Fiscal Consolidation Essential for Mozambique’s Economic Stability in 2025
The IMF has urged Mozambique to undertake fiscal consolidation in 2025 due to significant fiscal slippage observed in 2024. Key recommendations include prudent management of payroll spending and prioritization of social expenditures to support economic stability. With projected growth recovering to 3.0% in 2025, the IMF will further engage with the Mozambican government on the Extended Credit Facility program.
The International Monetary Fund (IMF) has emphasized the necessity for Mozambique to implement fiscal consolidation in 2025 to ensure the long-term sustainability of public finances. This recommendation follows observations of notable fiscal slippage in 2024, attributed to a slowdown in economic activity during the last quarter. IMF representative Pablo Lopez Murphy indicated that, “Preliminary estimates suggest that there was significant fiscal slippage in 2024, which is partly explained by the slowdown in economic activity during the last quarter.”, citing the need for immediate changes to avoid further complications.
Murphy underscored the importance of fiscal discipline, stating that “Fiscal consolidation in 2025 is necessary to ensure fiscal and debt sustainability and preserve macroeconomic stability.” He conducted discussions with Mozambique’s government officials regarding the Extended Credit Facility (ECF) agreement’s ongoing assessments. Additionally, he noted that the overspending on payroll has undermined crucial expenditures such as social benefits and infrastructural development, thus advocating for a rationalization of payroll costs and a reduction in tax exemptions.
To enable sustained fiscal consolidation, Murphy suggested that prioritizing social spending and strengthening debt management to avert defaults are paramount. Concerning inflation, the IMF found that while inflationary pressures have increased, they remain manageable, with rates primarily maintained below the implicit 5% target.
The report indicated that economic activity in Mozambique suffered significantly due to social unrest, leading to a 4.9% contraction in GDP during the last quarter of 2024, resulting in overall annual growth of only 1.9%. The IMF projects a recovery growth rate of 3.0% for 2025, contingent on the normalization of social conditions and a resurgence in economic activities, particularly in services.
Lastly, the IMF remarked that discussions regarding the Extended Credit Facility (ECF) program will persist in the upcoming weeks. Approved in May 2022, this program has allowed Mozambique to access a total funding of US$456 million. Following discussions in June 2024, a technical agreement facilitated the disbursement of an additional €55.9 million, further supporting Mozambique’s economic program.
In conclusion, the IMF stresses the urgency of fiscal consolidation in Mozambique for 2025 to maintain fiscal stability and prevent further economic decline. With targeted policies to manage payroll spending and prioritize social investments, Mozambique can aim for improved economic conditions and a GDP recovery in the coming years. Continued collaboration with the IMF through the Extended Credit Facility will be critical in achieving these objectives and ensuring financial sustainability.
Original Source: clubofmozambique.com
