Mozambique to do without IMF

Mozambique is now a member of the fund’s Poverty Reduction Growth (PRGF) Facility, which provides concessional loans to 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.

“If you take countries that have performed very well under the PRGF, Mozambique is one of them. There will be a last review in March (2007) to see if it could start a policy support instrument (PSI), which means no lending,” IMF African department assistant-director Jean Clement said in an interview with Reuters last Tuesday.

The IMF unveiled the PSI programme last year as a way for poor nations to receive fund backing of their economic policies without requiring them to borrow from the global lender.

Under the programme, the IMF will evaluate economic performance twice a year and publish assessments which would then guide donors, creditors and markets interested in backing Mozambique’s development efforts.

“We’re comfortable that the authorities can find by themselves . . . a sophisticated monetary and budget policy,” said Clement.

Mozambique would join Uganda and west African giant Nigeria in the PSI scheme.

“The IMF endorsement of Mozambique is a signal of confidence ‘ that could lead to increased investment flows and the opportunity to apply for (commercial) lending,” said Santiago Goicoechea an economist at the Ministry of Planning and Development.

Mozambique has staged an economic resurgence after nearly two decades of civil war ended in 1992.

The economy registered double-digit growth in the first half of this year, which the government hopes to sustain in the long-term by wooing foreign investors.

“Mozambique has had high growth over 7 percent and low inflation.

“The PSI gives security for the donor and is a good transition towards no programme at all,” Clement said.

But he stressed there was still much work to be done, particularly reducing red-tape for small and medium businesses. According to the World Bank’s Doing Business database 2006, which ranks the ease of doing business in 155 countries, Mozambique came 110th.

“Mozambique must continue to reduce the cost of business ‘ there are a lot of structural things to be done.

“We hope the final text of the (new) labour law will help . . . with retrenchments and hiring people.

“It should increase the formal sector, therefore the tax-base increases and so (government) revenue increases,” Clement said.

Critics have accused the government of an over-reliance on its so-called mega-projects ‘ such as the multibillion dollar aluminium smelter at Mozal ‘ and not focusing on job creation. ‘ Reuters.

September 2006
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