IMF Executive Board Concludes 2022 Article IV Consultation with the Republic of Mozambique and Approves US$456 Million Extended Credit Facility Arrangement

May 9, 2022

  • The IMF Board approved a SDR 340.8 million (about US$456 million) ECF arrangement for the Republic of Mozambique, with SDR 68.16 million (about US$91 million) available for immediate disbursement.
  • The three-year arrangement will help support the economic recovery and policies to reduce public debt and financing vulnerabilities, creating space for priority investments in human capital, climate adaptation and infrastructure.
  • The program supports the authorities’ ambitious reform agenda, with key policy actions focusing on establishing a sovereign wealth fund to transparently manage LNG wealth, mobilizing additional tax revenue, and strengthening public financial management and governance.

Washington, DC – On May 9, 2022, the Executive Board concluded the 2022 Article IV consultation [1] and approved a new three-year arrangement under the Extended Credit Facility for the Republic of Mozambique for SDR 340.8 million (about US$456 million), or 150 percent of the country’s quota. The Board’s approval allows for an immediate disbursement equivalent to US$91 million, or SDR 68.16 million.

A moderate recovery is taking hold. After a real GDP contraction of -1.2 percent in 2020—the first in 30 years—growth resumed in 2021 and is now becoming more broad-based. While COVID cases and deaths have been below regional averages, three large waves of infections in 2021 and 2022 moderated the strength of the recovery. After initial supply constraints, vaccine rollout intensified in late 2021, with 46 percent of the population having received at least one shot (42 percent fully vaccinated by end-March 2022). Poverty has increased from a poverty headcount ratio of 61.9 percent in 2019 to an estimated 63.3 percent in 2020 as a result of the crisis, albeit mitigated by welfare and social protection measures undertaken with international support. The war in Ukraine is pushing up fuel and food prices. Inflation rose to 6.7 percent year-on-year in March 2022 mainly due to rising global prices but also the impact of tropical storms on local food prices. In response, the Bank of Mozambique raised its policy rate 200 basis points in March 2022.

The authorities are implementing an extensive reform agenda, including strengthening the management of state-owned enterprises and their debts, improving fiscal risk management and debt transparency, and strengthening public financial management and the anti-corruption framework. The reform agenda supported by the program includes further governance reforms, buttressing the anti-money laundering framework, and creating a sovereign wealth fund. Medium-term prospects are positive; growth excluding extractive industries is expected to rise to about 4.0 percent per year, with higher overall growth rates related to large liquefied natural gas (LNG) projects that are set to begin production later in 2022.

Following the Executive Board discussion, Mr. Bo Li, Deputy Managing Director and Acting Chair, made the following statement:

“Mozambique has managed the COVID pandemic relatively well, maintaining macroeconomic stability and reform momentum even as the country has weathered a series of shocks, culminating with the effects of the war in Ukraine. With policy space now limited, sustaining the economic recovery underway and tackling debt vulnerabilities are priorities. The new three-year ECF arrangement of 150 percent of quota (SDR 340.8 million or about US$ 456 million) aims to buttress the economic recovery and policies to reduce public debt and financing vulnerabilities, along with creating fiscal space for priority investments in human capital, climate adaptation and infrastructure. It is also expected to catalyze additional financing by development partners.

“Fiscal policies appropriately envisage a moderate pace of adjustment that balances sustaining economic activity with reducing debt and financing vulnerabilities. Maintaining space for social protection spending on the most vulnerable households is an important objective of the authorities’ program. The authorities’ commitment to establishing a sovereign wealth fund to transparently manage LNG wealth should be complemented with a framework to weather the impact of commodity price volatility on the budget. Continued progress on reforms supporting the efficient and transparent management of public resources is important.

“The prudent monetary policy stance is warranted given rising inflationary pressures. The Bank of Mozambique’s pursuit of adopting an inflation targeting regime is commendable. Continued efforts are needed to further strengthen financial sector supervision, promote financial inclusion, and address weaknesses in the AML/CFT framework.

The program will support the authorities’ ambitious structural reform agenda. Further progress on governance and reforms reducing vulnerabilities to corruption are important to improve the business environment and foster a durable and inclusive reduction in imbalances. Given Mozambique’s high vulnerability to natural disasters focusing on building climate resilience will also be critical.”

