IMF Team Completes Visit to Mozambique to Discuss Economic Reviews

The IMF team discussed fiscal and structural policies with Mozambican authorities during their visit from February 19 to March 4, 2025. Economic activity had sharply declined in late 2024 due to social unrest, leading to anticipated recovery in 2025. Fiscal slippages and wage overruns highlight immediate challenges, necessitating policy adjustments. Inflation remains controlled, thanks to recent monetary policy changes. The discussions with local authorities will continue virtually in the coming weeks.

From February 19 to March 4, 2025, an International Monetary Fund (IMF) team, led by Mr. Pablo Lopez Murphy, engaged with Mozambican authorities to discuss the Fifth and Sixth Reviews under the Extended Credit Facility (ECF) arrangement. The discussions centered on essential fiscal, financial, and structural policies that will support these reviews. Virtual discussions will follow in the upcoming weeks to continue these conversations.

During the visit, Mr. Lopez Murphy noted that economic activity in Mozambique has contracted significantly, with real GDP decreasing by 4.9 percent year-over-year in the last quarter of 2024, down from a growth of 3.7 percent in the third quarter. Overall, the growth rate for 2024 was recorded at 1.9 percent. Looking ahead, growth is anticipated to recover to 3.0 percent in 2025 as social conditions stabilize and economic activities, particularly in the services sector, resume.

The IMF indicated that significant fiscal slippages occurred in 2024, partially due to the economic slowdown during the last quarter. To ensure fiscal and debt sustainability, it is crucial to pursue fiscal consolidation in 2025. Overruns in wage bill spending have hindered investment in essential areas such as social services and infrastructure. Efforts are required to rationalize wage spending, limit tax exemptions, prioritize social expenditures, and enhance debt management to prevent arrears.

Despite notable inflationary pressures, they remain manageable. The Bank of Mozambique commenced a loosening monetary policy in January 2024, lowering the policy interest rate by 500 basis points to 12.25 percent. The central bank also reduced reserve requirements for local currency deposits from 39 percent to 29 percent at the end of January 2025. Inflation, while affected by supply chain disruptions and rising food prices, has remained below the implicit target of 5 percent.

The IMF team met with several high-ranking officials, including President Daniel Chapo and Minister of Finance Carla Loveira, as well as representatives from civil society and the private sector. The team expressed gratitude for the cooperation and openness of the Mozambican authorities throughout the mission, conveying that discussions regarding program reviews will proceed in the coming weeks.

In conclusion, the IMF’s recent visit to Mozambique underscored the need for constructive fiscal and structural policies as the country navigates economic challenges. The discussions highlighted a significant economic contraction due to social unrest and emphasized the importance of fiscal consolidation to ensure sustainability. While inflation remains controlled, cooperation among government officials and various sectors will be crucial in stabilizing and reviving the economy moving forward.

Original Source: www.miragenews.com