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Economy - Development | Politics

IMF recommends a fiscal stimulus for Mozambique

afrol News, 13 May - The International Monetary Fund (IMF) has called for a fiscal stimulus in Mozambique, saying the country's record of strong economic growth will be curtailed somewhat, by the global financial crisis.

Ending the mission that visited Mozambique from 28 April, Robert Sharer, the IMF Mission Chief for Mozambique, said the country's exports are declining due to sharply lower commodity prices and weaker external demand, while foreign direct investment, which has played an increasingly important role in Mozambique, is affected, as some international investors scale back or postpone their investment projects.

He also said the foreign borrowing by the private sector is being curtailed by tighter credit conditions, saying that as a result, the mission estimates that economic growth could fall to about 4.3 percent in 2009, down from 6.8 percent last year, with only a gradual recovery beginning in 2010. Inflation in 2009 is expected to remain low at about 5-6 percent, he also said.

“After a decade of strong performance, the global financial crisis is posing a severe challenge for Sub-Saharan Africa. Economic growth is expected to reach about 2 percent in 2009, down from 5 percent last year, and the recovery is likely to be gradual in 2010, contingent on decisive measures in advanced economies to stabilize financial systems and bolster demand," Mr Sharer in a press statement.

He said in the short term, given Mozambique’s low level of public debt, the mission sees scope to at least partly offset the impact of the global economic crisis on Mozambique with somewhat more expansionary fiscal and monetary policies.

The mission further noted that in 2009, relative to the budget approved by the Mozambique parliament, revenue is expected to fall by 1.3 percent of Gross Domestic Product (GDP), adding that there is also some scope for easing monetary policy in the period ahead to limit its contractionary impact on credit to the private sector.

“The government of Mozambique has a strong track record of prudent macroeconomic management, and has an on-track PSI. But short-term economic stimulus must not jeopardise medium-term economic stability, which remains critical for Mozambique to resume robust economic growth and make decisive progress in poverty reduction. Over the medium-term, fiscal policy must continue to be guided by a firm commitment to maintain a sustainable level of public debt and reinforce public financial management to ensure the efficiency of public spending," the mission chief stressed.

He said in support of these policies, and to help mitigate the exogenous shock stemming from the global economic downturn, Mozambique had requested financial support under the Exogenous Shocks Facility, which is expected to be discussed by the IMF’s Executive Board at the 2009 Article IV Consultation and the fourth review under the PSI in July.

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