The Executive Board of the International Monetary Fund (IMF) has completed the first review under the three-year Policy Support Instrument (PSI) for the Republic of Mozambique.7 The PSI for Mozambique was approved in June 2013 (see Press Release No. 13/231). The Board’s decision was taken on a lapse of time basis.8
Mozambique’s macroeconomic performance remains strong with real GDP growth for 2013 estimated at 7.1 percent and inflation remains moderate. The PSI-supported program is broadly on track. All assessment criteria were met and most indicative targets, but there was some slippage on structural reforms. In spite of risks stemming from the uncertain global economy, the outlook remains favorable and growth is expected to be sustained in the medium term by the natural resource boom and infrastructure investment. A recent government guarantee for large-scale borrowing by a public enterprise has raised transparency and prioritization issues that point to the need to strengthen investment and macro-economic planning. New risks associated with the political/security environment have emerged.
The authorities’ economic program for 2014 emphasizes preserving macroeconomic stability and debt sustainability while promoting social development. Real growth is projected at 8.3 percent. While recent monetary policy action has been expansionary, a more prudent approach in 2014, together with the favorable outlook for international prices could facilitate the achievement of the medium-term inflation target. The 2014 budget envisages a significant expansion in infrastructure spending that could support growth. It also includes a sizeable pick-up in goods and services outlays, financed in part by nonconcessional external borrowing.
Structural reforms along a broad policy spectrum should be implemented vigorously to foster sustained and more inclusive growth. With foreign aid likely to decline over the medium term, increased nonconcessional borrowing can provide additional resources for improving physical infrastructure and human capital. Further strengthening debt management and investment planning and implementation are essential to ensure value-for-money, maximize the efficiency of investment and preserve debt sustainability. Completion of the new mining and hydrocarbon legislation, the related fiscal regimes, and implementation regulations would facilitate the economic development of Mozambique’s natural resources.