Press Release No. 16/436

IMF Staff Concludes Visit to Mozambique

September 29, 2016

• The mission initiated discussions on the terms of reference for an international and independent audit of the companies EMATUM, Proindicus and MAM, with the objective of strengthening transparency, governance, and accountability to avoid recurrence of past debt problems
• With inflation still rising and the metical depreciating, further policy tightening is needed to safeguard macroeconomic stability.

An IMF staff team headed by Michel Lazare visited Mozambique from September 22-29, 2016 to assess recent economic developments and discuss government policies to restore confidence and underpin economic stability. The mission also initiated discussions on the terms of reference for an international and independent audit of the companies EMATUM, Proindicus and MAM, with the objective of strengthening transparency, governance, and accountability to avoid recurrence of past debt problems. The mission met with Prime Minister do Rosario, Minister of the Economy and Finance Maleiane, Governor Zandamela of Bank of Mozambique, the Attorney General, other sectoral ministers, senior government officials, civil society, private sector representatives, and the donor community.

At the end of the mission, Mr. Lazare issued the following statement:

“Mozambique is facing a challenging economic environment. Growth has been on a declining path and is currently expected to be 3.7 percent in 2016 (down from 6.6 percent in 2015), which is significantly below levels observed in recent years. Inflation has risen sharply, reaching 21 percent on a year on year basis in August, fueled by a significant depreciation of the metical (about 40 percent since the start of the year). At the same time, a significant decline in imports has been more than offset by a weakening of exports, foreign direct investment, and donor financing. This has maintained pressure on international reserves, which have continued to decline. The discovery in April 2016 of previously undisclosed debt worth $1.4 billion (10.7 percent of GDP), combined with the impact of the exchange rate depreciation, has led to a substantial increase in debt ratios and the debt service burden.

“Against the backdrop of these challenging circumstances, and continued significant downside risks to the economy, the mission welcomed the economic policy measures adopted by the government since the last staff visit in June. On the fiscal front, a revised 2016 budget was approved by Parliament in July including measures to contain non-essential spending. On the monetary front, the central bank raised reserve requirements and its benchmark interest rate by 300 basis points to reduce excess liquidity. In addition, it has appropriately allowed the exchange rate to fluctuate to help restore balance between supply and demand for foreign exchange and support the needed ongoing balance of payments’ adjustment, while limiting the loss of international reserves.

“Nonetheless, with inflation still rising and the metical depreciating, further policy tightening is needed to safeguard macroeconomic stability. Notably, the 2017 draft budget is set to further consolidate the state of public finances while preserving critical social programs. On the monetary side, the mission welcomed the central bank’s intent to continue adjusting its monetary stance to help reduce inflationary pressures.

“Following the meeting between President Nyusi and IMF Managing Director Christine Lagarde in Washington on September 15, 2016, the mission made considerable progress with the Attorney General’s Office on the drafting of detailed terms of reference (TOR) for an international and independent audit of EMATUM, Proindicus and MAM. Drafting of the TOR is ongoing, and is expected to be completed soon.

“The authorities have requested the Fund to resume discussions on financial support as soon as possible. A solid track record of implementation of sound macroeconomic policies and an effective initiation of the audit process in the near term would help to create the conditions for a possible resumption of program discussions with the IMF.

“The mission thanks the authorities for their hospitality and close cooperation.”