On March 5, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with the Republic of Mozambique.
In recent years, Mozambique’s economy has been adversely affected by the fall in commodity prices and adverse weather conditions, as well as by the issue of undisclosed loans in the spring of 2016 and the ensuing freeze in donor support. Growth decelerated in 2016 to 3.8 percent (from 6.6 percent in 2015) and the latest data show that the economy grew by 3.7 percent in 2017, driven by a recovery in agriculture and mining activity (due to a surge in coal production). A tight monetary stance, coupled with exchange rate appreciation, led to a steep fall in inflation to 6.3 percent (year on year) in January 2018, from a peak of 26 percent in November 2016. However, the 2017 fiscal deficit on a modified cash basis (i.e., including external and domestic arrears) is estimated to have increased to around 8.2 percent of GDP compared to 7.6 percent of GDP in 2016, mainly due to continued spending pressures, including from a higher wage bill and high debt service costs.2 The external current account deficit continued to narrow in 2017. This was due to a boom in mining exports and to a contraction in megaproject imports of services. Another factor was the one-off inflow in income associated with the capital gain tax from the sale of ENI’s stake in the Coral South natural gas field to Exxon Mobil. Debt remains in distress as the stock of public sector debt-to-GDP reached 128.3 percent at end-2016, with several debt payments missed, including on the Mozam Eurobond.
The outlook remains challenging. Absent further policy action, real GDP growth is expected to further decline over time while inflation would remain at current levels. The fiscal deficit would expand, leading to further accumulation of public debt and crowding out of the private sector. Banks’ rising exposure to the government, combined with high interest rates, create potential macrofinancial vulnerabilities.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
This excludes the one-off capital gain tax revenue ($350 million or 2.8 percent of GDP) accrued due to the sale of 50 percent of ENI Africa share in the Coral South natural gas field to Exxon Mobil.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.