Republic of Mozambique: Third Review Under the Policy Support Instrument

IMF Staff Country Reports, January 9, 2015

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Mozambique’s macroeconomic performance remains robust, with strong growth and low inflation.
Heightened risks from an uncertain global outlook exist, but growth is expected to be broad-based in the medium term and boosted by the natural resource boom and infrastructure investment.
Completion of the LNG contract negotiations is a critical milestone for the launch of this project, one of the largest in sub-Saharan Africa.

Main short-term challenge: maintain growth momentum while preserving fiscal and debt sustainability.
The 2014 fiscal stance is expansionary, and fiscal consolidation needs to be initiated in the 2015 budget to restore prudent fiscal management.
While low international prices have dampened inflation, the Bank of Mozambique should stay vigilant and adhere to its medium-term inflation target.
Key structural reform priorities:
- Improving VAT and overall tax administration.
- Continuing public financial management reforms.
- Strengthening capacity for transparent public investment management and borrowing.
- Enhancing the business environment and financial sector development.

Fiscal adjustment over the medium term will be essential to preserve debt sustainability and macroeconomic stability.
Required measures:
- Contain current spending pressures.
- Bring investment to a more sustainable level.
Structural reforms to be implemented vigorously:
- Public financial management.
- Monetary policy tools and banking supervision.
- Business facilitation to sustain growth and render it more inclusive.
With foreign aid likely to decline over the medium term, increased borrowing can provide additional resources for improving Mozambique’s physical infrastructure and human capital.
To ensure the efficiency of investment and borrowing, further strengthening of investment planning and implementation, and debt management are essential.