Abstract
This paper examines Mozambique’s Request for a New Three-Year Arrangement Under the Poverty Reduction and Growth Facility. Mozambique’s performance under the authorities’ program continues to be generally satisfactory. Real GDP growth remained strong in 2003, real interest rates have declined, the external position has been further strengthened, and major inroads have been made in reducing poverty. The program for 2004 incorporates a number of structural measures aimed at removing remaining obstacles to private sector development and strengthening external competitiveness, which will be followed by additional actions in 2005–06.
June 21,2004
The following supplementary information has become available since the issuance of the documents relating to the request for a new PRGF arrangement. The thrust of the staff appraisal remains unchanged.
The 12-month rate of inflation declined to 12.5 percent in May, from 13.6 percent in April. The metical has appreciated slightly vis-à-vis the U.S. dollar since end-March 2004.
Based on preliminary information for the first quarter of 2004, the fiscal program remains on track. Total revenue was slightly lower than envisaged owing to weaker-than-expected performance of customs collections, but the revenue shortfall was more than offset by lower current spending on wages and goods and services. As a result, the domestic primary deficit for the period January-March 2004 turned out lower than programmed. The authorities have continued to adjust domestic petroleum prices on a monthly basis in line with developments in import prices, and in April 2004 they increased the specific fuel taxes broadly in line with inflation during the previous three months.
Based on preliminary information as of end-May 2004, the net domestic assets of the central bank remained below the ceiling for end-June 2004 (adjusted for lower than envisaged disbursements of external program assistance), and base money was also below the program’s indicative target. At the same time, the net international reserves of the central bank stood at US$770 million, compared with an adjusted program target of US$744 million for end-June. Broad money growth is estimated to have increased to 17½ percent in April, from 15¼ percent in March.
As regards the structural performance criteria under the program, the authorities have indicated that preparations are on track for submitting to the assembly the general tax law before end-June. Moreover, they intend to shift a large part of the Bank of Mozambique’s external liabilities to the government before end-July, as envisaged in the program. Also, the enhanced supervisory regime for the Banco Internacional de Mocambique (BIM) has been kept in place, and the authorities have continued to provide the staff with monthly information on the bank’s financial statements. The information through end-May 2004 shows that BIM remains profitable and in compliance with prudential requirements.
The gas pipeline linking the gas fields of Temane and Panda, off the Mozambican coast, with a petrochemical complex close to Johannesburg, was inaugurated in May.
A FIN mission to conduct the full safeguards assessment of the Bank of Mozambique is currently in Maputo. In late May 2004, the authorities provided the staff with the audited financial statements of the Bank of Mozambique for end-2003.