October International Monetary Fund Maputo Mozambique Press Statement by

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					 October 25, 2006                                                International Monetary Fund
                                                                 Maputo, Mozambique



                   Press Statement by the IMF Mission to Mozambique

An International Monetary Fund (IMF) mission to Mozambique, lead by Mr. Jean A. P.
Clément, made the following statement on October 25, 2006:

“An IMF staff team visited Mozambique from October 11-25, 2006 to review progress under
Mozambique’s economic program supported by the IMF’s Poverty Reduction and Growth
Facility (PRGF). The mission completed, in principle, discussions in the context of the fifth
review of the PRGF-supported program, which is expected to be reviewed by the IMF
Executive Board in December 2006.

“In 2006, economic performance remains favorable. Real GDP growth—led by agriculture
and construction—is expected to accelerate to above 7 percent in 2006. Good rainfall,
following the 2005 drought, resulted in a regular harvest season and has improved food
security. Inflation decelerated to 4.8 percent at end-September, putting the year-end inflation
target of seven percent within reach. The foreign exchange market is stable and net
international reserves remain comfortable.

“Performance of the government’s program was satisfactory in the first quarter of 2006.
Fiscal performance was better than anticipated due mainly to higher than expected direct tax
collections. However, because of a low rate of project execution so far, the share of priority
spending was lower than expected, but should recover by year end. Progress has been made
in strengthening public expenditure management by rolling out the public administration
information system (e-SISTAFE). Monetary policy has continued to be prudent and the
banking system remains sound. This helped the successful introduction of the new family of
meticais (MTn) on July 1, 2006.

“Prospects for 2007 remain favorable with a continuation of strong growth and control of
inflation at single digit levels. Central to the strategy will be a gradual fiscal strengthening
backed by an average revenue increase of 0.5 percent of GDP per year and a prudent
monetary policy.

“The 2007 budget envisages a scaling-up of foreign aid and an associated increase in
spending focused towards achieving the targets laid out in the poverty reduction strategy for 2006-
09 (PARPA II), with no recourse to domestic financing. On the expenditure side, it sees a
substantial increase in front line workers including hiring 10,000 teachers and 3,000 health
workers. The share of spending on priority sectors will be above 65 percent of total spending.
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“The structural reform agenda, as detailed in the PARPA II, includes a second wave of
reforms to sustain rapid growth and promote poverty reduction. In addition to fiscal reforms
to increase revenue mobilization and strengthen expenditure management, deeper
institutional reforms are needed to (i) promote good governance, (ii) reinvigorate public
sector reform through the implementation of the Phase II program, and (iii) buttress the
investment climate by developing a strategic plan to reduce the cost of doing business
including labor market and judicial reform. A flexible exchange rate regime will help
maintain competitiveness and a comfortable level of international reserves, to cushion against
exogenous shocks.

“Mozambique’s medium-term prospects to achieve the Millennium Development Goals
(MDGs) depend on defining clear sectoral strategies and the continued support of the
international community.

“To reap the benefits from its vast natural resources, it is essential that the mineral and
petroleum fiscal regime be improved following international best practice as envisaged by
the government. In this context, the mission welcomes the government’s intention to consider
to adhere to the Extractive Industries Transparency Initiative principles to buttress
governance.”