The executive board of the International Monetary Fund (IMF) has approved $456 million three-year extended credit facility arrangement for Mozambique with $91 million available for immediate disbursement.
The IMF said the three-year arrangement “will help support the economic recovery and policies to reduce public debt and financing vulnerabilities, creating space for priority investments in human capital, climate adaptation and infrastructure.”
“The program supports the authorities’ ambitious reform agenda, with key policy actions focusing on establishing a sovereign wealth fund to transparently manage LNG wealth, mobilizing additional tax revenue, and strengthening public financial management and governance,” it wrote in a statement.
The approval of the new loan on May 9, came after the IMF Executive Board concluded the 2022 Article IV consultation for Mozambique.
According to the IMF, a moderate recovery is taking hold in Mozambique.
It said after a real GDP contraction of -1.2 percent in 2020—the first in 30 years—growth resumed in 2021 and is now becoming more broad-based.
“While COVID cases and deaths have been below regional averages, three large waves of infections in 2021 and 2022 moderated the strength of the recovery,” the IMF said.
It added, “After initial supply constraints, vaccine rollout intensified in late 2021, with 46 percent of the population having received at least one shot (42 percent fully vaccinated by end-March 2022). Poverty has increased from a poverty headcount ratio of 61.9 percent in 2019 to an estimated 63.3 percent in 2020 as a result of the crisis, albeit mitigated by welfare and social protection measures undertaken with international support.
“The war in Ukraine is pushing up fuel and food prices. Inflation rose to 6.7 percent year-on-year in March 2022 mainly due to rising global prices but also the impact of tropical storms on local food prices. In response, the Bank of Mozambique raised its policy rate 200 basis points in March 2022.”
According to Mr. Bo Li, Deputy Managing Director and IMF Acting Chair, “Mozambique has managed the COVID pandemic relatively well, maintaining macroeconomic stability and reform momentum even as the country has weathered a series of shocks, culminating with the effects of the war in Ukraine. With policy space now limited, sustaining the economic recovery underway and tackling debt vulnerabilities are priorities.”
He wrote, “The new three-year ECF arrangement of 150 percent of quota (SDR 340.8 million or about US$ 456 million) aims to buttress the economic recovery and policies to reduce public debt and financing vulnerabilities, along with creating fiscal space for priority investments in human capital, climate adaptation and infrastructure. It is also expected to catalyze additional financing by development partners.
“Fiscal policies appropriately envisage a moderate pace of adjustment that balances sustaining economic activity with reducing debt and financing vulnerabilities. Maintaining space for social protection spending on the most vulnerable households is an important objective of the authorities’ program. The authorities’ commitment to establishing a sovereign wealth fund to transparently manage LNG wealth should be complemented with a framework to weather the impact of commodity price volatility on the budget. Continued progress on reforms supporting the efficient and transparent management of public resources is important.
“The prudent monetary policy stance is warranted given rising inflationary pressures. The Bank of Mozambique’s pursuit of adopting an inflation targeting regime is commendable. Continued efforts are needed to further strengthen financial sector supervision, promote financial inclusion, and address weaknesses in the AML/CFT framework.
‘The program will support the authorities’ ambitious structural reform agenda. Further progress on governance and reforms reducing vulnerabilities to corruption are important to improve the business environment and foster a durable and inclusive reduction in imbalances. Given Mozambique’s high vulnerability to natural disasters focusing on building climate resilience will also be critical.”