IMF: Mozambique LNG production ready to initiate in 2023

 Mozambique is recuperating it’s economic activity over the medium-term, with even more remarkable expansion with the initiation of LNG production expected in 2023, said Ricardo Velloso of the International Monetary Fund (IMF), while paying a visit at Maputo from 13–27 March 2019, to conduct the Article IV consultation mission.

It is untimely to exactly study the macroeconomic effects of Cyclone Idai and reconstruction costs, these will be very important. Mozambique will need continued assistance from the international community. That being said, the IMF will consider the authorities’ request for urgent financial help under the IMF Rapid Credit Facility (RCF), Velloso remarked.

The tight monetary policy, and exchange rate and food price stability, reflects subdued Inflation. International reserves at the Bank of Mozambique are relatively pleasant, enveloping over six months of next year’s non-mega project imports.

The fiscal policy effort was significant in 2017-18. Subsidies on fuel and wheat prices were eliminated, an automatic fuel price adjustment mechanism was adopted, and electricity and public transportation tariffs were adjusted, bringing those prices close to cost recovery levels. The overall fiscal deficit in 2018 remained relatively high, despite all these efforts.

This mission embraces the execution of the strategy to clear the stock of domestic payments arrears to suppliers and advises the authorities to avoid new arrears by strengthening commitment controls. It also gives a push to the authorities to develop a strategy to complete the backlog of VAT refunds.

The mission also welcomes the cabinet’s approval of the SOE Law regulations and suggests strengthening controls over SOE debt issuance. The new agency envisaged in the SOE Law, once created, should exert strong financial oversight over the entire sector. However, in this area, time is of essence. The authorities are required to hasten the preparation and execution of recovery, restructuring and/or privatization plans of SOEs in distress to limit risks to the budget.

While the mission assists the fiscal denationalization operation, it suggests a gradual transfer of revenue and spending responsibilities to sub-national levels of government in line with their capacity to retain the quality of public goods and services to be delivered. It also stresses the importance of implementing fiscal decentralization without increasing overall fiscal deficits given the challenges posed by the elevated level of public debt.

In monetary terms, the mission encourages the Bank of Mozambique to continue reducing the policy rate, albeit cautiously, while ensuring that inflation expectations remain well anchored. Lower real interest rates would help raise bank credit flows to the private sector, particularly SMEs, fostering economic activity and job creation, as well as financial inclusion.

It suggests retaining flexibility of the exchange rate as a cushion and safeguarding an adequate level of international reserves. The mission welcomes the Bank of Mozambique resolve to magnify supervision, enforce economical requirements and upgrade the regulatory framework to ensure financial stability.

The mission encourages the authorities to continue taking steps to strengthen governance, transparency and accountability. It welcomes their ongoing efforts, with IMF technical assistance, to prepare a diagnostic report of governance and corruption challenges in areas most relevant for economic activity. The mission has given sturdy suggestion for publication of this diagnostic report shortly after completion.

To speed up inclusive and private sector growth, the mission suggests clearing impediments to private sector investments and employment, adopting reforms to improve the business climate, and strengthening social safety nets.