The IMF has urged Mozambique to implement fiscal consolidation in 2025 following significant fiscal slippage in 2024. Pablo Lopez Murphy stressed the need for prioritizing social spending and managing payroll. Despite challenges, the IMF forecasts a recovery in economic growth to 3.0% in 2025 as social conditions normalize, while discussions on the Extended Credit Facility will continue.
The International Monetary Fund (IMF) has emphasized the necessity of fiscal consolidation in Mozambique for the year 2025 to ensure sustainable public accounts. This call for fiscal tightening follows significant fiscal slippage during 2024, primarily attributed to a slowdown in economic activity in the last quarter of the year. Pablo Lopez Murphy, the head of the IMF team, noted that”preliminary estimates suggest that there was significant fiscal slippage in 2024,” reflecting concerning trends in public finance.
Murphy indicated that “fiscal consolidation in 2025 is necessary to ensure fiscal and debt sustainability and preserve macroeconomic stability,” highlighting discussions held with key Mozambican officials including the president and prime minister. He further pointed out that inadequate management of payroll spending is overshadowing essential government expenditures on social benefits and infrastructure.
To facilitate sustainable fiscal consolidation, Murphy recommended prioritizing social spending and enhancing debt management to avert defaults. Additionally, he mentioned that inflation, while increasing, remains manageable and has not exceeded the implicit target of 5% despite challenges, such as supply chain disruptions and rising food prices from social unrest.
The IMF noted that economic activity in Mozambique contracted significantly in the final quarter of 2024 due to social unrest, leading to a 4.9% drop in Gross Domestic Product (GDP). Yet, they forecast a recovery in 2025, predicting growth to rebound to 3.0% as social conditions stabilize.
Discussions regarding revisions of the Extended Credit Facility (ECF) agreement with Mozambique are set to continue in the upcoming weeks. This program, which commenced in May 2022, has provided Mozambique with US$456 million, of which four tranches have already been disbursed. Notably, on June 15, 2024, the IMF reached a “technical agreement” on economic policies with the Mozambican government, allowing for further disbursement of funds.
In conclusion, the IMF advocates for fiscal consolidation in Mozambique to rectify the fiscal slippage observed in 2024. Effective management of public spending, particularly in payroll and debt, alongside prioritizing social services, is crucial for restoring economic stability. The anticipated recovery in growth rates for 2025 presents an opportunity for Mozambique to enhance its economic resilience and mitigate the impacts of social unrest.
Original Source: clubofmozambique.com
