IMF approves $456M facility for Mozambique to support recovery

The Republic of Mozambique has secured $456 million from the International Monetary Fund to support economic recovery.

As part of the three-year Extended Credit Facility Arrangement, the southern Africa nation will be entitled to $91 million for immediate disbursement, the IMF said Monday.

The facility will also help Mozambique fund policies to reduce public debt and financing vulnerabilities, creating space for priority investments in human capital, climate adaptation and infrastructure.

“Mozambique has managed the COVID pandemic relatively well, maintaining macroeconomic stability and reform momentum even as the country has weathered a series of shocks, culminating with the effects of the war in Ukraine. With policy space now limited, sustaining the economic recovery underway and tackling debt vulnerabilities are priorities,” said Bo Li, IMF Deputy Managing Director.

Due to the pandemic, Mozambique recorded a real GDP contraction of -1.2% percent in 2020, the first in 30 years, though the economy rebounded in 2021 in what IMF says is becoming more broad-based.

The arrangement will also support the country’s quest to establishing a sovereign wealth fund to transparently manage liquefied natural gas (LNG) wealth, mobilizing additional tax revenue, and strengthening public financial management and governance.

LNG projects are set to begin production later in 2022.

“The authorities’ commitment to establishing a sovereign wealth fund to transparently manage LNG wealth should be complemented with a framework to weather the impact of commodity price volatility on the budget. Continued progress on reforms supporting the efficient and transparent management of public resources is important,” added Li.

IMF says the country’s medium-term prospects are positive and projects that growth excluding extractive industries will be about 4% annually.

Mozambique is however battling rising poverty levels where poverty headcount ratio has risen from 61.9% in 2019 to an estimated 63.3% in 2020 as a result of the pandemic.

Additionally, the war in Ukraine is pushing up fuel and food prices as March inflation rose to 6.7% year-on-year due to rising global prices and the impact of tropical storms on local food prices.