The IMF recommends Mozambique undertakes fiscal consolidation in 2025 to stabilize public finances, citing significant fiscal slippage in 2024 and a need to prioritize social spending. The economy saw a GDP drop of 4.9% in the last quarter of 2024 but is expected to recover to a 3.0% growth rate in 2025.
The International Monetary Fund (IMF) stresses Mozambique’s urgent need for fiscal consolidation in 2025 to stabilize public finances. Recent estimates indicate substantial fiscal slippage in 2024 due to a slowdown in economic activity, particularly in the last quarter. Pablo Lopez Murphy, head of the IMF team, emphasized that such consolidation is pivotal for fiscal and debt sustainability, following discussions with Mozambican officials including the president and prime minister.
Murphy highlighted that ongoing payroll spending slippages negatively affect essential spending areas like social benefits and infrastructure. Therefore, he advocates for rationalizing payroll expenses and reducing tax exemptions to facilitate the fiscal consolidation process. Prioritizing social spending and enhancing debt management are deemed crucial for avoiding defaults and maintaining fiscal consolidation.
Inflationary pressures, while increasing, are reportedly manageable, remaining below the 5% target despite supply chain disruptions and rising food prices due to recent social unrest. The IMF noted a stark contraction in Mozambique’s economy, reporting a 4.9% drop in GDP in the fourth quarter of 2024, driven by social unrest, resulting in an overall annual growth of just 1.9%.
The IMF forecasts that by 2025, economic growth should rebound to 3.0% as social conditions improve and economic activities, particularly in services, accelerate. Ongoing discussions regarding revisions to the Extended Credit Facility (ECF) program will continue in the upcoming weeks.
The ECF, approved in May 2022, entails a total financing package of $456 million (€416.2 million), with multiple disbursements already made. Notably, a technical agreement for economic policies was reached on June 15, 2024, allowing for an additional disbursement of €55.9 million, following earlier budgetary support releases totaling approximately $273 million (€254.7 million).
The IMF asserts that fiscal consolidation is necessary for Mozambique in 2025 to address fiscal slippage from 2024 and ensure economic stability. Key measures include rationalizing payroll spending and prioritizing social expenditures. While inflation remains under control, the economy faces challenges due to recent social unrest, but growth is projected to recover by 2025.
Original Source: clubofmozambique.com
