The IMF has called for fiscal consolidation in Mozambique for 2025 to ensure public account sustainability after fiscal slippage in 2024. The organization’s mission chief highlighted concerns over payroll spending, inflationary pressures, and the impact of social unrest on economic conditions, forecasting a recovery in growth to 3.0% by 2025. The Extended Credit Facility discussions will continue, with significant financial support already provided to Mozambique.
The International Monetary Fund (IMF) has emphasized the need for Mozambique to initiate fiscal consolidation in 2025 to maintain the sustainability of its public finances, citing substantial fiscal slippage observed in 2024. Pablo Lopez Murphy, leading the IMF’s mission, noted that the economic slowdown in the last quarter impacted fiscal performance significantly.
Murphy further stated that “Fiscal consolidation in 2025 is necessary to ensure fiscal and debt sustainability and preserve macroeconomic stability,” following discussions with senior Mozambican officials. He highlighted the ongoing issue of payroll spending, which detracts from essential areas such as social benefits and infrastructure investments, and suggested a rationalization of payroll expenditures along with a reduction in tax exemptions.
To strengthen fiscal consolidation, it is imperative to prioritize social spending and enhance debt management efforts to prevent defaults. The IMF reported that while inflationary pressures have intensified, they remain manageable, with rates holding below the implicit target of 5%. Although the last quarter of 2024 saw a 4.9% contraction in GDP due to civil unrest, the IMF predicts a recovery to 3.0% growth in 2025 as conditions stabilize.
Discussions regarding amendments to the Extended Credit Facility (ECF) with Mozambique are set to continue in the upcoming weeks. This facility, established in May 2022, has provided Mozambique with approximately $456 million, with several tranches released to support the budget. A technical agreement on economic policies was reached on June 15, 2024, facilitating an additional disbursement of €55.9 million. Earlier, a third tranche of US$60.7 million was released following the third review of the assistance program, bringing total disbursements to around $273 million.
In conclusion, the IMF has identified a critical need for Mozambique to implement fiscal consolidation in 2025 to safeguard public finances following notable fiscal slippage in 2024. By prioritizing essential social spending and rationalizing payroll expenditures, the country can enhance its fiscal and debt management strategies. While the economic outlook is currently challenged due to disruptions, a recovery is anticipated as the socio-political climate stabilizes and economic activities resume.
Original Source: clubofmozambique.com