Executive Board Assessment [2]

Executive Directors agreed with the thrust of the staff appraisal. They welcomed the authorities’ prudent macroeconomic policy management and reform implementation despite challenging conditions. Directors noted that the longer-term growth outlook, driven largely by upcoming liquefied natural gas (LNG) projects, is strong. However, risks remain significant, including due to security concerns, high debt levels, and vulnerability to natural disasters. Directors encouraged the authorities to maintain their focus on macroeconomic stability, while accelerating reforms to promote inclusive growth, address governance and corruption concerns, and further strengthen the management of public resources. They noted that the ECF arrangement, underpinned by extensive capacity development support, will help the authorities support their reform agenda and serve as a catalyst for additional financing.

Directors stressed the need for growth-friendly fiscal consolidation and reduced public debt vulnerabilities. They welcomed policy actions to mobilize additional tax revenue and remove distortionary tax exemptions and commended the authorities for implementing a new public sector pay structure. They encouraged the authorities to continue reforms in tax administration and public financial management to underpin the efficient and transparent management of public resources. Directors welcomed the authorities’ plans for transparent management of future LNG resources through a sovereign wealth fund and suggested adopting a fiscal rule to mitigate the impact of commodity price volatility.

Directors considered the cautious monetary policy stance appropriate, noting that high real policy rates have helped anchor inflation expectations, and supported the Bank of Mozambique’s long-term objective of adopting inflation targeting. They also emphasized the need to further strengthen financial sector supervision, promote financial inclusion, and address weaknesses in the AML/CFT framework.

Directors encouraged the authorities to continue their efforts in improving the governance framework and fighting corruption, including by implementing the measures detailed in the “Diagnostic Report on Transparency, Governance and Corruption” and following up on the findings outlined in the audit report on COVID-19 related spending. Considering Mozambique’s high vulnerability to natural disasters, Directors underscored the critical importance of focusing on building climate resilience.

It is expected that the next Article IV consultation with the Republic of Mozambique will be held in accordance with the Executive Board decision on consultation cycles for members with Fund arrangements.



[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://0-www-imf-org.library.svsu.edu/external/np/sec/misc/qualifiers.htm

Mozambique: Selected Economic Indicators            

2018

2019

2020

2021

2022

National income and prices

Nominal GDP (MT billion)

896

963

975

1,054

1,173

Real GDP growth (percentage change)

3.4

2.3

-1.2

2.2

3.8

Consumer price index (percentage change, end of period)

3.5

3.5

3.5

6.7

9.0

Government Operations (percent of GDP)

Total revenue

23.8

28.7

24.5

25.3

25.0

Total expenditure and net lending

31.3

29.8

33.2

30.6

32.4

Overall balance, after grants

-7.3

0.3

-5.4

-4.4

-3.6

Primary Balance after grants

-2.9

3.5

-2.3

-1.8

-0.2

Public sector debt

106.7

99.0

121.1

104.2

101.4

of which: external

86.2

79.4

98.7

81.1

77.6

Money and Credit

Reserve money (percentage change)

22.5

19.1

9.0

-14.4

10.7

M3 (Broad Money) (percentage change)

8.2

12.1

23.6

2.8

12.0

Credit to the economy (percentage change)

-2.5

5.0

14.8

3.0

8.7

Credit to the economy (percent of GDP)

24.6

24.0

27.2

25.9

25.3

External sector (percentage change)

Merchandise exports

10.0

-10.2

-23.1

55.5

20.1

Merchandise exports, excluding megaprojects

20.2

8.3

-22.0

42.7

15.9

Merchandise imports

18.1

9.5

-12.9

33.2

65.7

Merchandise imports, excluding megaprojects

8.9

9.3

-4.5

37.9

7.8

External current account, after grants (percent of GDP)

-30.3

-19.1

-27.6

-22.4

-44.9

Net international reserves (millions of U.S. dollars, end of period)

2,885

3,605

3,493

2,927

2,400

Gross international reserves (millions of U.S. dollars, end of period)

3,081

3,884

4,070

3,470

3,076

Sources: Mozambican authorities; and IMF staff estimates and projections.

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