IMF Advocates for Fiscal Consolidation in Mozambique for 2025 Stability

The IMF has called for Mozambique to implement fiscal consolidation in 2025 following significant fiscal slippage in 2024 due to economic slowdowns. Recommendations include managing payroll spending and enhancing social and debt priorities. Despite inflationary pressures, growth is expected to rise to 3.0% in 2025 post-social unrest. Ongoing reviews of the Extended Credit Facility program are anticipated.

The International Monetary Fund (IMF) has identified the necessity for Mozambique to implement fiscal consolidation in 2025 to safeguard the sustainability of its public finances. This recommendation follows significant fiscal slippage noted in 2024, which was partly attributed to a slowdown in the economy during the final quarter. Pablo Lopez Murphy, representative of the IMF, emphasized the need for rigorous fiscal policies to maintain debt integrity and macroeconomic stability as discussed with Mozambican officials, including national leadership.

Murphy further highlighted that ongoing payroll expenditures were diverting funds from essential services such as social benefits and infrastructure. He advocated for measures to streamline payroll costs and reduce tax exemptions to enable effective fiscal management. To support fiscal consolidation, prioritizing social spending and enhancing debt management will be critical in averting defaults.

The IMF mission also reported that inflationary pressures have risen yet remain manageable. Even amid social unrest and supply chain challenges leading to increased food prices, inflation levels stayed below the targeted 5%. A notable contraction in Mozambique’s economic activity occurred in the fourth quarter of 2024, largely due to disturbances following elections, which resulted in a GDP decrease of 4.9% for that period, lowering the annual growth to 1.9%. However, growth is expected to rebound to 3.0% in 2025 as conditions stabilize and economic activities resume, particularly in the services sector.

Ongoing discussions regarding revisions to the Extended Credit Facility (ECF) program with Mozambique will proceed in the upcoming weeks. This ECF, initiated in May 2022, constitutes US$456 million in total financing, with several tranches already allocated to support the country’s budget. In June 2024, a technical agreement was announced between the IMF and the Mozambican government on economic policies, permitting an additional €55.9 million disbursement. The previous evaluation earlier in January had already released US$60.7 million, with the cumulative ECF disbursements reaching approximately US$273 million to date.

In summary, the IMF’s recommendations underscore the necessity for Mozambique to undertake fiscal consolidation in 2025, emphasizing the need to control payroll spending and prioritize social expenditure. The projected economic recovery in growth rates reflects potential improvement as social unrest subsides. Continued engagement with the IMF regarding the ECF program highlights the strategic importance of financial discipline for political and economic stability in Mozambique.

Original Source: clubofmozambique.com