People S Republic Of Mozambique Economic Report

KEY ISSUESContext and outlook. Mozambique’s macroeconomic outlook remains favorable andthe PSI-supported program is broadly on track. All assessment criteria were met andmost indicative targets, but there was some slippage on structural reforms. Economicgrowth is robust and inflation remains moderate. In spite of risks stemming from theuncertain global economy, growth is expected to be sustained in the medium term bythe natural resource boom and infrastructure investment. A recent governmentguarantee for large-scale borrowing by a public enterprise has raised transparency andprioritization issues that point to the need to strengthen investment and macroeconomicplanning. New risks associated with the political/security environment haveemerged.Short-term policy framework. The main short-term challenge is to maintain thegrowth momentum and to contain the fiscal expansion envisaged in 2014, reflectingboth election year pressures and the spending of one-off revenue windfalls and ofexternal borrowing. Key fiscal priorities include improving VAT administration, usingwindfall revenue to build buffers and invest, strengthen investment implementationcapacity, and ensure transparency and adherence to due process for investmentselection and borrowing. Monetary policy will need to be vigilant and monitor inflationdevelopments closely.Medium-term challenges. Structural reforms along a broad policy spectrum shouldbe implemented vigorously to foster sustained and more inclusive growth. With foreignaid likely to decline over the medium term, increased nonconcessional borrowing canprovide additional resources for improving physical infrastructure and human capital.Further strengthening debt management and investment planning and implementationare essential to ensure the efficiency of investment and borrowing. Completion of thenew mining and hydrocarbon legislation, the related fiscal regimes, andimplementation regulations would facilitate the economic development ofMozambique’s natural resources.

This Selected Issues paper on the Republic of Mozambique reports key policy and institutional issues in the macroeconomic management of scaled-up aid and in promoting sustainable private-sector led growth. A further moderate scaling-up of foreign aid could continue to be fully spent and focus on productive priority sectors. This would help achieve the Millennium Development Goals while at the same time eliciting a supply response to mitigate potential Dutch-disease effects brought on by an appreciating real exchange rate.

Mozambique’s economic situation had been improving until Tropical Cyclone Idai and Kenneth hit the country in March and April, respectively. Economic growth was recovering gradually and becoming broader based, and inflation reached low single digits. Economic activity is expected to decelerate sharply in 2019 due to the supply shock to productive capacity, but it should rebound to pre-cyclone levels by 2020. In April, the IMF Executive Board approved US$118 million in emergency assistance under the Rapid Credit Facility (RCF). The authorities are committed to macroeconomic stability while fostering inclusive growth and addressing governance challenges.

This paper presents the staff report on the Republic of Mozambique’s Third Review under the policy support instrument. Mozambique is vulnerable to the global financial crisis and economic slowdown. Lower import prices will help reduce inflation and likely benefit the trade balance. Lower export volumes and reduced private capital inflows are expected to reduce economic growth. The turbulence could also spread to the financial system despite its limited integration into global financial markets. The government is focusing on strengthening policy operations, giving special attention to the tax system and public financial management.

Mozambique’s economic situation had been improving until Tropical Cyclone Idai and Kenneth hit the country in March and April, respectively. Economic growth was recovering gradually and becoming broader based, and inflation reached low single digits. Economic activity is expected to decelerate sharply in 2019 due to the supply shock to productive capacity, but it should rebound to pre-cyclone levels by 2020. In April, the IMF Executive Board approved US$118 million in emergency assistance under the Rapid Credit Facility (RCF). The authorities are committed to macroeconomic stability while fostering inclusive growth and addressing governance challenges.

This issue includes a general assessment, a special chapter on the effects of digitalisation on productivity and a chapter summarising developments and providing projections for each individual country.