Mozambique’s economy declared satisfactory by IMF

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Flag of Mozambique
Flag of Mozambique

The International Monetary Fund (IMF) on Tuesday declared that the performance of the Mozambican government’s reform programme in 2007 was “satisfactory”, despite missing a couple of agreed benchmarks.

An IMF mission, led by Jean Clement of the Fund’s Africa Department, visited the country 18-31 March in order to review the Policy Support Instrument (PSI) for Mozambique, approved by the IMF Board in June last year, and to discuss continued IMF support for Mozambique.

At a press conference Tuesday, Clement declared that economic growth had remained strong in 2007 “despite severe exogenous shocks”.

He said government revenue was larger than expected “due to buoyant direct domestic taxes”.

However, capital expenditure was lower than planned, because of “a shortfall in external financing” – in other words donors had not disbursed the money they pledged.

As for the missed benchmarks, Clement said that money supply exceeded the target, due to increased demand for cash during the festive season, and net credit to the government was higher than planned, again due to “a shortfall in aid disbursements”.

Clement was upbeat about Mozambique’s prospects, saying the outlook for 2008 “remains positive”.

He also said “despite the serious humanitarian impact”, the repercussions of this year’s flooding in the central provinces on the country’s economic growth “is likely to be limited”.

He also threw the IMF’s weight behind the government’s decision to subsidise the diesel used by operators of private mini-buses (colloquially known as “chapas”) that provide much of the country’s urban passenger transport.

The fuel subsidy was designed to compensate chapa owners for the fare rise cancelled in the wake of serious rioting in Maputo and the neighbouring city of Matola on 5 February.

Following a 14 per cent rise in the price of diesel decreed on 23 January, the government agreed that the chapa fares could rise by up to 50 per cent.

But riots that brought Maputo to a standstill forced the government to renegotiate the matter with the Federation of Road Transport Associations (FEMATRO), resulting in the cancellation of the fare increase and the offer of a fuel subsidy instead.

Asked why the IMF, given its track record of hostility to subsidies, had accepted the fuel subsidy, Clement said “when there are shocks such as rises in oil prices, or floods and cyclones, we are in favour of subsidies, but subsidies that are well focused and targeted on the poorest population groups.”

Such subsidies, he said, should not be permanent, “but temporary until prices fall”.

Clement claimed that Mozambique’s “core inflation” in 2007 “was held to 5.1 per cent”, which he regarded as a satisfactory figure.

But “core inflation” is an artificial construct that excludes foodstuffs and energy, the two items most critical for Mozambican household expenditure.

He added that “headline inflation” (which does include food and energy) had fallen from 13.2 per cent in 2006 to 8.2 per cent in 2007.

The estimate from the National Statistics Institute for the January-December inflation rate was a more alarming 12.1 per cent.

Clement dismissed this on the grounds that prices always rise in the last two months of the year because of increased demand during the festive season.

He blamed the end of year price rises on three products – tomatoes, chickens, and fish – and suggested that the solution would be to increase the local supply of these goods.

Clement strongly defended direct budget support as a means of providing foreign aid to Mozambique.

At the moment, 19 donors or funding agencies (including the World Bank, the African Development Bank, the European Union and most EU member states) are providing at least some of their assistance to Mozambique in the form of budget support rather than as project aid.

Clement declared that Mozambique “is a model in Africa of cooperation between the authorities, the international community and civil society. There has been substantial donor support to the budget, which is good since the money goes to the Single Treasury Account and is transparent”.

Clement praised the government’s decision to join the Extractive Industry Transparency Initiative (EITI), a coalition of governments, companies, civil society groups, investors and international organisations committed to “improving governance in resource-rich countries through the verification and full publication of company payments and government revenues from oil, gas and mining”.

Clement brushed aside questions about the slow pace of legal reform and the lack of progress in fighting corruption, saying key advance had been to channel government revenues through the new financial management system, e-SISTAFE, which was a “transparent” way of handling public funds.

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