IMF Completes Third PSI Review For Mozambique, Commends Macroeconomic Performance

January 7, 2015 Editor Economic Development & Policies, Investing

VENTURES AFRICA – The Executive Board of the International Monetary Fund (IMF) has completed a third review of Mozambique’s economic performance under the program supported by the Policy Support Instrument (PSI), and a report released by the institution offers an objective and fact-based economic status update for the southern African country.
IMF says Mozambique’s macroeconomic performance remains robust. “Growth was forecast at 7.5 percent with low inflation despite an expansionary stance and reserve money running slightly above target. Performance under the PSI-supported program has been mixed–while all but one of the quantitative assessment criteria were met at end-June, there were some slippages during the second half of the year and some delays in implementing structural reforms,” a statement from the IMF reads.
The main short-term challenge would be to maintain the growth momentum while preserving fiscal and debt sustainability, and the 2015 budget must see some fiscal consolidation in order to restore prudent fiscal management. The Bank of Mozambique has been advised to stick to
its medium-term inflation target even though low import prices have dampened inflation. Key structural reform priorities include improving VAT and overall tax administration, continuing public financial management reforms, strengthening institutional capacity to ensure transparent public investment management and borrowing, and enhancing the business environment and financial sector development.
Also, the completion of the contract negotiations for the production of liquefied natural gas (LNG), one of the largest in sub-Saharan Africa, is a critical milestone.
Growth is expected to remain strong and broad-based in the medium term despite uncertainties on the global scene, this is due to the natural resource boom and infrastructure investment. The IMF has advocated for fiscal adjustment over the medium term  as this will be essential to preserve debt sustainability and macroeconomic stability. This would mean establishing measures to contain current spending pressures while bringing investment to a more sustainable level.
With foreign aid likely to decline over the medium term, Mozambique will need to borrow in order to provide additional resources for achieving targeted improvements in physical infrastructure and human capital. Therefore, it must further strengthen investment planning and implementation, as well as debt management, in order to ensure the efficiency of investment and borrowing.
Lastly, structural reforms focusing on public financial management, monetary policy tools, banking supervision, and business facilitation should be implemented vigorously to sustain growth and render it more inclusive.
At the end of the Mozambican civil war in the early 90s, the country was one of the world’s poorest and most underdeveloped. However, a series of macroeconomic reforms were engaged to stabilize the economy, and growth rates have improved because of this and heightened political stability and donor assistance. Inflation has been contained and fiscal reforms have improved the revenue generation capabilities of the government.
The necessary fundamentals are in place for a more prosperous Mozambique, and it is expected that the public and private sector would work together to build on these fundamentals.