[Mozambique] Further IMF Loan

from All Africa

Maputo

The Executive Board of the International Monetary Fund (IMF), meeting in Washington on Monday, agreed to release a further 1.62 million Special Drawing Rights (SDR), equivalent to 2.4 million US dollars, to Mozambique.

This is part of a package of 11.36 million SDR (about 16.7 million dollars) agreed under the IMF's Poverty Reduction and Growth Faculty (PRGF).

Funds under this facility are released piecemeal, after the IMF board reviews the economic performance of the beneficiary country. So far Mozambique has undergone four of these quarterly reviews, and total disbursements under the PRGF have reached 8.1 million SDR.

According to an IMF press release received by AIM, the Fund's Deputy Managing Director, Takatoshi Kato, announcing the new disbursement, praised Mozambique's "strong economic performance, despite exogenous shocks".

When Kato visited Mozambique in 2005, he complained that the government was not collecting enough taxes, but he seems to have changed his mind subsequently. He declared that "fiscal results have been commendable and all performance criteria through end-March 2006 have been met". Kato claimed that the main challenges facing Mozambique in the medium term were "sustaining broad-based economic growth and making further inroads in alleviating poverty through the implementation of a poverty reduction strategy for 2006-09".

In order to achieve the United Nations Millennium Development Goals (MDGs), Kato added, the Mozambican government "should ensure that additional external financing, including Multilateral Debt Relief Initiative (MDRI) resources, are allocated to the most economically and socially productive areas in a manner that does not compromise macroeconomic stability".

The MDRI is the debt write-off proposed by the G8 group of most industrialised nations in their July 2005 summit in Scotland. It covers debts owed by 18 poor countries, including Mozambique, to three multilateral institutions - the IMF, the World Bank and the African Development Bank.

Using the coded language typical of IMF statements, Kato did not specify exactly what he meant. What are the possible uses of funds from debt relief that the IMF imagines might "compromise macroeconomic stability ?" Kato declared that "The authorities' commitment to create sufficient fiscal space for priority investments is welcome" - which is a marked change from his line of a year ago, when he was querying the fiscal incentives offered to investors.

Kato praised the Bank of Mozambique for its restrictive monetary and flexible exchange rate policies which "have served the country well", and gave the IMF's blessing to the currency reform now under way.

This involves lopping the final three zeros off the currency, so that the current 1,000 metical coin, for example, will be worth just one "new family" metical, in the terminology adopted by the government and the central bank. The new notes and coins will enter circulation on 1 July.

"Supported by a public information campaign covering the entire country, the introduction of the new family of metical banknotes should protect price stability and secure the savings of the poor", claimed Kato. "Mozambique's external debt levels will remain well below its indicative thresholds for debt distress in the foreseeable future", the IMF official said. "In that context, the authorities' commitment to financing the transfer of majority ownership of the Cahora Bassa dam operating company through non-recourse financing that does not increase the government's liabilities to commercial creditors is welcome".

Kato seems to know rather more about the arrangements for the purchase of Cahora Bassa than the Mozambican public does.

Under the memorandum signed in Lisbon last November, the Portuguese government will sell off most of its shares in the dam operating company, HCB, to Mozambique, so that the Mozambican state will own 85 per cent of the company, and Portugal 15 per cent.

This involves paying the Portuguese treasury about 950 million dollars. It is expected that 250 million will come from HCB itself, but the Mozambican government must find the other 700 million - and so far it has made no public statement as to the source of these funds.

The IMF's resident representative in Maputo, Felix Fisher, told AIM on Tuesday that, although the IMF's loans were small, compared with the sums disbursed by those donors who provide support directly to the Mozambican state budget, the IMF played a key role in reassuring Mozambique's other partners.

"That's how the IMF has been supporting the country in the area of reforms", he said. "The result is that the partners feel safer in continuing to support the government".

The IMF describes the PRGF as its concessional facility for low-income countries. PRGF loans carry an annual interest rate of 0.5 per cent and are repayable over 10 years with a 5-year grace period on principal payments.