International Monetary Fund (IMF) Executive Board Completes the Third Review under the Extended Credit Facility Arrangement for the Republic of Mozambique

The Executive Board of the International Monetary Fund (IMF) completed the Third Review under Mozambique’s three-year Extended Credit Facility (ECF) arrangement.

The IMF Executive Board completed the Third Review under the Extended Credit Facility (ECF) Arrangement for Mozambique, providing the country with access to SDR 45.44 million (about US$60.7 million); The three-year ECF arrangement aims to support Mozambique’s economic recovery and reduce public debt and financing vulnerabilities, while fostering higher and more inclusive growth through structural reforms; Program performance has been satisfactory. Parliamentary approval of the Sovereign Wealth Fund bill in December 2023 was an important step toward ensuring transparent and sound management of natural resource wealth.

The Executive Board of the International Monetary Fund (IMF) completed the Third Review under Mozambique’s three-year Extended Credit Facility (ECF) arrangement. The Executive Board’s decision allows for an immediate disbursement of SDR 45.44 million (about US$60.7 million), usable for budget support, bringing Mozambique’s total disbursements under the ECF arrangement to SDR 204.48 million (about US$273 million). The three-year ECF arrangement aims to support Mozambique’s economic recovery and reduce public debt and financing vulnerabilities, while fostering higher and more inclusive growth through structural reforms.

Program performance has been satisfactory. Five of eight structural benchmarks (SBs) were met as of end-December 2023, and three of four quantitative performance criteria (QPCs) were observed. Based on remedial actions adopted by the authorities, the Executive Board approved a waiver of nonobservance of the continuous performance criterion on non-accumulation of new public and publicly guaranteed external payment arrears which was missed due to delays in debt service repayment.

The Monetary Policy Consultation Clause (MPCC) band was breached at the lower bound, as inflation decelerated faster than expected, and the consultation with the Executive Board was completed. The Executive Board also completed the financing assurances review and approved the authorities’ request for modification of the MPCC.

Parliamentary approval of the Sovereign Wealth Fund bill in December 2023 was an important step toward ensuring transparent and sound management of natural resource wealth. Continued fiscal consolidation efforts are warranted to reduce financing needs and contain debt vulnerabilities. With inflation expectations well anchored, tighter fiscal policy, and weak non-mining growth, there is scope for gradual monetary policy easing.

Following the Executive Board’s discussion, Mr. Bo Li, Deputy Managing Director and acting Chair, issued the following statement:

“The economic recovery is accelerating, supported by the liquified natural gas (LNG) projects amid modest non-mining growth. At the same time, inflation pressures have declined sharply. While the outlook remains positive, significant risks remain, mainly due to adverse climate events and the fragile security situation.

“The authorities are undertaking measures to ensure fiscal discipline over the short and medium term. Given Mozambique’s high debt and tight financing conditions, continued fiscal consolidation efforts are warranted. On the revenue side, broadening the VAT base will help mobilize revenues in an efficient way. On the expenditure side, continued wage bill reform will help create fiscal space for high-priority spending, including social spending.

“The monetary policy stance has helped to contain inflationary pressures and rebuild FX reserves. With inflation expectations well-anchored, a gradual easing of the tight stance is warranted. Implementing an appropriate and carefully calibrated policy mix between fiscal and monetary is key to preserving macroeconomic stability. Improving the transmission of the policy rate by deepening the interbank, money, and foreign exchange markets over the medium term remains important for improved macroeconomic management, and to allow greater exchange rate flexibility to cope with external shocks.

“Progress continued across the governance and fiscal structural agenda, including: (i) approval of the Sovereign Wealth Fund Law; (ii) submission to Parliament of amendments to the Public Probity law; (iii) progress on the recommended actions of the 2021 Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) Mutual Evaluation Report, and (iv) publication of the external audit reports for 2020 and 2021 COVID spending. Revenue administration, public financial management, wage bill spending, State Owned Enterprises, and debt management are key reform priorities to put fiscal policy on a stronger footing. Continued capacity development remains essential for strengthening institutional capacity and allowing Mozambique to achieve its development objectives.”

Cassien Tribunal Aungane, Editor