IMF Completes Fourth Review, 2024 Article IV Consult

• The IMF Executive Board completed the Fourth Review under the Extended Credit Facility (ECF) Arrangement, providing Mozambique with immediate access about US$60.03 million.
• Program performance has been mixed. Three out of four structural benchmarks (SBs) were met, and two out of four quantitative performance criteria (QPCs) were observed.
• The IMF Executive Board also completed the 2024 Article IV Consultation. Discussions focused on (i) wage bill rationalization for a sustainable and cost-effective provision of public services, (ii) the role of state-owned enterprises (SOEs) and policies to improve their governance and transparency, and (iii) drivers of exchange rate stability since mid-2021.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed the 2024 Article IV Consultation and the Fourth 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$60.03 million), usable for budget support, bringing Mozambique's total disbursements under the ECF arrangement to SDR 249.92 million (about US$330.14 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 mixed. Three of four SBs were met as of end-June 2024, and two of four QPCs were observed. Based on remedial actions adopted by the authorities as well as the minor and temporary nature of the nonobservance, the Executive Board approved waivers of nonobservance of (i) the continuous performance criterion on non-accumulation of new public and publicly guaranteed external payment arrears, which was missed due to operational constraints related to debt management; and (ii) the performance criterion on the domestic primary balance, which was missed, in part due to higher than expected wage-bill spending and debt service.

Inflation, which has continued to moderate, was within the Monetary Policy Consultation Clause (MPCC) band. The Executive Board also completed the financing assurances review and approved the authorities' requests for modification of the MPCC and the quantitative performance criterion on domestic primary budget balance.

Following the approval of the Sovereign Wealth Fund Law by Parliament in December 2023, the adoption of implementing regulations in early 2024 was another important step toward ensuring transparent and sound management of natural resources wealth. Going forward, continued fiscal consolidation efforts are warranted to reduce financing needs and contain debt vulnerabilities, while creating fiscal space for social spending to protect the most vulnerable. With inflation expectations well anchored, ongoing fiscal consolidation, and weak non-mining growth, there is scope for further gradual monetary policy easing.

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

"Economic growth is positive but expected to moderate, with tight financial conditions acting as a drag on activity. While inflation pressures have declined, Mozambique faces significant risks, mainly from adverse climate events and the fragile security situation. In the context of the mixed program performance, the authorities are focused on measures to ensure macroeconomic stability and address debt vulnerabilities, and reforms to promote broad-based, inclusive, and sustainable growth.

"The authorities' efforts to ensure fiscal discipline are welcome. Further fiscal consolidation is needed, given Mozambique's high debt and tight financing conditions. In this regard, revenue mobilization and wage bill spending rationalization are essential to create fiscal space for high-priority social and development spending. Improving social spending execution and avoiding future arrears remain paramount.

"A tight monetary policy stance has helped to contain inflationary pressures and rebuild FX reserves. With the weak outlook for non-mining growth, well-anchored inflation expectations, and continued fiscal consolidation, a gradual easing of the monetary policy stance is appropriate. A carefully calibrated fiscal and monetary policy mix is key to preserving macroeconomic stability. Improving monetary policy transmission by deepening the interbank, money, and foreign exchange markets remains important for improved macroeconomic management. Allowing greater exchange rate flexibility is necessary to enhance resilience to external shocks. Further progress in enhancing the AML/CFT framework is also warranted.

"Progress continued across the governance and fiscal structural agenda, including with the: (i) publication of a Decree Law requiring the collection of beneficial ownership information; (ii) publication of financial risk indicators of state-owned enterprises (SOEs); and (iii) monthly cash flow forecasts by Treasury to inform budget execution. Efforts to strengthen revenue administration, public financial management, debt management, and SOE operations are essential to put fiscal policy on a stronger footing. Continued capacity development, including in the operation of the Sovereign Wealth Fund, remains essential for strengthening institutional capacity and allowing Mozambique to achieve its development objectives. Measures to build resilience to climate change and accelerate progress on addressing gender-based disparities are also crucial."

Republic of Mozambique: Selected Economic Indicators, 2020–24