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Mozambique has great potential in natural gas reserves and if liquefied/commercialized the sum of taxes and other fiscal revenue from natural gas will, at its peak, reach roughly one third of total fiscal revenue. Recent developments in the natural resource sector have triggered a fresh round of much needed infrastructure investment. This paper uses the DIGNAR model to simulate alternative public investment scaling-up plans in alternative LNG market scenarios. Results show that while a conservative approach, which simply awaits LNG revenues, would miss significant current growth opportunities, an aggressive approach would likely meet absorptive capacity constraints and imply a much bigger (and, in an adverse scenario, unsustainable) build-up of public debt. A gradual scaling up approach represents indeed a desirable path, as it allows anticipating some, though not all, of the LNG revenue and, even in an adverse scenario, keeping public debt at sustainable levels. Structural reforms affecting selection, governance and execution of public investment projects would significantly enhance the extent to which public capital is accumulated and impact non-resource growth and, ultimately, debt sustainability.
This Selected Issues paper documents the main features of the current monetary policy regime in Mozambique, describe ongoing structural policy changes announced by the central bank, and analyze the main challenges facing the central bank in the process to modernize its monetary policy framework. Recognizing the signaling value of interest rates to anchor inflation expectations and help influence market interest rates, the paper usefully focuses on the needed reforms to enable the central bank to successfully replace monetary aggregates by interest rate as the main instrument of monetary policy. Deepening the understanding of the obstacles on the way to a smooth monetary transmission, further building the central bank inflation forecasting capacity, strengthening the coordination between fiscal and monetary policies, enhancing central bank communications and modernizing the legal framework to ensure central bank operational autonomy are essential to the success of the new monetary regime. Importantly, the presence of a committed and strong technical team and a reform-oriented management should greatly facilitate the implementation of these vital central bank reforms.
This paper discusses Mozambique’s Second Review Under the Policy Support Instrument (PSI) and Request for Modification of Assessment Criteria. Mozambique’s economy remains buoyant and recovered quickly from the severe floods in early 2013. Growth is estimated at 7 percent for 2013, with strong performance in coal mining, construction, transport, communications, and financial services. Inflation remains low notwithstanding accommodative monetary policy and rapid credit expansion. The real effective exchange rate was broadly stable in 2013 and a nominal appreciation against the South African rand helped to limit inflation. Program performance to date has been broadly satisfactory. The IMF staff recommends the completion of the second PSI review.
Context and policy challenges. Mozambique’s macroeconomic performance remains robust, with strong growth and low inflation. In spite of the heightened risks from an uncertain global outlook, growth is expected to be broad-based in the medium term and boosted by the natural resource boom and infrastructure investment. Short-term policy framework. The main short-term challenge is to maintain the growth momentum while preserving fiscal and debt sustainability. The 2014 fiscal stance is expansionary, and fiscal consolidation needs to be initiated in the 2015 budget to restore prudent fiscal management. While low international prices have dampened inflation, the Bank of Mozambique should stay vigilant and adhere to its medium-term inflation target. Key structural reform priorities include improving VAT and overall tax administration, continuing public financial management reforms, strengthening capacity for transparent public investment management and borrowing, and enhancing the business environment and financial sector development. Completion of the LNG contract negotiations is a critical milestone for the launch of this project, one of the largest in sub-Saharan Africa. Medium-term reforms. Fiscal adjustment over the medium term will be essential to preserve debt sustainability and macroeconomic stability. This requires measures to contain current spending pressures while bringing investment to a more sustainable level. Structural reforms focusing on public financial management, monetary policy tools and banking supervision, and business facilitation should be implemented vigorously to sustain growth and render it more inclusive. With foreign aid likely to decline over the medium term, increased borrowing can provide additional resources for improving both Mozambique’s physical infrastructure and human capital. To ensure the efficiency of investment and borrowing, further strengthening of investment planning and implementation, and debt management are essential.
The recent discovery of large fields of natural gas in Mozambique has led to great international interest and expectations of future gains. However, many resource-rich countries have struggled to achieve long-term sustainable growth, whether because of poor management, unequal outcomes, or political conflict. Many authors argue that this 'resource curse' can be avoided with the right management tools and incentives for other sectors of the economy. We examine selected economy-wide impacts of such tools and incentives in Mozambique, using a computable general equilibrium model. Simple simulations are developed to illustrate how increased foreign direct investment might flow. In addition, the analysis considers measures to avoid resource dependency through government grant programmes for agriculture and manufacturing. The results suggest that the gains from the production of natural gas will have positive impacts on the Mozambican economy overall, and will enable additional programmes to aid growth in other sectors.
