Mon, 01 Apr 2019
While it is still early to precisely assess the macroeconomic effects of Cyclone Idai and reconstruction costs, these will be very significant; Despite the likely adverse macroeconomic effects of Cyclone Idai in 2019, which are still being analysed, the outlook is for a recovery in economic activity over the medium-term; The mission also emphasises the importance of achieving significant debt relief and strengthening oversight of the entire public debt portfolio to bring public debt indicators to safer levels.
An International Monetary Fund (IMF) staff team led by Ricardo Velloso visited Maputo during March 13–27, 2019, to conduct the Article IV consultation mission. At the end of the visit, Mr. Velloso issued the following statement:
“The mission would like to express solidarity with the Mozambican people in the aftermath of Cyclone Idai that hit hard central Mozambique, causing significant loss of life and damage. Our condolences go to those affected by this unprecedented natural disaster and their families and friends.
“While it is still early to precisely assess the macroeconomic effects of Cyclone Idai and reconstruction costs, these will be very significant. The international community will have to continue playing a vital role in assisting Mozambique. In this context, the IMF will consider the authorities’ request for emergency financial assistance under the IMF Rapid Credit Facility (RCF).
“Real GDP growth decelerated to 3¼ percent in 2018, but it was broader based, with non-mining growth accelerating to 2¾ percent in 2018, from 2 percent in 2017. Inflation remains subdued, reflecting tight monetary policy, and exchange rate and food price stability. International reserves at the Bank of Mozambique are relatively comfortable, covering over six months of next year’s non-megaproject imports.
“Despite the likely adverse macroeconomic effects of Cyclone Idai in 2019, which are still being analyzed, the outlook is for a recovery in economic activity over the medium-term, with more significant expansion with the start of LNG production expected in 2023.
“The fiscal policy effort was significant in 2017-18. Subsidies on fuel and wheat prices were eliminated, an automatic fuel price adjustment mechanism was adopted, and electricity and public transportation tariffs were adjusted, bringing those prices close to cost recovery levels. Despite these efforts, the overall fiscal deficit in 2018 remained relatively high.
“Medium-term fiscal consolidation will be essential to ensure that public debt-to-GDP ratios remain on a clear downward path and, given that public debt is in distress, budget financing should rely to the maximum extent possible on grants and highly concessional loans.
“The mission also emphasizes the importance of achieving significant debt relief and strengthening oversight of the entire public debt portfolio to bring public debt indicators to safer levels.
“The mission welcomes the implementation of the strategy to clear the stock of domestic payments arrears to suppliers and advises the authorities to avoid new arrears by strengthening commitment controls. It also encourages the authorities to develop a strategy to clear the backlog of VAT refunds.
“The mission welcomes cabinet approval of the SOE Law regulations and recommends strengthening controls over SOE debt issuance. The new agency envisaged in the SOE [...]