Press Release No. 19/411

IMF Staff Concludes Visit to Mozambique

November 13, 2019

An International Monetary Fund (IMF) staff team led by Ricardo Velloso visited Maputo during November 6–12, 2019, to take stock of recent economic developments and update macroeconomic projections.

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

“As a result of Tropical Cyclones Idai and Kenneth, real GDP growth decelerated to 2¼ percent (year-on-year) in the second quarter of 2019, affected by a weak performance in agriculture. Inflation declined to 2¼ percent (year-on-year) in October, from about 5 percent a year earlier, as tight monetary conditions more than offset the supply shock to prices induced by the cyclones. The exchange rate has been broadly stable; and international reserves at the Bank of Mozambique increased to about US$3.9 billion at end-October, covering 6¾ months of next years’ projected non-megaprojects imports.

“The outlook for 2020 is for a strong rebound in economic activity and low inflation. Real GDP growth is projected to reach 5½ percent in 2020, from 2.1 percent projected for 2019, supported by post-cyclones reconstruction efforts, a recovery in agriculture, and economic stimulus from further gradual easing of monetary conditions and clearing of domestic payments arrears to suppliers. Construction and other activities should also be boosted by investments in the liquefied natural gas (LNG) megaprojects. Inflation is projected to remain low, increasing slightly to 5 percent at end-2020, from 3 percent at end-2019.

“Consistent with the advice laid out in the latest Article IV consultation, the mission recommended gradual fiscal consolidation over the medium term, with a view of eliminating the primary fiscal deficit by 2022, while protecting or increasing well-targeted social spending. Financing should continue to rely on external grants and highly concessional loans given the high level of public debt. The mission welcomed the significant progress on clearing domestic payments arrears to suppliers and noted that, despite some progress, additional efforts will be needed to address the VAT refund backlog.

“The mission noted that there is ample room for the Bank of Mozambique to continue easing monetary policy given well-anchored inflation expectations, provided this easing is supported by a prudent fiscal policy stance. It welcomed the Bank of Mozambique’s strong commitment to maintain a flexible exchange rate and safeguard financial sector stability.

“The mission welcomed the authorities’ comprehensive diagnostic of governance and corruption challenges in Mozambique, which was published in August and was supported by IMF technical assistance. It encouraged the Government to implement the reforms under the roadmap outlined in the report.

“The mission welcomed the ongoing efforts by the Attorney-General’s Office to bring accountability to the issue of the previously undisclosed loans, as well as the Government’s initiatives to fight corruption and strengthen transparency.

“The mission noted that the recently-concluded Eurobond exchange lowered interest payments and extended maturities broadly in line with the baseline scenario in the debt sustainability analysis published in April. However, as also noted in that analysis, gradual fiscal consolidation and success in the Government’s strategy to secure additional debt relief from international private creditors remain critical for public debt sustainability.

“The mission welcomed the progress in the development of the LNG megaprojects in the northern province of Cabo Delgado. It reiterated the importance of building stronger institutions to help ensure that the fiscal revenue from such projects transform the lives of the Mozambican people, playing a significant role in sustainable development and poverty reduction. In this context, the mission welcomed the Government’s intention to save part of the capital gains tax—from the sale to Total of Anadarko/Occidental’s share in one of the projects—into an embryonic, future sovereign wealth fund.

“The mission held fruitful discussions with President Filipe Nyusi, Prime Minister Carlos do Rosário, Minister of Economy and Finance Adriano Maleiane, Minister of Mineral Resources and Energy Ernesto Max Tonela, Bank of Mozambique Governor Rogério Zandamela and other senior government officials, private sector, and the donor community. The mission thanks the authorities for their availability and cooperation as well as the arrangements made to facilitate our work.”