An IMF team, led by Mr. Pablo Lopez Murphy, conducted fruitful discussions with Mozambican authorities regarding policies essential for the Fifth and Sixth Reviews under the Extended Credit Facility (ECF). The team identified significant challenges, including economic contraction and the necessity for fiscal consolidation, while projecting a recovery in growth by 2025.
The International Monetary Fund (IMF) team, led by Mr. Pablo Lopez Murphy, engaged in discussions with Mozambican authorities from February 19 to March 4, 2025. The focus was on the policies supporting the Fifth and Sixth Reviews of the Extended Credit Facility (ECF) arrangement. These productive discussions will continue virtually over the upcoming weeks.
At the conclusion of the visit, Mr. Lopez Murphy provided insights regarding the country’s economic status. He noted, “The IMF team has held constructive discussions with the Mozambican authorities on the fiscal, financial, and structural policies needed to support the completion of the Fifth and Sixth Reviews of the ECF arrangement.”
Economic activity witnessed a significant contraction in Q4 2024, predominantly due to social unrest, resulting in a real GDP decline of 4.9 percent year-over-year. However, growth for 2024 stood at 1.9 percent, and a recovery is projected for 2025, with growth expected to reach 3.0 percent linked to improvements in social conditions and a resurgence in economic activities, particularly within the services sector.
Preliminary estimates indicate considerable fiscal slippages in 2024, partly attributed to the economic slowdown. For effective fiscal and debt sustainability, consolidation efforts in 2025 are essential. This implies restructuring wage bill expenditures, reducing tax exemptions, and prioritizing social spending to uphold macroeconomic stability.
Inflation pressures, though heightened, remain manageable. The Bank of Mozambique commenced a loosening cycle in January 2024, decreasing the policy rate by 500 basis points to 12.25 percent. Additionally, reserve requirements for local currency deposits were lifted from approximately 39 to 29 percent. Despite ongoing supply chain issues and elevated food prices, inflation has stayed below the implicit target of 5 percent.
During this mission, the IMF team engaged with several high-level officials, including President Daniel Chapo and Prime Minister Maria Levy. They also interacted with civil society representatives, political parties, development partners, and private sector stakeholders. The team expressed gratitude for the authorities’ cooperation and constructive engagement.
In summary, the IMF’s recent visit to Mozambique highlighted the challenges posed by economic contraction and social unrest. The discussions underscored the need for fiscal consolidation to ensure sustainability while projecting a recovery in economic growth for 2025. With continued dialogue and cooperation, both parties aim to advance policies that stabilize the economy and enhance social spending.
Original Source: www.miragenews.com
