This 2015 Article IV Consultation highlights that despite lower commodity prices and a weaker global environment, Mozambique's economic prospects remain positive given planned massive investment in natural resources. Although GDP growth averaged 7 percent over the last five years, Mozambique's per-capita income and human development index remain low. There is a need to continue implementing policies that support fiscal sustainability, infrastructure investment, and inclusive growth. Mozambique's economic outlook remains robust. Growth of 6.3 percent is expected in 2015, and remains below potential at 6.5 percent in 2016, mainly owing to a stagnant mining sector and substantially tighter fiscal and monetary policies.
1. Since the issuance of the staff report (www.imf.org) the following information has become available. This information does not alter the thrust of the report’s Staff Appraisal.
2. Inflation has increased in November largely as expected. Annual inflation for the 12 months ending in November rose to 5.7 percent, reflecting the expected pass through of the depreciation of the metical during the year on imported food prices and the impact of the increase in electricity tariffs in November.
3. After weakening significantly in late November/early December, the exchange rate has been recovering in recent days. Reflecting uncertainties surrounding the negotiations on large natural gas projects and a seasonal peak in import demand, the exchange rate depreciated further by about 20 percent (to reach about 56–57 meticals per US dollar in the first days of December). Since then, in part as a result of positive developments in the energy sector (below) and as a sign that the corrective policy measures are starting to bear fruit, the meticals appreciated by about 18 percent (to 48–49 meticals per dollar). Preliminary data suggest that the end-December target for net international reserves is within reach.
4. The authorities have completed all the front-loaded corrective measures. On December 14, the 2016 budget that is consistent with the fiscal framework agreed in the program was formally approved by the National Assembly, thus completing all the corrective measures set out in Table 3 of the MEFP.
5. The December 14, 2015 Monetary Policy Committee meeting of the Banco de Mozambique took additional policy tightening actions. In line with the policy advice, it raised the interest rate on the standing lending facility (FPC) by a further 150 basis points and the rate on the standing deposit facility (FPD) rate by a further 100 basis points.
6. Favorable developments in megaproject negotiations bode well for FDI in the coming years. The authorities, ENI and Anadarko, the two largest companies investing in Mozambique’s massive offshore natural gas resources, reached an agreement in November for the joint development of the natural gas resources that straddle two offshore blocks. In addition, a preliminary Memorandum of Understanding (MOU) was reached to provide natural gas for domestic use. These agreements pave the way for final investment decisions in 2016 and will help improve the supply of foreign exchange in 2016.