Africa > Mozambique, Republic of

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Mr. Ramzy Al Amine and Tim Willems
We find that countries which are able to borrow at spreads that seem low given fundamentals (for example because investors take a bullish view on a country's future), are more likely to develop economic difficulties later on. We obtain this result through a two-stage procedure, where a first regression links sovereign spreads to fundamentals, after which residuals from this regression are deployed in a second stage to assess their impact on future outcomes (real GDP growth and the occurrence of fiscal crises). We confirm the relevance of past sovereign debt mispricing in several out-of-sample exercises, where they reduce the RMSE of real GDP growth forecasts by as much as 15 percent. This provides strong support for theories of sentiment affecting the business cycle. Our findings also suggest that countries shouldn't solely rely on spread levels when determining their fiscal strategy; underlying fundamentals should inform policy as well, since historical relationships between spreads and fundamentals often continue to apply in the medium-to-long run.
International Monetary Fund. African Dept.
This paper discusses Malawi’s Second and Third Reviews Under the Three-Year Extended Credit Facility Arrangement and Requests for Waivers of NonObservance of Performance Criteria and Augmentation of Access. Program-supported structural reforms advanced, addressing several important gaps that had previously been identified in public financial management. All quantitative performance criteria were met except those on the primary balance, which were missed largely due to faster than envisaged implementation of rural electrification and development projects, unexpected spending for disaster relief and to ensure safety during elections and post-election protests. The authorities aim to entrench macroeconomic stability, preserve debt sustainability, and advance governance reforms while attaining higher, more inclusive, and resilient growth. Essential reconstruction and security spending will be accommodated by reprioritizing spending and a modest relaxation in the FY 2019/20 domestic primary balance target. Monetary policy remains targeted on containing inflation and exchange rate flexibility will buffer shocks and preserve competitiveness. Financial sector resilience continues to be strengthened.
Authorities
Mozambique’s economy is at a turning point, and efforts to address governance and corruption vulnerabilities can have a lasting positive impact. The current levels of public debt have caused us to take a hard look at our governance and anti-corruption framework and have prompted various reforms to address the vulnerabilities exposed in this framework. In general, the problems in our society, and specifically corruption, have been examined in detail recently and are clearly macro-critical.2 One study estimated the costs of corruption to Mozambique during the period 2002 to 2014 at up to USD 4.9 billion (approximately 30 percent of the 2014 GDP).3 The impact of these costs is widespread, affecting taxpayers, public service providers, the financial and private sector, as well as Mozambique’s international reputation.4 These costs are especially harmful at a time when our country has been hit by a series of shocks, notably the fall in commodity prices, drought, the withdrawal of donor budget support, and, more recently, Tropical Cyclones Idai and Kenneth. At the same time, Mozambique stands poised to reap significant revenues from natural resource reserves, and our duty as the government is to ensure the responsible stewardship of those funds for both current and future generations. By taking meaningful steps now to implement the governance and anti-corruption framework in an evenhanded, consistent, and effective manner, and to support efforts toward transparency and individual and institutional accountability, as the government, we can aim to achieve enduring results.
Authorities
This Diagnostic Report on Transparency, Governance and Corruption for the Republic of Mozambique highlights that the economy is at a turning point, and efforts to address governance and corruption vulnerabilities can have a lasting positive impact. The current levels of public debt have caused us to take a hard look at our governance and anticorruption framework and have prompted various reforms to address the vulnerabilities exposed in this framework. The governance and anticorruption framework is not consistently or comprehensively enforced. The rule of law is undermined by the insufficient implementation of existing legislation and regulations, including, in some cases through the absence of necessary regulations and explanatory guidelines. Civil society, the private sector, and the development partners in Mozambique also have critical roles to play. In addition, issues related to poor governance and corruption cannot be effectively addressed unless similar attention is paid to their transnational aspects, which need to be handled at a regional and global level, in multilateral and other international fora.
International Monetary Fund. Strategy, Policy, &, Review Department, International Monetary Fund. Western Hemisphere Dept., and International Monetary Fund. Asia and Pacific Dept
This paper discusses how countries vulnerable to natural disasters can reduce the associated human and economic cost. Building on earlier work by IMF staff, the paper views disaster risk management through the lens of a three-pillar strategy for building structural, financial, and post-disaster (including social) resilience. A coherent disaster resilience strategy, based on a diagnostic of risks and cost-effective responses, can provide a road map for how to tackle disaster related vulnerabilities. It can also help mobilize much-needed support from the international community.
Daniel Gurara, Mr. Giovanni Melina, and Luis-Felipe Zanna
Over the past seven years, the DIG and DIGNAR models have complemented the IMF and World Bank debt sustainability framework (DSF) analysis, over 65 country applications. They have provided useful insights in the context of program and surveillance work, based on qualitative and quantitative analysis of the macroeconomic effects of public investment scaling-ups. This paper takes stock of the model applications and extensions, and extract five common policy lessons from the universe of country cases. First, improving public investment efficiency and/or raising the rate of return of public projects raises growth and lowers the risks associated with debt sustainability. Second, prudent and gradual investment scaling-ups are preferable to aggressive front-loaded ones, in terms of private sector crowding-out effects, absorptive capacity constraints, and debt sustainability risks. Third, domestic revenue mobilization helps create fiscal space for investment scaling-ups, by effectively containing public debt surges and their later-on repayments. Fourth, aid smoothens fiscal adjustments associated with public investment increases and may lower the risks of unsustainable debt. Fifth, external savings mitigate Dutch disease macroeconomic effects and serve as fiscal buffers. The paper also discusses how these models were used to estimate the quantitative macro economic effects associated with these lessons.
International Monetary Fund. Strategy, Policy, & and Review Department
This paper is the fourth in a series that examines macroeconomic developments and prospects in Low Income Developing Countries (LIDCs). LIDCs are Fund member countries where gross national income (GNI) per capita lies below a threshold level and where external financial linkages and socioeconomic indicators have not lifted them into emerging market status. There are 59 countries in the LIDC grouping, accounting for about one-fifth of the world’s population and 4 percent of global output. The paper examines macroeconomic trends across LIDCs in recent years, contrasting key features of the current situation with the period prior to the 2014 decline in commodity prices. Particular attention is given to the evolution of fiscal positions and public debt levels, including detailed analysis of the drivers of debt accumulation and the current severity of debt vulnerabilities. The analysis is grounded in, and draws on, the analysis and databases used to compile the World Economic Outlook: this report drills down into the WEO database to look in detail at the experience of LIDCs.
International Monetary Fund. Fiscal Affairs Dept.

Abstract

This publication is a survey by the IMF staff, published twice a year, in the spring and fall, as part of the IMF’s World Economic and Financial Surveys. The current issue analyzes the latest public finance developments, updates medium-term fiscal projections, and assesses policies aimed at placing public finances on a sustainable footing. An analytical chapter employs extensive firm-level data sets as well as new sources of data on tax policy and tax administration for advanced economies, emerging market economies, and low-income developing countries to assess the extent of resource misallocation within countries, focusing on how the design of the tax system may affect resource allocation.