Good afternoon. Remarks by Olamide Harrison, the International Monetary Fund (IMF)’s resident representative in Mozambique this week illustrate the challenge ahead of the government in trying to stabilise the public finances (see below). Harrison told a meeting organised by the CTA business association that “reducing the wage bill, cutting tax exemptions and modernising tax administration are essential measures to restore fiscal sustainability”. In effect, he was setting out the fund’s position ahead of negotiations with the government on a new loan programme. It is worth repeating that Mozambique’s foreign donors and aid partners see IMF support as a prerequisite for their own involvement.
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Readers may recall that the previous three-year programme was abruptly halted last month, with about $120m of precious interest-free lending left unpaid. While the precise circumstances around that remain unclear, it is evident that the government felt it was impossible to even come close to complying with the IMF’s demands. One of the most obvious areas where the government has fallen short is in its promises to control the public sector wage bill, which according to IMF projections was due last year to overshoot the target set by the IMF by 0.8% of GDP, or around $180m.
