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IMF: “Deeper Fiscal Consolidation Required to Guarantee Debt Sustainability”

IMF: “Deeper Fiscal Consolidation Required to Guarantee Debt Sustainability”

The International Monetary Fund (IMF) warned on Thursday that Mozambique needs to deepen fiscal consolidation, rationalise wage bill spending, and prioritise social spending to guarantee fiscal and debt sustainability.

“Further fiscal consolidation is needed by 2024 to ensure fiscal and debt sustainability and preserve macroeconomic stability,” IMF team leader Pablo Lopez Murphy said at the end of a two-week visit to Mozambique.

In a statement released today in Maputo, Murphy explained that “the challenges in implementing the new single wage scale have resulted in a slippage in spending on the wage bill of civil servants, which has made important priority spending impossible, including social transfers and infrastructure”.

Therefore, he continued, “rationalising wage bill expenditure must be the basis of fiscal consolidation, social spending must be prioritised, and debt management must be strengthened to avoid payment delays.”

In the statement issued at the end of the visit discussing the policies that underpin the fourth review under the Extended Credit Facility (ECF), Pablo Murphy considered that the Mozambican economy’s growth should accelerate from 2.5% last year to 3.5% this year, with tight financial conditions limiting the acceleration of growth.

Even so, “the outlook for the extractive sector is strong, as liquefied natural gas projects are expected to restart activities,” the statement said.

For the IMF, with inflation low for several months and having reached 3.3% in April, the Bank of Mozambique has room to cut interest rates even further, as it did in the first quarter of this year, when it lowered the reference rate by 150 basis points to 15.75%.

“With the inflation outlook well anchored, fiscal consolidation continuing and credit to the private sector slowing, further monetary policy easing would be appropriate,” the IMF said.

The IMF’s financial adjustment programme in Mozambique was approved in May 2022 and provides for total funding of $456 million (€416.2 million), of which $273 million (€249.2 million) have already been disbursed in the first three assessments of the programme.



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