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© 2012 International Monetary Fund
June 2012
IMF Country Report No. 12/148
Republic of Mozambique: Fourth Review Under the Policy Support Instrument and Request for Modification of Assessment Criteria—Staff Report; Debt Sustainability Analysis; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Mozambique.
In the context of the fourth review under the policy support instrument and request for modification of assessment criteria, the following documents have been released and are included in this package:
The staff report for the fourth 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 March 16, 2012, with the officials of Mozambique on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on May 11, 2012. 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 staff supplement on the Debt Sustainability Analysis dated May 11, 2012.
A Press Release summarizing the views of the Executive Board as expressed during its June 6, 2012 discussion of the staff report that completed the request and/or review.
A statement by the Executive Director for the Republic of Mozambique.
The documents listed below have been or will be separately released.
Letter of Intent sent to the IMF by the authorities of Mozambique*
Memorandum of Economic and Financial Policies by the authorities of Mozambique*
*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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Washington, D.C.
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REPUBLIC OF MOZAMBIQUE
May 11, 2012
FOURTH REVIEW UNDER THE POLICY SUPPORT INSTRUMENT AND REQUEST FOR MODIFICATION OF ASSESSMENT CRITERIA
KEY ISSUES
Context and policy challenges. Mozambique’s macroeconomic performance remains strong and program implementation satisfactory. Economic growth in 2011 was buoyant and inflation fell sharply, but the short-term outlook entails elevated risks from the weakening global economy. Stagnant poverty reduction calls for a swift implementation of the recently adopted Poverty Reduction Strategy (PARP) to generate more inclusive growth.
Short-term policy framework. The main short-term challenge is to mitigate the impact of the global crisis while safeguarding the gains from the authorities’ recent disinflation effort. A countercyclical macroeconomic policy mix is warranted in 2012: On the fiscal policy side, automatic stabilizers will be allowed to work to maintain spending at budgeted levels, which will entail a slight increase in the fiscal deficit. The Bank of Mozambique (BM) will maintain an accommodating monetary policy to support higher credit growth to the private sector, while monitoring inflation developments closely. An updated assessment of financial sector vulnerabilities suggests that banks have some buffers to withstand contagion from the euro area crisis, but the BM should step up its supervision and ensure the completion of the financial sector contingency plan.
Medium-term challenges. Given the declining trend in foreign aid in the medium term, the government is tapping more into nonconcessional borrowing to close the infrastructure gap. Further strengthening debt management and investment planning is crucial for informed decision-making, while tapping the abundant natural resource wealth will help create the necessary fiscal space to support the structural transformation of the economy in the long run. To promote inclusive growth, the government has launched a series of initiatives to implement the PARP, including an overhaul of social protection programs. Reform momentum needs to be maintained, as implementation challenges are enormous and administrative capacity and coordination need to be upgraded.
Approved By Saul Lizondo and Vivek Arora
A staff team comprising Messrs. Mueller (head), Gitton, Xiao (all AFR), Ms. Garcia (SPR), and Messrs. Hesse (MCM) and Hoffmann (MCM expert) visited Maputo during March 5–16, 2012. The mission met with Minister Chang (Finance), Cuereneia (Planning and Development), and other line ministers (Energy, Agriculture, Natural Resources, Industry and Trade, Women and Social Action), BM Governor Gove, and other senior government officials. The mission also met with development partners, civil society, academia, and the private sector. It was assisted by Mr. Lledo (resident representative), Mr. Wane, and Ms. Palacio (resident representative office). Messrs. Conceição (OED) and Clarke and Revilla (World Bank) participated in the policy discussions.
Contents
I. BACKGROUND AND RECENT DEVELOPMENTS
II. ECONOMIC OUTLOOK AND POLICY DISCUSSIONS
A. SHORT-TERM CHALLENGE: MITIGATING THE IMPACT OF THE GLOBAL SLOWDOWN
B. MEDIUM-TERM POLICIES: PROMOTING INCLUSIVE AND SUSTAINABLE GROWTH
III. PROGRAM ISSUES
IV. STAFF APPRAISAL
FIGURES
1. Economic Developments in the Global context
2. Inflation and Monetary Developments
3. Fiscal Developments
BOXES
1. Banking Vulnerabilities and Financial Sector Regulation
2. Identifying Fiscal Space for a Social Protection Floor in Mozambique
TABLES
1. Selected Economic and Financial Indicators, 2009-17
2. Government Finances, 2009-12
3. Government Finances, 2009-17
4. Monetary Survey, Quarterly, 2009-12
6. Financial Soundness Indicators for Banking Sector, 2001-11
7. Quantitative Assessment Criteria and Indicative Targets
8. Structural Conditionality Under the Current PSI, 2011-12
APPENDICES
I. LETTER OF INTENT
ATTACHMENT 1: Memorandum of Economic and Financial Policies
ATTACHMENT 2: Technical Memorandum of Understanding
II. RESERVE ADEQUACY ASSESSMENT
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REPUBLIC OF MOZAMBIQUE
FOURTH REVIEW UNDER THE POLICY SUPPORT INSTRUMENT AND REQUEST FOR MODIFICATION OF ASSESSMENT CRITERIA—DEBT SUSTAINABILITY ANALYSIS
May 11, 2012
Approved By
Saul Lizondo and Vivek Arora (IMF) and Marcelo Guigale and Jeffrey Lewis (World Bank)
Prepared by the staffs of the International Monetary Fund and the International Development Association
This debt sustainability analysis (DSA) updates the joint IMF/IDA DSA from May 24, 2011 reflecting the most recent macroeconomic developments.9 Consistent with the previous DSA, its main results indicate that Mozambique remains at a low risk of debt distress as the government plans to temporarily increase public investment partially financed by external borrowing on nonconcessional terms over the next few years. However, further improvements in debt management and project selection capacity will be key to use nonconcessional resources productively.10 As public debt is largely external, the evolution of public debt indicators mirrors that of external debt.
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May 11, 2012
Prepared By
African Department
CONTENTS
APPENDIX I. RELATIONS WITH THE FUND
APPENDIX II. WORLD BANK-IMF COLLABORATION
APPENDIX III. STATISTICAL ISSUES
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Press Release No. 12/206
FOR IMMEDIATE RELEASE
June 6, 2012
International Monetary Fund
Washington, DC
