial statistics mission in November 2007 assisted the authorities in finalizing the IMD, which allow the derivation of accurate and timely monthly monetary statistics, while reducing BM’s reporting burden. Mozambique now reports monthly monetary data to STA using the standardized reporting forms (SRFs). As a result, five-year historical enhanced data are being published in the International Financial Statistics (IFS) Supplement.

External sector statistics

8. With assistance from STA, provided in the context of the GDDS regional project, the BM has made significant progress toward compiling and disseminating balance of payments (BOP) and international investment position (IIP) statistics that are fully aligned with the Balance of Payments Manual, fifth edition (BPM5).

9. The BM has an adequate institutional framework for the compilation of BOP and IIP statistics, and has implemented many of the recommendations made by the four technical assistance missions conducted since mid-2003. However, in order for the work on institutional capacity building to be consolidated, the Foreign Exchange Law has to be approved (incorporating the definition of residency in line with the BPM5 methodology), training on BOP statistics has to be sustained, and the project to computerize the balance of payments compilation system has to be completed. Although, major improvements were achieved in the basic data sources since the beginning of the project, remaining concerns include (i) the coverage and quality of the data obtained in the enterprise surveys; (ii) the quality of external trade data, especially with regard to price and volume indices; (iii) the coverage, time of recording, and classification of the data on foreign investment and private loans; (iv) completeness of data for the International Reserves Template and their reconciliation with the reserve component of the balance of payments; and (v) compiling the IIP using the sources that are used for the balance of payments compilation. To improve the collection, timeliness, and quality of merchandise trade data, a panel on foreign trade statistics was established, comprising representatives from the Directorate General of Customs, National Statistics Institute, and BM.

10. In 2007, the BM started to compile and report to the STA comprehensive IIP data. Previously, only partial IIP data had been reported and published in the Balance of Payments Statistics Yearbook.

Government finance statistics

11. A July 2005 STA mission found serious weaknesses in fiscal statistics. The budget accounting system, broadly aligned to the GFSM 1986 analytical framework, had shortcomings relating to: definitions and coverage of institutional units included in the general government sector; budgetary classifications not fully meeting GFS needs; and the omission of certain revenues and expenditures. Mozambique does not report fiscal data for publication in the IFS or the Government Finance Statistic Yearbook (GFSY).

Mozambique: Table of Common Indicators Required for Surveillance(As of December 4, 2008)
 Date of latest observationDate receivedFrequency of Data7Frequency of Reporting7Frequency of publication7Memo Items:
Data Quality-Methodological soundness8Data Quality Accuracy and reliability9
Exchange RatesSep. 2008Oct. 2008DWD
International Reserve Assets and Reserve Liabilities of the Monetary Authorities1
Reserve/Base MoneyAug. 2008Oct. 2008MMMLO, O, LO, OLO, LO, O, O, LO
Broad MoneyAug. 2008Oct. 2008MMM
Central Bank Balance SheetAug. 2008Oct. 2008MMM
Consolidated Balance Sheet of the Banking SystemAug. 2008Oct. 2008
Interest Rates2Aug. 2008Oct. 2008MMM
Consumer Price IndexJul. 2008Aug. 2008MMMO, LO, LNO, OLNO, LO, LO, O, O
Revenue, Expenditure, Balance and Composition of Financing3 - General Government4LO, LNO, LO, OLO, O, LO, O, LNO
Revenue, Expenditure, Balance and Composition of Financing3- Central GovernmentJune 2008Oct. 2008QQQ
Stocks of Central Government and Central Government-Guaranteed Debt5June 2008Oct. 2008QQQ
External Current Account BalanceDec. 2007Mar. 2008QIILO, LNO, LO, OLO, LNO, LO, LO, LNO
Exports and Imports of Goods and ServicesDec. 2007Mar. 2008
GDP/GNP2006Feb. 2007AIIO, LO, O, LOLNO, LO, LO, O, LO
Gross External DebtDec. 2007Mar. 2008AII
International Investment Position 62007June 2008AAA

When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.

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