Context and policy challenges. Mozambique’s macroeconomic performance remains robust, with strong growth and low inflation. In spite of the heightened risks from an uncertain global outlook, growth is expected to be broad-based in the medium term and boosted by the natural resource boom and infrastructure investment. Short-term policy framework. The main short-term challenge is to maintain the growth momentum while preserving fiscal and debt sustainability. The 2014 fiscal stance is expansionary, and fiscal consolidation needs to be initiated in the 2015 budget to restore prudent fiscal management. While low international prices have dampened inflation, the Bank of Mozambique should stay vigilant and adhere to its medium-term inflation target. Key structural reform priorities include improving VAT and overall tax administration, continuing public financial management reforms, strengthening capacity for transparent public investment management and borrowing, and enhancing the business environment and financial sector development. Completion of the LNG contract negotiations is a critical milestone for the launch of this project, one of the largest in sub-Saharan Africa. Medium-term reforms. Fiscal adjustment over the medium term will be essential to preserve debt sustainability and macroeconomic stability. This requires measures to contain current spending pressures while bringing investment to a more sustainable level. Structural reforms focusing on public financial management, monetary policy tools and banking supervision, and business facilitation should be implemented vigorously to sustain growth and render it more inclusive. With foreign aid likely to decline over the medium term, increased borrowing can provide additional resources for improving both Mozambique’s physical infrastructure and human capital. To ensure the efficiency of investment and borrowing, further strengthening of investment planning and implementation, and debt management are essential.
Despite relatively fast economic growth over the past few years, Cape Verde’s public debt to GDP ratio has risenrapidly. Achieving an appropriate balance among public investment, growth, and debt sustainability has become a priority for the Cape Verdean authorities. The IMF-World Bank debt sustainability analysis (DSA) framework has helped the authorities monitor the risks of debt stress. However, the DSA has a number of limitations. This paper intends to complement the DSA by addressing aspects currently not covered by the DSA. The paper evaluates public investment scaling-up strategies in Cape Verde by customizing the Buffie and others (2012) model for Cape Verde and conducting various scenario and sensitivity analysis. The paper assesses Cape Verde’s public debt risks, taking into account the link between public investment and growth. The paper concludes that the size of scaling-up and aspects of the economic structure have significant impact on the outcome of the public investment. A very large surge in public investment may lead to a debt to GDP ratio that reaches dangerous levels based on the usual DSA criteria. A more moderate scaling-up of public investment may contribute better to stable and sustained growth over the medium and long run. In addition, it is critical that the authorities ensure the quality of public investment.
Context and policy challenges. Mozambique’s macroeconomic performance remains robust, with strong growth and low inflation. In spite of the heightened risks from an uncertain global outlook, growth is expected to be broad-based in the medium term and boosted by the natural resource boom and infrastructure investment. Short-term policy framework. The main short-term challenge is to maintain the growth momentum while preserving fiscal and debt sustainability. The 2014 fiscal stance is expansionary, and fiscal consolidation needs to be initiated in the 2015 budget to restore prudent fiscal management. While low international prices have dampened inflation, the Bank of Mozambique should stay vigilant and adhere to its medium-term inflation target. Key structural reform priorities include improving VAT and overall tax administration, continuing public financial management reforms, strengthening capacity for transparent public investment management and borrowing, and enhancing the business environment and financial sector development. Completion of the LNG contract negotiations is a critical milestone for the launch of this project, one of the largest in sub-Saharan Africa. Medium-term reforms. Fiscal adjustment over the medium term will be essential to preserve debt sustainability and macroeconomic stability. This requires measures to contain current spending pressures while bringing investment to a more sustainable level. Structural reforms focusing on public financial management, monetary policy tools and banking supervision, and business facilitation should be implemented vigorously to sustain growth and render it more inclusive. With foreign aid likely to decline over the medium term, increased borrowing can provide additional resources for improving both Mozambique’s physical infrastructure and human capital. To ensure the efficiency of investment and borrowing, further strengthening of investment planning and implementation, and debt management are essential.
This publication highlights Mozambique’s remarkably strong growth over the two decades since the end of the civil war in 1992, as well as the major challenges that remain for the country to rise out of poverty and further its economic development. Chapters explore such topics as the role of megaprojects and their relationship to jobs and growth; infrastructure and public investment; Mozambique's quest for inclusive growth; developing the agricultural sector; and building a social protection floor.
This paper discusses Republic of Mozambique’s Request for Disbursement Under the Rapid Credit Facility (RCF). Mozambique is expected to be significantly affected by the coronavirus disease 2019 pandemic, dashing prospects of a nascent economic recovery following two powerful tropical cyclones that struck in 2019. The IMF’s emergency financial support under the RCF, along with the additional donor grant financing it will help to catalyze, will contribute to addressing Mozambique’s urgent balance of payments needs generated by the pandemic. The authorities are committed to prevent corruption and misuse of emergency financing, by strengthening transparency and accountability. In this connection, they will publish large public procurement contracts and conduct and publish ex-post audits of funds’ use. Once the pandemic eases, it will be critical to resume fiscal consolidation and strengthened debt management and transparency to ensure that public debt remains sustainable. It will also be important to implement structural reforms to support inclusive and sustainable growth.