News Brief No. 01/93

News Brief: IMF Completes Third Review Under Mozambique's PRGF Arrangement and Approves In Principle US$11 Million Disbursement

September 20, 2001

The Executive Board of the International Monetary Fund (IMF) today completed the third review of Mozambique's arrangement under the Poverty Reduction and Growth Facility (PRGF)¹ and approved in principle the disbursement of SDR 8.4 million (about US$11 Million).

A final decision by the IMF Executive Board is pending discussion of Mozambique's Poverty Reduction Strategy Paper (PRSP) by the World Bank Executive Board, which is expected to take place on October 2, 2001.

Mozambique's three-year arrangement was approved on June 28, 1999 (see Press Release 99/25), for SDR 58.8 million (about US$76 million). In March 2000, the commitment under the arrangement was increased to SDR 87.2 million (about US$113 million). So far, Mozambique has drawn SDR 53.6 million (about US$69 million) under the arrangement.

After the Executive Board's discussion on Mozambique, Shigemitsu Sugisaki, Deputy Managing Director and Acting Chairman, made the following statement:

"Mozambique is to be commended for its successful record of policy implementation, which has, over more than a decade, brought stability and rapid economic growth to one of the world's poorest countries. Progress has continued in many areas, and after the severe setback caused by the floods in 2000, there have been further important signs of the gains from recent policies. As a result of sound policies and aided by large inflows of foreign direct investment, economic growth resumed in 2001.

"Mozambique has successfully completed its full PRSP, which provides a sound basis for the Fund's concessional assistance to Mozambique. The PRSP's ambitious objective of 8 percent annual growth will require continued macroeconomic stability and a deepening of structural reforms. Implementation of the PRSP will be key to raising further priority social spending and improving social indicators.

"Appropriate steps have been taken to address delays in structural policy implementation, in particular as regards the difficult resolution of the commercial bank Banco Austral (BA) and which were due to the broadening of the scope of the public accounting law and judicial system reform. In implementing its strategy to resolve the BA issue, the government needs to keep costs to a minimum, and address the potential liquidity and budgetary implications.

"The authorities also need to increase tax revenues, including through the prompt implementation of a revised code of fiscal incentives to ensure that exemptions are not excessively prevalent. The program for 2001 envisages the launching of a major reform of the country's income tax laws and it is important that this reform be pursued in a timely manner," Mr. Sugisaki said.

¹ On November 22, 1999, the IMF's facility for low-income countries, the Enhanced Structural Adjustment Facility (ESAF), was renamed the Poverty Reduction and Growth Facility (PRGF), and its purposes were redefined. It is intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. The government has designed a full PRSP in April 2001 with the view of refocusing Mozambique's adjustment strategy to address more decisively the country's social problems. PRSP loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½ grace period on principal payments.