The International Monetary Fund (IMF) argues that Mozambique should continue fiscal consolidation to reduce its debt needs, signaling that monetary easing is warranted, according to a report that Lusa had access to this Friday.
“Continued fiscal consolidation is important to reduce financing needs and contain public debt vulnerabilities. Given well-entrenched inflation expectations, ongoing fiscal consolidation and weak growth in the non-mining sector, gradual easing of monetary policy is warranted,” the IMF report said. on the approval this month of the third evaluation of the implementation of the Extended Credit Facility (ECF) program in Mozambique.
However, in the report’s recommendations, the IMF stresses the “importance” of continuing “ongoing efforts to strengthen institutions and governance” and thus “limit vulnerability to corruption and promote private sector development.”
Once the third tranche is approved, the total disbursements to Mozambique under the IMF’s ECF over 36 months will be approximately $273 million (€249.2 million). This ECF program was approved in May 2022 and provides total funding to Mozambique of $456 million (€416.2 million).
In the evaluation report, the IMF states that “some changes to the performance criteria of the fourth evaluation” of the program will be made “in response to capacity limitations and lengthy legislative processes” in Mozambique.
“Important structural reforms will be implemented in several areas, including governance, debt management, payroll controls, and the governance and supervision of public companies,” he adds.
In November, the governor of the Bank of Mozambique said the current slowdown in inflation was the result of the “constrictive monetary policy stance” adopted by the central bank in recent months, but stressed that “high uncertainty prevails.”
Rogerio Lucas Zandamela reported that annual inflation has been “decelerating” since the start of the year, reaching 4.6% in September (it closed at 5.30% in December), “after peaking at 12.9% in August 2022.” “: “This slowdown trajectory essentially reflects the combined effect of exchange rate stability and contractionary monetary policy stance, as well as falling food and fuel prices in the international market.”
The head of Mozambique’s central bank added that “high uncertainty prevails regarding the extent of the impact of ongoing risks,” especially from abroad, “amplified by volatility in financial markets, which requires increasingly prudent monetary policy actions.”
“Monetary policy therefore remained restrictive, with the monetary policy interest rate – the MIMO rate – set at 17.25%. Additionally, to counter excess liquidity in the banking system, we decided to increase mandatory ratios reserves for obligations in national and national banks. foreign currency – by 28.5 and 28 percentage points to 39.0 and 39.5%, respectively,” he recalled.
“It is important to emphasize that excess liquidity in the banking system was exacerbated by the sudden increase in government spending as a result of the introduction of the salary table,” he stressed.
Author: Lusa
Source: CM Jornal
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