An IMF team visited Mozambique to discuss policies for the Fifth and Sixth Reviews under the Extended Credit Facility, highlighting concerns over economic contraction, fiscal slippages, and inflation management. The team anticipates improved growth in 2025 and aims for fiscal consolidation to ensure macroeconomic stability.
The IMF team, led by Mr. Pablo Lopez Murphy, visited Mozambique from February 19 to March 4, 2025, to discuss the policies necessary for completing the Fifth and Sixth Reviews of the Extended Credit Facility (ECF). The conversations focused on fiscal, financial, and structural policies with the Mozambican authorities and were deemed constructive, with plans to continue discussions virtually in the upcoming weeks.
Economic activity in Mozambique noticeably declined in the final quarter of 2024, compounded by social unrest, resulting in a real GDP shrinkage of -4.9% year-over-year in Q4 after a 3.7% growth in Q3. For the entirety of 2024, the growth rate stood at 1.9%. Projections for 2025 indicate a recovery, estimating a growth of 3.0% as social conditions improve and economic activity increases, especially in the services sector.
Preliminary estimates highlight significant fiscal slippages in 2024, attributed partly to the economic downturn. For 2025, fiscal consolidation is essential for maintaining debt sustainability and macroeconomic stability. Issues persist with wage bill overspending, which detracts from essential expenditures such as social transfers and infrastructure. Key recommendations include streamlining wage bill expenditures, minimizing tax exemptions, prioritizing social spending, and enhancing debt management.
Although inflation pressures have increased, they remain within controlled limits. The Bank of Mozambique initiated a monetary easing process in January 2024, lowering the policy rate by 500 basis points to 12.25%. Additionally, it reduced reserve requirements on local currency deposits from approximately 39% to 29% in late January 2025. Notably, inflation level remained below the implied target of 5%, despite challenges from supply-chain disruptions and rising food prices linked to social unrest.
During the visit, the IMF team met with high-ranking officials including President Daniel Chapo and Minister of Finance Carla Loveira, as well as representatives from civil society, political parties, and the private sector. The IMF expressed gratitude for the cooperation and willingness to engage in open discussions throughout the mission, with further dialogues regarding program reviews slated for future weeks.
The IMF’s recent discussions with Mozambican authorities underscore a significant focus on fiscal consolidation and strategic policy adjustments to foster economic recovery. With challenges such as declining GDP and structural spending issues noted, collaborative efforts remain essential for achieving macroeconomic stability and a sustainable growth trajectory. Continued dialogue and engagement with various stakeholders signal a comprehensive approach to addressing these economic challenges.
Original Source: www.miragenews.com
