IMF HEAPS PRAISE ON MOZAMBIQUE AGAIN

The International Monetary Fund (IMF) has once again praised Mozambique’s economic growth and the government’s handling of the macro-economic situation.An IMF mission visited Mozambique from 23 March to 7 April, for consultations with the government and for a review of the economy under the three year Policy Support Instrument (PSI) which was approved in June 2010.An IMF press release cited the Mission Chief for Mozambique, Johannes Mueller, declaring at the end of the visit “Mozambique continues to navigate well through stormy international waters”. He said that economic growth in 2010, estimated at 6.5 per cent “fell slightly short of expectations but was one of the highest in the region”.The IMF now expects growth to speed up “and return to levels observed before the global financial crisis”. Mueller claimed that exports from Mozambican mega-projects (mainly aluminium, gas and electricity)”offset the rising import bill related to surging fuel and food prices and significantly improved the external accounts, keeping international reserves at a comfortable level. This is projected to continue, as more such projects in the natural resource sector come online”. “However, recent increases in international food and fuel prices, through their secondary effects in the domestic economy, prevented a faster decline in inflation, which has continued to place a considerable burden on the most vulnerable segments of the population”, he added. This implies that there was some decline in inflation in 2010 – in fact, inflation in 2010 soared to 12.7 per cent, compared with just 3.3 per cent in 2009.“With economic growth poised to return to pre-crisis levels, the authorities intend to keep economic policies relatively tight during 2011, with a view to arresting inflation expectations and allowing inflation to return to single-digit levels towards the end of the year”, said Mueller. He added that the IMF mission “concurs that the short-run focus on fighting inflation is appropriate”. The IMF also backed the government’s development strategy “based on stepping up public investment in infrastructure and priority social spending, as well as structural reforms in such areas as public financial management, tax administration and policy, debt management, economic governance, and financial sector development and supervision”.But the IMF also noted that, despite high levels of economic growth, “poverty has not declined as fast as in other sub-Saharan African countries”.It expected that the new Mozambican Poverty Reduction Strategy (known as PARP), which is currently being finalized, “demonstrate Government’s commitment to more inclusive growth, with a view to generating employment opportunities and accelerating poverty reduction”. Mueller said “This will require policies and reforms to raise production and productivity in labor-intensive industries, particularly agriculture. Broader, well targeted, and fiscally sustainable social protection systems could also help sustain economic development”.The Policy Support Instrument does not involve any loans from the IMF, but countries such as Mozambique are interested in a PSI because it is a mark of IMF approval, and therefore useful for levering funds from other institutions.