Mozambique's performance under the authorities' program during the first three quarters of 2003 continued to be satisfactory. The discussions focused on the macroeconomic policies for 2004–06 and the government's plans to address pending structural reforms to broaden and sustain growth and further reduce poverty. Discussions on structural issues concentrated on the authorities' plans to remove a number of obstacles to private sector development. A strengthened monetary and exchange rate management will be essential in Mozambique, particularly in view of the high degree of dollarization.
December 10, 2003
The following supplementary information has become available since the issuance of the documents relating to the 2003 Article IV consultation. The thrust of the staff’s appraisal remains unchanged.
Elections in 33 municipalities were held on November 19. The elections took place in a calm atmosphere, without serious irregularities or incidents. Although the final vote count has not yet been completed, the ruling party (FRELIMO) appears to have won the elections against the opposition party (RENAMO) in the majority of the municipalities. The voter turnout is estimated at below 30 percent of the eligible voters.
Partial information for the third quarter of 2003 indicates that manufacturing output (excluding MOZAL, the aluminum smelter) grew by 9 percent relative to the same period of 2002.
Consumer prices increased by 1 percent in October 2003 and 0.9 percent in November, with the 12-month rate of inflation declining to 13.6 percent in November, from 14 percent in September. Food prices increased by 15.3 percent on a year-on-year basis in November, while non-food prices rose by 11.1 percent. The still high rate of inflation appears to be related in part to the impact on food import prices of a further weakening of the metical vis-à-vis the South African rand and to recent adjustments in the prices of domestic petroleum products. The metical has appreciated slightly vis-à-vis the U.S. dollar since end-September.
Based on preliminary information available through September 2003, the fiscal program remains on track. Total revenue was slightly lower than envisaged because of the delay in implementing the withholding of the income tax on the salaries of government employees, while domestic primary spending was significantly below projections owing to lower than envisaged domestically financed capital expenditures. The latter was due to delays in project execution related in part to shortfalls in external assistance. As a result, the domestic primary deficit for the period January-September 2003 was lower than programmed.
The monetary aggregates have continued to show significant volatility. The 12-month rate of growth of broad money increased to 12 percent in October, from 7 ½ percent in September, partly because of the monetary impact of an increase in government spending following disbursements of external assistance in the fourth quarter. The more relaxed liquidity conditions have led to a further decline of 2-3 percentage points in the average commercial bank lending and deposit rates, to 30 percent and 11 percent, respectively, which has been accompanied by lower interest rates on open market paper. In view of the persistence of inflationary pressures, the authorities have indicated to the staff their intention to intensify the absorption of excess liquidity through a combination of open market operations and central bank’s sales of foreign exchange. Recently, the central bank started to preannounce the volume of open market paper to be issued in the weekly auctions for absorption purposes.
Mozambique was recently added to the list of countries participating in the General Data Dissemination System (GDDS).