IMF Executive Board Completes Second Review Under Policy Support Instrument for Mozambique

In this paper, Mozambique’s financial stability is discussed. The poverty reduction strategy (PARP) aims to respond to these challenges and create the conditions for high, sustained, and inclusive economic growth. The prudent policies resulted in strong economic performance. Executive Directors emphasized the importance of adhering to a prudent borrowing strategy, further strengthening debt management, and improving investment planning. The resilience of the banking system during the global crisis has been noted; and continued vigilance was recommended in light of remaining vulnerabilities.

Abstract

In this paper, Mozambique’s financial stability is discussed. The poverty reduction strategy (PARP) aims to respond to these challenges and create the conditions for high, sustained, and inclusive economic growth. The prudent policies resulted in strong economic performance. Executive Directors emphasized the importance of adhering to a prudent borrowing strategy, further strengthening debt management, and improving investment planning. The resilience of the banking system during the global crisis has been noted; and continued vigilance was recommended in light of remaining vulnerabilities.

The Executive Board of the International Monetary Fund (IMF) today completed the second review of Mozambique’s economic program under the Policy Support Instrument (PSI). In completing the review, the Board approved a waiver for the nonobservance of the quantitative assessment criterion on reserve money.

The Executive Board approved Mozambique’s second three-year PSI on June 14, 2010 (see Press Release No. 10/242). The IMF’s framework for PSIs is designed for low-income countries that may not need, or want, IMF financial assistance, but still seek IMF advice, monitoring, and endorsement of their policies (seePublic Information Notice No. 05/145).

At the conclusion of the Executive Board discussion on Mozambique, Ms. Nemat Shafik, Deputy Managing Director and Acting Chair, made issued the following statement:

“Mozambique’s economic performance and outlook remain strong. Helped by appropriate macroeconomic policies, the economy proved resilient to the global economic crisis. The country is poised for an acceleration of economic growth over the medium term, reflecting expanded production in the natural resource sector and stepped-up public infrastructure investment.

“Fighting inflation should be the key priority for macroeconomic policy in the short run. The authorities’ policies aimed at bringing about an early decline in core inflation are welcome, and the authorities should stand ready to tighten policies further should inflation pressures persist.

“The new Poverty Reduction Strategy (PARP) contains the right ingredients to allow growth to become more inclusive. The PARP’s emphasis on broadening the country’s productive and export base and creating employment opportunities is appropriate, but determination is needed in implementing the strategy. The authorities’ commitment to continue the phase-out of the fuel subsidy is welcome, and they should move forward in expanding well-targeted and affordable social protection systems.

“The authorities’ ambitious development agenda appropriately addresses Mozambique’s economic challenges. In implementing the investment strategy, it will be important to continue to pursue a prudent borrowing policy to safeguard macroeconomic stability and debt sustainability. Efforts to strengthen tax administration should be sustained and new revenue sources tapped, including in particular from the natural resource sector. The authorities are also well advised to continue implementing key structural reforms in debt management and investment planning, as well as public financial management.

“While the banking system has shown resilience during the global crisis, vigilance is warranted in light of vulnerabilities and potential contagion. The progress in establishing a banking crisis resolution framework and improving banking supervision is welcome, while more resolve needs to be shown to make the Anti-Money Laundering/Combating the Financing of Terrorism framework more effective.

“The acceptance of the obligations of Article VIII of the IMF’s Articles of Agreement is welcome,” she added.

Republic of Mozambique: Staff Report for the 2011 Article IV Consultation, Second Review Under the Policy Support Instrument, and Request for Modification of Assessment Criteria: Staff Report; Staff Supplement; Public Information Notice and Press Release on the Executive Board Discussion; and Statement by the Executive Director for the Republic of Mozambique.
Author: International Monetary Fund