IMF BACKS POVERTY REDUCTION STRATEGY

he Executive Board of the International Monetary Fund (IMF) has backed has backed the Mozambican government’s latest Poverty Reduction Action Plan (PARP), and has insisted that fighting inflation remains the top macro-economic priority.The board met in Washington on Friday to complete its second review of Mozambique’s progress under the Policy Support Instrument (PSI). A PSI does not involve any IMF loans: instead, it is a supposedly voluntary arrangement under which countries such as Mozambique seek IMF endorsement for their policies. Mozambique is now into its second three year PSI. The current PSI was initially approved in June 2010.A statement issued at the end of the meeting by IMF Deputy Managing Director and Acting Chair, Nemat Sadik, praised Mozambique’s economic performance. “Helped by appropriate macroeconomic policies, the economy proved resilient to the global economic crisis”, she said. “The country is poised for an acceleration of economic growth over the medium term, reflecting expanded production in the natural resource sector and stepped-up public infrastructure investment”.Sadik declared that the fight against inflation “should be the key priority for macroeconomic policy in the short run. The authorities’ policies aimed at bringing about an early decline in core inflation are welcome, and the authorities should stand ready to tighten policies further should inflationary pressures persist”.The PARP, Sadik said, “contains the right ingredients to allow growth to become more inclusive. The PARP’s emphasis on broadening the country’s productive and export base and creating employment opportunities is appropriate, but determination is needed in implementing the strategy”. She described as “welcome” the government’s pledge to phase out the current fuel subsidy, and urged that it “should move forward in expanding well-targeted and affordable social protection systems”.In implementing investment strategy, the statement warned, “it will be important to continue to pursue a prudent borrowing policy to safeguard macroeconomic stability and debt sustainability. Efforts to strengthen tax administration should be sustained and new revenue sources tapped, including in particular from the natural resource sector. The authorities are also well advised to continue implementing key structural reforms in debt management and investment planning, as well as public financial management”.The IMF also welcomed improvements in banking supervision, but called for “more resolve” in fighting against money laundering and the financing of terrorism.