IMF Mission Calls for Fiscal Stimulus in Mozambique

An International Monetary Fund (IMF) mission visited Mozambique April 28 - May 13, 2009 to conduct the 2009 Article IV Consultation and the fourth review under the Policy Support Instrument (PSI). The mission met with Minister of Finance, Hon. Manuel Chang; the Minister of Plan and Development, Hon. Aiuba Cuereneia, and the Governor of the Central Bank of Mozambique, Hon. Ernesto Gouveia Gove; other senior government officials; private sector representatives; and members of civil society.

Mr. Robert Sharer, Mission Chief for Mozambique, issued the following statement today at the end of the mission:

“After a decade of strong performance, the global financial crisis is posing a severe challenge for Sub-Saharan Africa. Economic growth is expected to reach about 2 percent in 2009, down from 5 percent last year, and the recovery is likely to be gradual in 2010, contingent on decisive measures in advanced economies to stabilize financial systems and bolster demand.

“Mozambique’s record of strong economic growth will be curtailed somewhat. Exports are declining due to sharply lower commodity prices and weaker external demand. Foreign direct investment, which has played an increasingly important role in Mozambique, is affected as some international investors scale back or postpone their investment projects. Foreign borrowing by the private sector is being curtailed by tighter credit conditions. As a result, the mission estimates that economic growth could fall to about 4.3 percent in 2009, down from 6.8 percent last year, with only a gradual recovery beginning in 2010.

“In the short term, given Mozambique’s low level of public debt, the mission sees scope to at least partly offset the impact of the global economic crisis on Mozambique with somewhat more expansionary fiscal and monetary policies. In 2009, relative to the budget approved by Parliament, revenue is expected to fall by 1.3 percent of Gross Domestic Product (GDP). Prudent fiscal policies in recent years provide scope to allow maintain spending at budgeted levels and raise domestic financing by 1.8 percent of GDP, compared with a repayment to the banking system of −1.9 percent last year. The mission also sees some scope for easing monetary policy in the period ahead to limit its contractionary impact on credit to the private sector. Inflation in 2009 is expected to remain low at about 5-6 percent.

“The government of Mozambique has a strong track record of prudent macroeconomic management, and has an on-track PSI. But short-term economic stimulus must not jeopardize medium-term economic stability, which remains critical for Mozambique to resume robust economic growth and make decisive progress in poverty reduction. Over the medium-term, fiscal policy must continue to be guided by a firm commitment to maintain a sustainable level of public debt and reinforce public financial management to ensure the efficiency of public spending.

“In support of these policies, and to help mitigate the exogenous shock stemming from the global economic downturn, Mozambique has requested financial support under the Exogenous Shocks Facility. It is expected that the IMF’s Executive Board will discuss the request, the 2009 Article IV Consultation and the fourth review under the PSI in July.”