Front Matter Page

© 2005 International Monetary Fund

August 2005

IMF Country Report No. 05/311

Republic of Mozambique: Selected Issues and Statistical Appendix

This Selected Issues paper and Statistical Appendix for the Republic of Mozambique was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on June 8, 2005. The views expressed in this document are those of the staff team and do not necessarily reflect the views of the government of the Republic of Mozambique or the Executive Board of the IMF.

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Front Matter Page

INTERNATIONAL MONETARY FUND

REPUBLIC OF MOZAMBIQUE

Selected Issues and Statistical Appendix

Prepared by Álvaro Manoel, Teresa Dabán, Hervé Joly, and María Méndez

Approved by the African Department

June 8, 2005

Contents

• Introduction

• I. Economic Growth and Poverty Reduction in Mozambique

  • A. Introduction

  • B. Economic Recovery, Growth Composition, and Poverty Reduction

    • Economic recovery

    • Composition of growth

    • Concessional assistance, growth, and poverty reduction

  • C. Sources of Growth

  • D. Final remarks and Main Challenges Ahead

  • E. References

• Figures

• 1.1. Selected Sub-Sahara African Countries: Real GDP Growth, 1985-2004

• 1.2. Composition of GDP, 1996 and 2004

• 1.3. Composition of Exports (f.o.b.), 1997-2004

• 1.4. Growth of Agriculture GDP, 1985-2004

• Text Tables

• I.1. GDP, Real Rates of Change in Percent, 1986-2004

• I.2. GDP, Real Rates of Change in Percent, 1992-2004

• I.3. Grants and Loans to the Government, 1998-2004

• I.4. Sources of Economic Growth, 1981-2004

• I.5. GDP, Annual Real Rates of Change in Percent, 1992-2004

Introduction

The selected issues paper has two chapters:

• Chapter I reviews Mozambique’s impressive economic growth, its composition, and its impact on poverty reduction over the past decade. Improvements in total factor productivity, resulting from a stable macroeconomic environment, the implementation of structural reforms, and high inflows of foreign capital (in megaprojects) and concessional assistance, have been significant. Good progress has been made in reducing poverty and improving social indicators. Nevertheless, Mozambique remains poor, with an inadequate infrastructure, and serious unmet education and health needs. These ongoing deficiencies highlight the need for a second wave of economic and social reforms with well-crafted policies to stimulate private investment and boost growth.

• Chapter II takes stock of the tax reform that Mozambique has implemented since 1996. It notes that the success of the reforms can be attributed to the Mozambican authorities’ strong ownership of the reforms, the proactive and coordinated involvement of donors, and the Fund’s technical assistance. Mozambique currently has a comprehensive tax system in line with international best practices and has made significant progress in modernizing laws and procedures in tax administration, especially customs. However, Mozambique’s tax ratio remains low (below the average of sub-Saharan Africa) and has stagnated in the past few years, mainly because of the remaining weaknesses in tax collection.

Contents

• II. Tax and Customs Reforms in Mozambique: An Overview

  • A. Introduction

  • B. Background

  • C. Tax Policy Reforms

    • Custom and export duties reform

    • Indirect taxes reform

    • Direct taxes reform

    • The reform of tax incentives to promote investment

  • D. Tax Administration Reform

    • Reform of customs administration

    • Reform of domestic taxes administration

  • E. Main Achievements and Remaining Weaknesses of Tax Reforms

    • Main achievements

    • Main challenges

  • F. Conclusions and Recommendations

  • G. References

• Box

• II.1. Tax Benefits of Industrial Free Zones (IFZs) in Mozambique

• Text Tables

• II.1 Government Revenues, 1987-2005

• II.2. Tax Reform in Mozambique

• II.3. Tax Systems in Selected East African Countries

• II.4. VAT Revenue Productivity in Selected African Countries

• II.5. Specific Tax Incentives for Investment under the Corporate Income Tax

• II.6. Government Total Revenues in Selected East African Countries, 1996-2005

• II.7. Potential and Actual Revenue, 2002-03

• Statistical Appendix Tables

• 1. Gross Domestic Product, 1999-2004

• 2. Savings and Investment, 1999-2004

• 3. Availability and Uses of Resources, 1999-2004

• 4. Composition of GDP, 1999-2004

• 5. Production of Major Marketed Crops, 1999/2000-2003/04

• 6. Prices of Major Marketed Crops, 1999/2000-2003/04

• 7. Marketed Livestock, 1998-2003

• 8. Industrial Production by Branch, 1998-2003

• 9. Transport and Communications Activity, 1998-2003

• 10. Maputo Consumer Price Index, December 1998-March 2005

• 11. Major Consumer Price Index (CPI) Categories, December 1997-December 2004

• 12. Minimum Agricultural Producer Prices 1998/99-2003/04

• 13. Prices of Petroleum Products, February 2000-February 2005

• 14. Import Prices of Oil Products, 1999-2004

• 15. Price Structure of Petroleum Product, December 2004

• 16. Minimum Monthly Wage, April 1997-April 2004

• 17. Expenditure on the Social Sectors as defined in the PARPA, 1999-2004

• 18. Number of Households Receiving Food Subsidy Assistance, June 1999-Dec. 2004

• 19. Budget Subsidies to Enterprises, 1999-2004

• 20. Government Finances, 1999-2004

• 21. Government Finances, 1999-2004

• 22. Government Revenue, 1999-2004

• 23. Locally Financed Public Investment by Sector, 1999-2004

• 24. Monetary Survey, December 1999-December 2004

• 25. Interest Rates, 1999-2004

• 26. Balance of Payments, 2000-04

• 27. Foreign Trade Indicators, 2000-04

• 28. Commodity Composition of Exports, 2000-04

• 29. Exports by Country of Destination, 2000-04

• 30. Imports by Country of Origin, 2000-04

• 31. Exchange Rates, 1999-2005Q1