The IMF calls for Mozambique to execute fiscal consolidation in 2025 due to fiscal slippage observed in 2024. Key discussions emphasized controlling payroll spending, prioritizing social expenditure, and managing debt effectively to support macroeconomic stability. Despite a significant GDP contraction, growth is expected to recover to 3.0% as conditions normalize.
The International Monetary Fund (IMF) has indicated that Mozambique will require fiscal consolidation in 2025 to maintain public account sustainability, following notable fiscal slippage in 2024. Pablo Lopez Murphy highlighted that reduced economic activity in the last quarter contributed to these challenges. He emphasized the urgency of fiscal and debt sustainability to preserve macroeconomic stability, following discussions with senior Mozambique officials from February to March 2024.
Mr. Murphy remarked on the need to rationalize payroll spending, as ongoing budget overruns impede essential expenditures such as social benefits and infrastructure development. He also stressed that prioritizing social spending and optimizing debt management strategies are vital to prevent defaults and successfully achieve fiscal consolidation.
Despite rising inflationary pressures, the IMF reported that inflation has remained manageable and below the targeted rate of 5%, even amidst social unrest and supply chain disruptions. The agency noted a significant contraction in Mozambique’s economy, particularly a 4.9% decline in GDP during the fourth quarter of 2024 due to protests affecting economic activities. However, growth is projected to rebound to 3.0% in 2025 as social conditions stabilize.
Ongoing discussions regarding the Extended Credit Facility (ECF) revisions will advance in the upcoming weeks. This programme, approved in May 2022, allocates a total of US$456 million to Mozambique, with various tranches already disbursed to support the nation’s budget. Recently, the IMF reported a technical agreement for the fourth ECF evaluation, facilitating further disbursements to assist with Mozambique’s economic recovery after challenging fiscal setbacks.
In summary, the IMF emphasizes the necessity of fiscal consolidation for Mozambique in 2025 to ensure economic stability and sustainability. Key strategies proposed include controlling payroll spending, prioritizing social expenditures, and managing debt effectively. Despite current economic challenges and inflationary pressures, a recovery in growth is anticipated if societal conditions stabilize. The ongoing ECF programme remains integral to supporting Mozambique’s economic policies and recovery strategies.
Original Source: clubofmozambique.com
