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© 2011 International Monetary Fund

December 2011

IMF Country Report No. 11/350

Republic of Mozambique: Staff Report for the Third Review Under the Policy Support Instrument and Request for Modification of Assessment Criteria—Staff Report; Supplement; and Press Release.

In the context of the third review under the Policy Support Instrument and request for modification of assessment criteria with the Republic of Mozambique, the following documents have been released and are included in this package:

  • The staff report for the Third Review Under the Policy Support Instrument and Request for Modification of Assessment Criteria, prepared by a staff team of the IMF, following discussions that ended on October 19, 2011 with the officials of the Republic of Mozambique on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on November 18, 2011. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.

  • A supplement containing an Informational Annex

  • A Press Release issued on December 7, 2011

The documents listed below have been separately released.

  • -Letter of Intent sent to the IMF by the authorities of the Republic of Mozambique*

  • -Memorandum of Economic and Financial Policies by the authorities of the Republic of Mozambique*

  • -Technical Memorandum of Understanding*

  • *Also included in Staff Report

The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.

Copies of this report are available to the public from

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Telephone: (202) 623-7430 • Telefax: (202) 623-7201

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International Monetary Fund

Washington, D.C.

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INTERNATIONAL MONETARY FUND

REPUBLIC OF MOZAMBIQUE

Third Review Under the Policy Support Instrument and Request for Modification of Assessment Criteria

Prepared by the African Department (In consultation with other departments)

Approved by Roger Nord and Dominique Desruelle

November 18, 2011

  • Program discussions: Held in Maputo, October 5–19, with Minister Chang (Finance), Cuereneia (Planning and Development), and other line ministers (Energy, Natural Resources, Women and Social Action, Transports and Communication), Bank of Mozambique (BM) Governor Gove, and other senior government officials. The mission also met with development partners and the private sector.

  • Outreach: The mission conducted outreach with members of Parliament and representatives of civil society, including labor unions, think tanks and NGOs.

  • Staff: Messrs. Mueller (head), Gitton, Xiao, Ms. Svirydzenka (all AFR), Ms. Garcia (SPR), Mr. Lledo (resident representative), and Ms. Bosten and Mr. Wane (resident representative office). Messrs. Conceição (OED) and Gazel (World Bank) participated in the policy discussions.

  • Fund relations: The Executive Board approved Mozambique’s second three-year PSI on June 14, 2010.

Contents

  • Executive Summary

  • I. Recent Economic Developments

  • II. Performance Under the PSI and Policy Challenges

    • A. Performance Under the PSI

    • B. Short-Term Challenge: Curbing Inflation

    • C. Medium-Term Challenge: Creating Fiscal Space for More Inclusive Growth

  • III. Risks to the Program

  • IV. Program Monitoring

  • V. Staff Appraisal

  • Figures

  • 1. Macroeconomic Developments

  • 2. Resilience to Global Crises

  • 3. Regional Comparison

  • 4. Monetary and Financial Sector Developments

  • 5. Fiscal Developments

  • Boxes

  • 1. Natural Resource Management and Growth

  • 2. The Impact of the European Crisis

  • Tables

  • 1. Selected Economic and Financial Indicators, 2009–16

  • 2. Government Finances, 2009–12

  • 3. Government Finances, 2009–16

  • 4. Monetary Survey, Quarterly, 2010–12

  • 5. Balance of Payments, 2009–16

  • 6. Financial Soundness Indicators for Banking Sector, 2001–11

  • Appendix

  • I. Letter of Intent

    • Attachment 1. Memorandum of Economic and Financial Policies

    • Attachment 2. Technical Memorandum of Understanding

  • II. The Impact of Megaprojects on Growth in Mozambique

Executive Summary

  • Mozambique continues to weather the global economic turmoil remarkably well. Real GDP growth remains buoyant, buttressed by good harvests and a robust performance in the tertiary sector. The sharp reduction in inflation reflects, among other things, the determined monetary policy tightening throughout much of the year. While risks related to the global economic turmoil have increased, Mozambique’s medium-term macroeconomic outlook remains positive.

  • The program is largely on track. All quantitative targets for end-June were met, except for the assessment criterion (AC) on reserve money (RM) which was missed by a small margin. The related indicative target for end-September was met comfortably. Progress on the structural front has been good. The structural benchmark on the civil service and wage database was observed, while the end-July benchmark on the submission of the anti-corruption legislation to Parliament was implemented with a three-month delay.

  • The macroeconomic policy mix in the short run remains oriented toward continuing disinflation, while supporting the authorities’ investment and social development objectives going forward. Monetary policy will be geared toward further reducing inflation while fostering financial deepening. Fiscal policy will seek to step up public investment to close the infrastructure gap and support an expansion of social safety nets to address chronic poverty. The necessary fiscal space is expected to be created through a continued strong revenue effort, selective nonconcessional borrowing, and a moderate increase in domestic borrowing.

  • Staff recommends the completion of the third review under the PSI. It supports (i) the waiver for the minor nonobservance of the end-June 2011 AC on RM; (ii) the modification of the end-December 2011 ACs in light of economic developments to date; and (iii) the authorities’ request to delay the completion of the structural benchmark on the Integrated Investment Plan from end-2011 to end-March 2012 to allow key ministry officials to benefit from World Bank training on project selection.

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INTERNATIONAL MONETARY FUND

REPUBLIC OF MOZAMBIQUE

Third Review Under the Policy Support Instrument and Request for Modification of Assessment Criteria—Informational Annex

Prepared by the African Department

(In consultation with other departments)

November 18, 2011

Contents

  • I. Relations with the Fund

  • II. World Bank-IMF Collaboration

  • III. Statistical Issues

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Press Release No. 11/449

FOR IMMEDIATE RELEASE

December 7, 2011

International Monetary Fund

Washington, D.C. 20431 USA

Telephone 202-623-7100

Fax 202-623-6772

www.imf.org

Republic of Mozambique: Staff Report for the Third Review Under the Policy Support Instrument and Request for Modification of Assessment Criteria: Staff Report; Supplement; and Press Release.
Author: International Monetary Fund