The IMF has advised Mozambique to pursue fiscal consolidation in 2025 due to fiscal slippage in 2024 and to ensure economic stability. Key recommendations include rationalizing payroll spending and prioritizing social expenditures. Despite inflationary pressures, growth is projected to recover as societal conditions normalize, supported by the Extended Credit Facility.
The International Monetary Fund (IMF) has recommended that Mozambique undertake fiscal consolidation in 2025 to maintain the sustainability of its public finances, particularly after experiencing significant fiscal slippage in 2024. According to Pablo Lopez Murphy, the IMF mission chief, the slippage was partly due to a slowdown in economic activity during the last quarter of 2024.
Murphy, who recently led discussions with Mozambican authorities, indicated that such fiscal consolidation is critical for ensuring fiscal and debt sustainability while preserving macroeconomic stability. He noted that payroll spending is diminishing essential expenditures on social benefits and infrastructure, urging the need to rationalize payroll costs and reduce tax exemptions.
He emphasized the importance of prioritizing social spending and improving debt management to avoid defaults during this period of fiscal tightening. The IMF’s evaluations have observed inflationary pressures in Mozambique; however, these are reported to remain manageable below the implicit target of 5%.
Economic activity faced a significant contraction in the last quarter of 2024, largely from social unrest and post-election protests, with a 4.9% drop in GDP for that quarter, culminating in an overall growth of merely 1.9% for the year. The IMF forecasts a recovery to 3.0% growth by 2025 as social conditions stabilize and economic activity, especially in the services sector, begins to rebound.
Further discussions regarding adjustments to the Extended Credit Facility (ECF) program will continue with Mozambique in the forthcoming weeks. This program, established in May 2022, has thus far provided Mozambique with financing totaling US$456 million, including several disbursements meant to support budgetary needs throughout the period.
The latest evaluations have confirmed ongoing support for Mozambique’s fiscal strategy, which includes a technical agreement on economic policies that will facilitate further disbursement of financial aid, thereby significantly aiding recovery efforts in the nation.
In summary, the IMF underscores the necessity for Mozambique to implement fiscal consolidation in 2025 to stabilize its economy following a troubling fiscal year marked by a significant GDP contraction. Future growth prospects hinge on successful reforms to public finances, emphasizing the need for prioritized social spending and robust debt management. As the country navigates these challenges, continued support from the IMF through the Extended Credit Facility will be vital for fostering economic recovery.
Original Source: clubofmozambique.com
