- IMF staff and the Mozambican authorities have discussed performance and policies underpinning the second review of the program under the ECF arrangement. Discussions were fruitful and will continue in the coming weeks to try and reach Staff Level Agreement.
Washington, DC: An International Monetary Fund (IMF) team, led by Mr. Pablo Lopez Murphy, conducted discussions with the Mozambican authorities during April 24 to May 5, 2023, on the Second Review under the Extended Credit Facility (ECF) arrangement.
At the conclusion of the discussions, Mr. Lopez Murphy issued the following statement:
"The IMF team has held constructive and fruitful discussions with the Mozambican authorities on the economic and financial policies to support the approval of the Second Review of the program under the ECF arrangement.
"Mozambique's economic recovery has gained momentum. Sectors most impacted by COVID-19 (hospitality, transport, and communications) have rebounded, and agriculture has benefited from favorable rainfalls. Growth in 2022 stood at 4.1 percent and is projected to rise to 5 percent in 2023. The pick-up in growth is partly driven by extractive industries, including the first LNG project (Coral South) which began production in October 2022.
"Inflation has been moderate (9.3 percent in March 2023), reflecting frozen fuel prices and lower-than-expected second-round effects of food and fuel price increases. The exchange rate has been stable since mid-2021, which helps contain inflation.
"Fiscal performance in 2022 was weaker than expected, with the primary deficit (after grants) about ½ percent of GDP above projected target—reflecting a significant overrun (of 3 percent of GDP) in the cost of implementing the wage bill reform. Lower spending on other goods and services offset part of the wage bill overshoot, such that total current expenditure exceeded projections by about 1 percent of GDP. Revenue was about 1 percent of GDP lower than planned, reflecting lower than expected taxes on goods and services (especially VAT). The government has already undertaken several measures towards correcting the wage bill slippages, including changes to the reference wage and salary supplements, and auditing the process of mapping public employees from their original salary level to their new salary level. Fund staff encourages the government to proceed with additional measures to reduce the annual wage bill to its approved budget level. Ensuring that the public wage bill is brought down is critical for safeguarding fiscal and macro sustainability.
"The government has made relatively steady progress on structural reforms. With regards to those included in the Fund-financed program, the draft Sovereign Wealth Fund law was submitted to Parliament by end-December. Two Structural Benchmarks (SBs) related to budgetary planning and financial programming were also met. The SB on implementing the proposed elimination of VAT exemptions and zero-ratings was not fully met as parliamentary revisions to the submitted code excluded some items. There remains space to eliminate exemptions that do not impact the most vulnerable.
"The IMF staff team met with Prime Minister Adriano Maleiane, Minister of Economy and Finance Max Tonela, Governor of the Bank of Mozambique Rogerio Zandamela, and other senior officials. The mission also met with representatives of the civil society, development partners, and the private sector.
"The team wishes to thank the Mozambican authorities for their excellent cooperation and for the frank and constructive dialogue and plans during the mission. The team will continue its discussions in the context of the Second Review virtually and through the Resident Representative Office in Maputo."
