Photo by: Duane Daws
Despite the heightened risks owing to an uncertain global outlook, Mozambique’s economic growth is expected to remain strong and be broad-based in the medium term, boosted by a natural resources boom – including the coal basin in the Tete province – and infrastructure investment, the International Monetary Fund (IMF) reported on Tuesday.
Following the completion of the third review of Mozambique’s economic performance under the programme supported by the Policy Support Instrument (PSI), the IMF noted that fiscal adjustment over the medium term would be essential to preserve the country’s debt sustainability and macroeconomic stability.
“This requires 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 to provide additional resources for achieving targeted improvements in physical infrastructure and human capital,” it added.
Mozambique’s macroeconomics was rated as “robust”, with growth forecast at 7.5% for 2014, paired with low inflation, despite an expansionary and higher-than-programmed fiscal stance and reserve money running modestly above target.
“To ensure the efficiency of investments and borrowing, it is essential to further strengthen investment planning and implementation, as well as debt management. 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,” the IMF explained.
Performance under the PSI-supported programme was 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.
“The main short-term challenge is to maintain growth momentum while preserving fiscal and debt sustainability. Fiscal consolidation needs to be initiated in the 2015 budget to restore prudent fiscal management. While low import prices have dampened inflation, the Bank of Mozambique should stay vigilant and adhere to its medium-term inflation target,” the IMF commented.
Key structural reform priorities included improving value-added tax 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.