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Mozambique requests its first IMF loan in a decade

Xinhua, November 3, 2015 Adjust font size:

Mozambique has requested financial assistance from the International Monetary Fund (IMF) for the first time in a decade, according to an IMF press release Xinhua received on Monday.

A staff team from the IMF, led by Michel Lazare, visited Mozambique during the past two weeks, to complete discussions towards the completion of the fifth review under the three-year Policy Support Instrument (PSI) approved in June 2013, and reach understandings on a new program to be supported under the IMF's Stand-by Credit Facility (SCF), said the release.

A PSI is an instrument for countries that are not asking for loans from the IMF.

The IMF was once a significant creditor for the country, but all of Mozambique's debts to the IMF were cancelled in December 2005, under the Multilateral Debt Relief Initiative (MDRI). Since then, Mozambique has taken no further loans from the IMF, until now.

According to the statement, the Mozambican authorities and the IMF team "have reached a staff-level agreement on an 18-month economic framework through 2017 that could be supported with 204.48 million Special Drawing Rights (about 286 million U.S. dollars) under the IMF's SCF."

The arrangement is subject to approval by IMF management and the Executive Board, probably in mid-December.

The IMF has made an affirmative assessment towards the country's economic activity in 2015, saying it "has remained solid."

But for the country's growth prospects, the international institution lowered its estimation, from 7 percent to the current 6.3 percent in 2015, and it is projected to accelerate slightly to 6.5 percent in 2016.

The IMF added that the inflation is expected to increase towards 5 to 6 percent over the next few months, due to the recent depreciation of the metical, although it is currently still low at about 2 percent.

Over the medium term (2017-2020), growth could average 8 percent owing to positive prospects of massive investments in extractive industries, especially liquefied natural gas, said the statement.

The IMF also pointed out that short-term challenges have become more complex for the southern African nation, and the country "require decisive policy action."

The institution said that Mozambique is currently experiencing an external shock associated with the drop in commodity prices, lower growth in trading partners, and delays in investment associated with large natural resource projects.

The institution believed that excessively expansionary policies in 2014, especially on the fiscal side, also contributed to the current difficulties the country is facing.

"Imports have continued to grow at a fast pace at 17 percent year-on-year, while exports have stagnated. Capital inflows have also declined substantially compared to a year ago. This has created pressures in the foreign exchange market and has caused a sharp decline in international reserves and a depreciation of the metical," said the statement. Enditem