Developing Fiscal Risks Management in Mozambique (2016-2018)

From the mid-1990s to 2015, Mozambique had preserved macroeconomic stability and debt sustainability while promoting economic development. The macroeconomic situation has deteriorated since 2015 but Mozambique’s economic prospects remain positive given planned massive investment in natural resources. While GDP growth averaged 7 percent in recent years, Mozambique’s per-capita income ($624 in 2014) and human development index (178 out of 187 countries) remain low. There is a need to continue implementing policies that support fiscal sustainability, infrastructure investment, and inclusive growth. Over the medium term, efforts to develop a sound framework to manage natural resource wealth should be stepped up. Mozambique’s achievements have benefitted from sustained support from development partners and several economic and financial programs supported by the IMF. On the fiscal component of the structural reforms agenda, the IMF’s Fiscal Affairs Department (FAD) has provided extensive technical assistance (TA) in public financial management (PFM) over the past 15+ years. This assistance has been a key supporting element for building relevant fiscal institutions in a post-conflict country. The authorities have made good use of this TA and many of the recommendations have been implemented through donor-funded projects based on a phased strategy. Over the medium-term, TA should continue to support the country’s development agenda, with a focus on: (i) improving PFM, tax policy and administration, and natural resource wealth management; (ii) addressing infrastructure gaps in a fiscally sustainable way while ensuring the quality of public investment, and strengthening debt management; (iii) strengthening fiscal transparency and the oversight of fiscal risks; and (iv) strengthening management of risks to the tax system to improve tax compliance. The discovery in April of $1.4 billion (10.4 percent of Mozambique’s GDP) of previously undisclosed loans has pushed the total stock of debt at end-2015 to 86 percent of GDP. According to the IMF’s technical assessment, public debt is likely to have reached a high risk of distress. This situation highlights the need to further strengthen macrofiscal and fiscal risk management. A more credible medium-term macro-fiscal framework is included in budget documentation The macrofiscal forecasts prepared by the government include a qualitative assessment of the impact of alternative macroeconomic assumption

Disclosure and management of contingent liabilities and other specific fiscal risks is more comprehensive A more credible medium-term macro-fiscal framework is included in budget documentation