Mozambique: IMF Approves Second Review Under Extended Credit Facility Arrangement for Mozambique

The International Monetary Fund (IMF) has completed the Second Review under the three-year Extended Credit Facility (ECF) arrangement for Mozambique. This milestone enables the immediate disbursement of SDR 45.44 million (approximately US$60.6 million), which will be used to support the country’s budget. With this disbursement, Mozambique has received a total of SDR 159.04 million (about US$212.09 million) under the ECF arrangement.

As part of the review, the IMF Executive Board approved waivers of nonobservance for two performance criteria. The missed performance criterion on domestic primary budget balance at the end of December 2022 was attributed to wage bill reform overruns and revenue shortfalls. The continuous performance criterion on non-accumulation of public and publicly-guaranteed external arrears was missed due to delays in debt service repayment by a state-owned enterprise. The waivers were granted based on remedial actions taken by the authorities.

The lower bound of the monetary policy consultation clause (MPCC) band was breached as inflation decelerated more quickly than anticipated. The monetary policy consultation with the Executive Board has been completed. Additionally, the Executive Board concluded the financing assurances review and approved the authorities’ request for modification of conditionality.

The outlook for Mozambique’s economy is positive, with growth expected to increase in 2023. This will be driven by the expansion of liquefied natural gas (LNG) production, agriculture, and services sectors. Inflation has returned to single digits, thanks to proactive monetary policy and favorable import prices for fuel and food. However, fiscal performance in 2022 fell short of expectations due to challenges in wage bill reform and revenue collection.

While LNG investments contribute to the current account deficit, the projected increase in LNG exports and reduced food and energy imports are expected to improve the current account balance going forward. The overall program performance has been largely favorable, although there have been some fiscal slippages. Notably, commitments related to fiscal governance and anti-corruption measures have been successfully implemented.

The primary risks to the economic outlook are downside risks, including potential delays in LNG projects, geo-economic fragmentation, inflationary pressures from higher wages, natural disasters, and food insecurity. However, there are also upside risks, such as the accelerated progress of LNG projects.

Following the Executive Board discussion, Mr. Bo Li, Deputy Managing Director and Acting Chair, emphasized the strengthening economic recovery in Mozambique, driven by LNG projects and sectoral rebounds. However, he noted the importance of addressing risks associated with climate events and the fragile security situation. The authorities are urged to implement corrective measures for fiscal discipline, revenue mobilization through VAT base broadening, reduction of the wage bill, and strengthening the social safety net. Additionally, maintaining an appropriate monetary policy stance to contain inflationary pressures and implementing structural reforms in governance, anti-corruption, and fiscal management were highlighted as key priorities. Program ownership, capacity development efforts, and donor support will be crucial for Mozambique to achieve its development objectives, particularly in the face of climate change vulnerabilities.