The International Monetary Fund (IMF) is urging Mozambique to realign its wage bill in line with neighbouring countries, with the aim of directing investment to priority areas, such as the fight against food insecurity and poverty.

The IMF's Deputy Managing Director, Bo Li, indicates that a cut in wage spending in line with regional standards will allow greater budgetary room for urgent expenditure. Consolidating the social safety net is seen as fundamental to addressing the issue of food insecurity and the high poverty rate.

The final confirmation of the review of the Extended Credit Facility (ECF) programme for Mozambique, which was approved on 6 July, ensures an allocation of 60.6 million dollars (54 million euros) for the country, as the institution confirmed.

In the context of the second review of the programme, initially approved in May 2022, the total amount already allocated to Mozambique stands at 212.09 million dollars (194 million euros), within an overall framework of 456 million dollars (418 million euros). The organisation allowed exceptions for two criteria: the primary fiscal balance at the end of last year and the accumulation of external debt by the public sector.

Bo Li states that Mozambique's economic recovery is on the rise, supported by liquefied natural gas projects and the recovery in various sectors. The economy showed resilience in the face of Cyclone 'Freddy', which hit Mozambique in early 2023. Even so, the future presents risks, mainly due to adverse weather events and an unstable security situation.

Mozambique's monetary authority is adopting corrective measures to ensure fiscal discipline in 2023, and medium-term fiscal consolidation efforts are warranted. Broadening the VAT base will be effective in mobilising revenue, and the direction of monetary policy is appropriate for controlling inflationary pressures and rebuilding reserves.

Bo Li argues that caution should be maintained, even though inflation has slowed more quickly than expected, to support macroeconomic stability.

It is stressed that Mozambique needs to make continued progress across governance, the anti-corruption fight and a structural fiscal agenda, including the submission to parliament of the Sovereign Fund law, with the aim of establishing a transparent and efficient framework for managing natural gas revenue.

In its forecasts for this year, the IMF predicts that Mozambique's gross domestic product (GDP) growth will accelerate from 4.2% in 2022 to 7% this year. Inflation is expected to fall from 10.3% to 6.7%, similar to 2021, but still almost double that of the two previous years. The debt-to-GDP ratio is expected to continue its downward trajectory, ending the year at 89.7%, an improvement on the 95.5% of GDP recorded last year.