Press Release No. 03/94

Press Release: IMF Completes Review Under Mozambique's PRGF Arrangement and Approves US$11.84 Million Disbursement

June 23, 2003

The Executive Board of the International Monetary Fund (IMF) has completed the fifth review of Mozambique's economic performance under the Poverty Reduction and Growth Facility (PRGF) arrangement. As a result, Mozambique will be able to draw up to SDR 8.4 million (about US$11.84 million).

In completing the review, the Board granted a waiver of nonobservance of the quantitative performance criterion on the domestic primary deficit. The Board also concluded that Mozambique's progress report on implementation of its poverty reduction strategy provided a sound basis for IMF concessional financial assistance.

Mozambique's economic program was originally supported by a three-year arrangement under the Enhanced Structural Adjustment Facility (ESAF) approved on June 28, 1999 (see Press Release No. 99/25) for SDR 58.8 million (about US$82.88 million). In March 2000, the commitment under the arrangement was increased to SDR 87.2 million (about US$122.91 million). So far, Mozambique has drawn SDR 70.4 million (about US$99.23 million) under the arrangement.

The PRGF is the IMF's most concessional facility for low-income countries, and is the successor to the ESAF. 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 PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½-year grace period on principal payments.

In commenting on the Board's discussion on Mozambique, Shigemitsu Sugisaki, Deputy Managing Director and Acting Chair, stated:

"The Mozambican authorities are to be commended for a continued satisfactory performance under their PRGF-supported program. Real GDP growth has remained strong; the official reserves position has strengthened; inflation declined markedly in 2002; and encouraging progress was made towards meeting the government's poverty reduction objectives in the areas of health and education.

"In completing the fifth review under the program, the Executive Board welcomed the important measures which the authorities have taken to strengthen government revenue, including the adoption of new tax codes and the increase in fuel taxes to correct the erosion from past inflation. The recent establishment of a Poverty Observatory is an important step toward facilitating a greater involvement of stakeholders in the PRSP process.

"The government's program for 2003 seeks to sustain rapid growth by maintaining prudent macroeconomic policies and deepening structural reforms. To contain the primary fiscal deficit at the 2002 level will require a close monitoring of the government's wage bill and restraint in other non-priority outlays, as well as continued efforts to strengthen tax administration and improve public expenditure management. The authorities are also moving ahead with a comprehensive reform of the public sector to increase its efficiency and ensure an adequate allocation of resources to the social sectors over the medium-term.

"The Bank of Mozambique will maintain a sufficiently tight monetary stance to correct the recent rise in inflation owing to exogenous factors and to consolidate the gains towards price stability. Intervention in the foreign exchange market will be limited to cushioning the impact of temporary shocks and achieving the program's reserve target.

"The authorities are firmly committed to strengthening the banking system and fostering a healthy competitive environment. Their decision to conduct diagnostic reviews of the main banks based on international accounting standards is an important step in this regard. Sustained efforts in this area, further progress on fiscal and public sector reforms, and improvements in governance and the judicial system will be key to stimulating private sector development and ensuring strong growth and poverty reduction," Mr. Sugisaki stated.