Mozambique to Access $60.6m IMF Credit after Second Review

Mozambique has gotten go ahead to access a $60.6 million loan as the Executive Board of the International Monetary Fund (IMF) completed the Second Review under the three-year extended credit facility (ECF) arrangement for the country, the multilateral lender said in a statement.

According to IMF, the completion of the second review allows for the immediate disbursement of SDR 45.44 million (about US$ 60.6 million), usable for budget support, bringing Mozambique’s total disbursements under the ECF arrangement to SDR 159.04 million (about US$ 212.09 million).

Growth is projected to increase in 2023, driven by increasing liquefied natural gas (LNG) production, agriculture, and services activities, IMF said.

Inflation has returned to single digits, due to proactive monetary policy and favourable import prices for fuel and food. Fiscal performance in 2022 was worse than expected, mainly due to slippage in the wage bill reform and revenue underperformance.

While LNG investments are driving the current account deficit, the expected increase in LNG exports, and the moderation of food and energy imports, is projected to improve the current account balance going forward.

Program performance has been broadly favourable, though with notable slippages in the fiscal area, while important program commitments in the areas of fiscal governance and anti-corruption were completed.

IMF said risks to the outlook are primarily on the downside. Delays to LNG projects and deepening geo-economic fragmentation present risks, while inflation remains vulnerable to pressures from higher wages. Natural disasters and food insecurity also represent downside risks. Upside risks include ramping up of LNG projects.

Mr. Bo Li, IMF Deputy Managing Director and Acting Chair said, “Economic recovery in Mozambique is strengthening, supported by the liquefied natural gas (LNG) projects and rebound in various sectors.

“The economy has shown resilience to Cyclone Freddy which hit Mozambique in early 2023. While the outlook remains positive, significant risks remain, mainly due to adverse climate events and a fragile security situation.

“The authorities are undertaking corrective measures to ensure fiscal discipline in 2023 and continued fiscal consolidation efforts are also warranted over the medium term. On the revenue side, broadening the VAT base will help mobilize revenues in an efficient way”.

On the expenditure side, reducing the wage bill in line with regional peers will help create fiscal space for high-priority spending. Further strengthening the social safety net remains important to address food insecurity and elevated poverty, Li said.

IMF deputy director stated that the monetary policy stance is appropriate to help contain inflationary pressures and rebuild reserves. While inflation has decelerated faster than expected, continued caution is warranted to help anchor inflationary pressures and support macroeconomic stability.

Implementing an appropriate and carefully calibrated policy mix between fiscal and monetary is key.

“Improving the transmission of the policy rate by implementing an inflation targeting regime over the medium term remains important for improved macroeconomic management and for greater exchange rate flexibility to cope with external shocks.

“Continued progress is also needed across the governance, anti-corruption, and fiscal structural agenda, including submitting to Parliament the Sovereign Wealth Fund law which aims to develop a transparent, accountable, and efficient framework for managing LNG receipts.

“Other key reforms include improvements in revenue administration, public financial and debt management and in State Owned Enterprise (SOE) transparency. Strengthening the AML/CFT framework and monitoring vulnerabilities in the financial sector, including cybersecurity risks, also remain important. Given Mozambique’s strong vulnerabilities to climate change, there is also a need for policies to enhance climate resilience.

“Continued program ownership by the authorities complemented with capacity development efforts and donor support also remain essential for Mozambique to achieve its development objectives.” Mozambique to Access $60.6m IMF Credit after Second Review