Victor Lledó

May 16, 2012

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The Development Partner Group consists of heads of mission in Mozambique of bilateral donors, the UN, and the international financial institutions. This document has not been approved by the IMF Executive Board.

Outline  Mozambique Recent Economic Developments  Mozambique Economic Outlook  Mozambique : Policy Discussions .

 Growth was broad-based.Mozambique Recent Developments – Growth  The global weakness has yet to have a significant impact on Mozambique’s economic growth. Ghana.1 Frontier economies: Angola. transportation and communication. Mauritius. Tanzania. Real GDP Mozambique Proj. (Percent change from previous year) 14 12 10 8 6 4 2 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 . Uganda.  Mozambique’s growth performance continued to compare favorably with growth rates of its peers. mining. Senegal. and financial sectors outperforming. Zambia and Zimbabwe. with agriculture. Frontier economies 1 Sub-Saharan Africa . Kenya. Mozambique.

 Strong private capital inflows especially by megaprojects have helped to maintain the reserve cover.Mozambique Recent Developments – External Performance The external sector performed well with both megaprojects‘ and traditional exports buoyant. .

 Due to favorable developments in international prices. .Mozambique Recent Developments – Inflation Disinflation in 2011 was impressive with both headline and core inflation coming down from double digits to about 2 percent in April 2012 . and a restrictive fiscal stance in the first half of the year. determined monetary tightening .

Average 2005=100) 160 140 120 100 80 60 40 Jan-02 Apr-02 Jul-02 Oct-02 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Real effective exchange rate Nominal effective exchange rate .Mozambique Recent Developments – Exchange Rate  Strong capital inflows and the monetary tightening have contributed to the appreciation of the metical during 2011. Since February 2012. Our latest exchange rate assessment (June 2011) found the metical was slightly undervalued. Although the metical has appreciated in real terms in 2011. it has started to depreciate both relative to the key reference currencies and to a weighted average of trading partners currencies in both nominal and real terms. compared to the 2008 peak. as of end March 2012 it is still shows a depreciation of 9%. though within the margin of equilibrium. Nominal and Real Effective Exchange Rates (Index.

.Mozambique Recent Developments – External Competitiveness -Traditional exports have improved in 2011 relative to 2010. .However. poor land rights and unclear contract enforcement as their key bottlenecks. lack of access to finance. .This is particularly interesting given that 2010 was a period where exchange rates on nominal and effective terms were relatively depreciated by historical terms. the exchange rate remains an important factor for external competitiveness. and . --All that said. in the case of agriculture. small exporters did report to us during the last mission that the exchange rate was eroding their profitability. -To be sure. in recent discussions. private sector representatives continue to identify the weak business environment. We will continue to monitor exchange rate developments to ensure that it adjust freely to evolving patterns of trade and financial flows and closely monitor developments in the real effective exchange rate with a view to ensuring external competitiveness and a comfortable level of international reserves.

Mozambique Economic Outlook  Global growth prospects are gradually improving again.7  The worsened global economic outlook 2. High Commodity prices 2012-13: Lower aid disbursements and more limited credit availability United States Europe Emerging and Sub-Sahara Mozambique developing Africa economies  Source: World Economic Outlook.7 5.4 6.2 5.0 0.7 7.2 for 2012-13 poses a risk to Mozambique’s economic performance but through likely different channels than the 200809 global crisis: 2008-9: Lower FDI/Export demand.  .1 2. 1. Global Growth Projections.1 5. 2012 (Percent) Sep-11 WEO Apr-12 WEO  Downside risks include the two most immediate concerns: i) a re-escalation of the euro area crisis and (ii) sharply higher oil prices. However.1 6. the recovery remains vulnerable and risks are firmly to the downside.

 Monetary policy : accommodating stance intended to support the provision of private sector credit at a critical time.Mozambique: Policy discussions – Short Term  Mitigating the Impact of the Global Slowdown  Authorities are on the right track in adopting countercyclical policies.  Fiscal policy : operation of automatic . stabilizers to deal with the less favorable scenario for growth and revenue collection.

Mozambique: Policy discussions – Medium Term  Promoting Inclusive and Sustainable Growth  Closing the Infrastructure Gap While Maintaining External Sustainability  Tapping and Managing Natural Resource Wealth to Finance Priority Spending  Scaling-up social protection on a Fiscally Sustainable Basis  Deepening Structural Reforms .

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