STAFF REPORT FOR THE 2015 ARTICLE IV CONSULTATION, FIFTH REVIEW UNDER THE POLICY SUPPORT INSTRUMENT, REQUEST FOR MODIFICATION OF ASSESSMENT CRITERIA, AND REQUEST FOR AN 18-MONTH ARRANGEMENT UNDER THE STANDBY CREDIT FACILITY—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR THE REPUBLIC OF MOZAMBIQUE
In the context of the Staff Report for the 2015 Article IV Consultation, fifth review under the Policy Support Instrument, request for modification of assessment criteria, and request for an 18-month arrangement under the Standby Credit Facility, the following documents have been released and are included in this package:
A Press Release including a statement by the Chair of the Executive Board and summarizing the views of the Executive Board as expressed during its December 18, 2015 consideration of the staff report on issues related to the Article IV Consultation and the IMF arrangement.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on December 18, 2015, following discussions that ended on October 28, 2015, 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 December 3, 2015.
An Informational Annex prepared by the IMF staff.
A Debt Sustainability Analysis prepared by the staffs of the IMF and the World Bank.
A Staff Statement updating information on recent developments.
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 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 IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
International Monetary Fund • Publication Services
STAFF REPORT FOR THE 2015 ARTICLE IV CONSULTATION, FIFTH REVIEW UNDER THE POLICY SUPPORT INSTRUMENT, REQUEST FOR MODIFICATION OF ASSESSMENT CRITERIA, AND REQUEST FOR AN 18-MONTH ARRANGEMENT UNDER THE STANDBY CREDIT FACILITY
December 3, 2015
Context and short-term policy challenges. Despite some deceleration, growth is still robust (in the 6-7 percent range in 2015-16) and inflation remains low. However, the economy has been increasingly affected by lower commodity prices and a decline in foreign exchange inflows. As a result, a balance of payments gap has emerged and the exchange rate has depreciated substantially. While policy commitments undertaken at the time of the 4th review were followed, performance under the PSI has been less than satisfactory, NIR declined significantly as a result of external shocks and three quantitative assessment criteria missed at end-June 2015. The monetary policy stance was tightened with delays despite the loss in NIR and proved to be too accommodating. Greater progress has been achieved on structural reforms, despite some implementation delays. Against this backdrop, the authorities requested an arrangement under the standby credit facility (SCF) supported by a strong policy package of corrective measures that includes further fiscal adjustment, continued exchange rate flexibility, and tight liquidity management. These measures are essential in the short term to preserve macroeconomic stability, improve the international reserve position, and continue to attract foreign investment (including in the oil and gas sectors) to support growth. Key structural reform priorities include improving VAT administration, strengthening capacity for transparent public investment management, and deepening financial sector reforms.
Medium-term reforms. Maintaining fiscal discipline will be essential to preserve debt sustainability. This will require measures to contain current spending pressures and greater rigor and transparency in the analysis and selection of public investment projects. Structural reforms focusing on public financial management, managing natural resources, modernization of the framework for monetary policy, and further improving the business environment should be implemented vigorously to sustain growth and render it more inclusive.
Staff supports completion of the review and the request for the SCF arrangement (180 percent of quota or approximately $285 million, with a first disbursement of 75 percent of quota or about $120 million). While quantitative performance was less than satisfactory, the implementation of the structural reform agenda is adequate given existing capacity constraints. The new government has also demonstrated strong commitment to policy adjustment, including through fiscal consolidation in the 2016 budget, adjustments in monetary policy instruments in late 2015, and new commitments to further structural reforms.
David Owen and Steve Barnett
A staff team comprising Mr. Lazare (mission chief), Messrs. Inui, Medina, Xiao (all AFR), and Henn (SPR) visited Maputo during October 14–28, 2015. The mission met with Ministers Maleiane (Economy and Finance), Couto (Natural Resources and Energy), Bank of Mozambique Governor Gove and other senior government officials. The mission also met with the World Bank, development partners and representatives of civil society, and the private sector. It was assisted by Mr. Segura-Ubiergo (resident representative), Ms. Palacio and Messrs. Simione and Sousa (resident representative office).
