By Peter OBIORA InvestAdvocate
Lagos (INVESTADVOCATE)-The International Monetary Fund (IMF) Friday said it endorsed the Bank of Mozambique’s (BMs) commitment to keep money growth in check in 2014 which will help moderate the country’s rapid credit expansion in 2012-13 to a more prudent pace.
This is part of discussions towards the completion of the second review under the three-year Policy Support Instrument (PSI) approved for Mozambique in June 2013.
Doris Ross, who led the staff team from the IMF said vigilance may be needed to tighten monetary policy if signs of inflationary pressure emerge.
She said it was observed that deposit and lending rates in Mozambique remain relatively high, reflecting structural factors. ‘’Reforms to promote competition, transparency and financial literacy, such as the establishment of private credit registries, should over time help lower the credit risk to banks and the cost to borrowers,’’ she said.
Ross said regarding economic policies for 2014, the IMF agrees with the objective to expand public investment, but noted that such increase should preserve debt sustainability and take into account absorptive capacity constraints.
She affirmed that relative to the size of its economy, public investment in Mozambique is high when compared to other countries, ‘’and we urge the authorities to make substantive efforts to bring more transparency to investment priorities and decisions, ensure value-for –money, and overcome considerable weaknesses in public investment planning, project evaluation, implementation, monitoring and ex-post assessment,’’ she said.
Ross further affirmed that the issue of transparency is particularly important as much of the investment is financed by borrowing and public debt levels are rising.
However, she said Mozambique’s economic performance continues to be very strong and gross domestic product (GDP) is expected to growth to over 8 percent (8%) in 2014 from 7% recorded in 2013.
Ross said the GDP projected growth in 2014 is a reflection of bustling activities in mining, construction, transport and communications, and financial services.
According to her, average inflation was 4.2% percent in 2013 and is likely to stay anchored by the authorities’ medium-term target of 5%-6 % in 2014.
‘’Inflation seems well-contained, but there are risks associated with inflationary pressures in neighbouring countries (especially in South Africa), and a highly expansionary budget. The external current account deficit is projected to reach [43] percent of GDP in 2014 due to imports for large investment projects financed by foreign direct investment (FDI),’’ Ross affirmed.
“The fiscal stance in 2014 is expansionary, and a supplementary budget to incorporate new expenditures associated with the electoral reform will be needed. Thus the overall fiscal deficit after grants is projected to increase from 3 percent of GDP in 2013 to 9.5 percent in 2014, after taking into account one-off windfall revenue of 4 percent of GDP in 2013 and 2.9 percent in 2014 (expected).
However, the IMF team acknowledge the Mozambique’s recent efforts to bring some transparency to the operations of EMATUM, a new public company for tuna fishing, which had issued $850 million in loan participation notes in September 2013 with a full government guarantee.
‘’The inclusion in the 2014 budget of the quasi-fiscal activities of this company ($350 million) and the increase in the ceiling for government guarantees were important initial steps. The mission welcomes the authorities’ recent adoption of an action plan on fiscal transparency. It envisages close monitoring of and reporting on EMATUM’s operations, which will be critical in assessing the associated fiscal risks,’’ the IMF said.
