The Mozambican economy is recovering gradually as the real Gross Domestic Product (GDP) increased to 3.3% in the first three quarters of 2018, supported by contributions from a broad range of economic sectors, including agriculture.
Tight monetary conditions and lower food price increases have led inflation to decline rapidly, reaching 4.7% year-on-year in October 2018, despite significant adjustments in administered prices.
The exchange rate has been stable, and the Bank of Mozambique has rebuilt its international reserves to a comfortable level (6.3 months of next years’ projected non-mega projects imports).
The outlook for 2019 is for a further, gradual recovery in economic activity and continued subdued inflation.
Real GDP growth is projected in the range of 4% to 4.7%, supported by sustained efforts to achieve durable peace, gradual easing of monetary conditions, clearing of domestic payments arrears to suppliers, and higher foreign direct investment, particularly in the liquefied natural gas (LNG) mega projects.
Inflation is projected at around 6% in 2019.
An International Monetary Fund (IMF) staff team led by Ricardo Velloso which visited Maputo, to review recent economic developments and initiate discussions on possible options for engagement with the Mozambican authorities in 2019 made this known.
The team welcomed the Government’s strong commitment to buttress macroeconomic stability through fiscal consolidation, tight monetary and financial policies, and the adoption of reforms to improve the business environment as well as governance and transparency.
The IMF team advised the authorities to maintain fiscal prudence in the run-up to next year’s elections by keeping the primary fiscal deficit at, or below, 1.5% of GDP in 2019 (the same level projected for 2018).
It stressed the importance for the Government to rely on external grant financing and highly concessional loans, while ensuring that issuance of debt guarantees strictly follows the approval procedures established in December 2017.
Ongoing efforts to clear domestic payments arrears to suppliers and adopt reforms in public financial management to avoid further accumulation of arrears, eliminating over time the VAT refund backlog is also critical were also welcomed.
The mission noted that there is room for the Bank of Mozambique to continue easing monetary policy but stressed that this should be done cautiously given the uncertainties in the world economy.
It encouraged the Bank of Mozambique to safeguard international reserves and maintain the flexible exchange rate regime.
The IMF team however stressed the importance of ensuring that possible future agreements with holders of previously undisclosed debts are consistent with returning the country’s overall debt position to a sustainable path and achieving poverty reduction and sustainable development in Mozambique.
The team held discussions with Prime Minister Carlos do Rosário, Minister of Economy and Finance Adriano Maleiane, Minister of Mineral Resources and Energy Ernesto Max Tonela, Minister of Industry and Commerce Ragendra de Sousa, Bank of Mozambique Governor Rogério Zandamela and other senior government officials, representatives from the Assembly of the Republic, private sector, and the donor community.