RECENT ECONOMIC DEVELOPMENTS AND PROGRAM PERFORMANCE
ECONOMIC OUTLOOK AND POLICY DISCUSSIONS
A. Outlook and Risks
B. Short-Term Challenge: Responding to Balance of Payments Shocks
C. Medium-Term Reforms: Strengthening Institutions and Preparing for Managing Natural Resource Wealth
1. Impact of Global Developments
2. Inflation and Monetary Developments
3. Selected External Sector Developments
4. Fiscal Developments
1. Risk Assessment Matrix
2. Impact of External Shocks
1. Selected Economic and Financial Indicators, 2012-20
2. Government Finances, 2012-16
3. Government Finances, 2012-20
4. Monetary Survey, 2012-16
5. Balance of Payments, 2012-20
6. Financial Soundness Indicators for Banking Sector, 2009-15
7. External Financing Needs and Sources, 2012-20
8. Summary Table of Projected External Borrowing Program
9. Type of New External Debt, USD million
10. Disbursements and Timing of Reviews Under the SCF Arrangement
11. Indicators of Capacity to Repay the Fund
I. External Balance Assessment
I. Letter of Intent
Attachment I. Memorandum of Economic and Financial Policies
Attachment II. Technical Memorandum of Understanding
Front Matter Page
REPUBLIC OF MOZAMBIQUE
STAFF REPORT FOR THE 2015 ARTICLE IV CONSULTATION, FIFTH REVIEW UNDER THE POLICY SUPPORT INSTRUMENT AND REQUEST FOR MODIFICATION OF ASSESSMENT CRITERIA, AND REQUEST FOR AN 18-MONTH ARRANGEMENT UNDER THE STANDBY CREDIT FACILITY—INFORMATIONAL ANNEX
December 3, 2015
RELATIONS WITH THE FUND
WORLD BANK-IMF COLLABORATION
Front Matter Page
REPUBLIC OF MOZAMBIQUE
STAFF REPORT FOR THE 2015 ARTICLE IV CONSULTATION, FIFTH REVIEW UNDER THE POLICY SUPPORT INSTRUMENT AND REQUEST FOR MODIFICATION OF ASSESSMENT CRITERIA, AND REQUEST FOR AN 18-MONTH ARRANGEMENT UNDER THE STANDBY CREDIT FACILITY—DEBT SUSTAINABILITY ANALYSIS
December 3, 2015
David Owen and Steven Barnett (IMF) and Seynabou Sakho (IDA)
Prepared by the staffs of the International Monetary Fund (IMF) and the International Development Association (IDA)
This debt sustainability analysis (DSA) provides a further update to the joint IMF/IDA DSA from April 2014 and June 2015 update.1Mozambique remains at moderate risk of external public debt distress, but risks have heightened considerably as the metical depreciation vis-à-vis the US dollar of about 25 percent between end-2014 and mid-November 2015 has increased debt level indicators.2Relative to GDP and exports, debt levels stand only barely below thresholds in 2015 and will remain elevated in the next few years, though debt service remains manageable. Going forward, downward trajectories in debt ratios should be ensured by the authorities’ commendable policy response to strictly limit external and non-concessional borrowing and fiscal consolidation agreed under the program. Meanwhile, improvements in investment planning capacity are important to identify those projects most important for development. In light of upwardly-revised assumptions on the size of investments in the natural gas sector, private external debt will peak above 150 percent of GDP in the early 2020s. The authorities were in broad agreement with the DSA outlook and presentation. They emphasized that any changes in risk of debt distress rating should not occur purely in response to exogenous factors beyond the authorities’ control, such as exchange rate depreciation.
Republic of Mozambique: Staff Report for the 2015 Article IV Consultation, Fifth Review Under the Policy Support Instrument, Request for Modification of Assessment Criteria, and Request for an 18-Month Arrangement Under the Standby Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Republic of Mozambique